Name:   MartiniMan - Subject:   Latest economic news a mixed bag Date:   7/10/2017 8:35:11 AM

Auto loans are indeed a very big problem, as is student loan debt.  My standing rule for a car is if we can't pay it off in 48 months we can't afford it.  Lately the only loan we take is the interest free version.  But we only take that after we agree on a price for the vehicle.  Having said that, most people could not afford a new car unless they finance it.  The key to making a good economic decision is to put enough down and have a short enough term to stay ahead of depreciation.  Not easy for a lot of people.

What is even worse is that there are millions of subprime auto loans that will quickly go bad if the economy ticks downard.  I have a friend that owns a couple of JD Buyrider dealerships.  They are really in the subprime lender business, not the auto sales business.  He is terrified that not only would his loans be bad but that the market will be flooded with repossessed used cars and prices will tumble.  He will be in a world of hurt if that happens.  The business works when you borrow millions at 4% and loan it out for auto purchases at 10% and people pay off the loans.  It collapses quickly if those loans go bad because the collateral is for the most part worthless.