Auto Loan : The Mother of All Credit Bubbles is ready to Pop

Today’s economic boom is driven not by any great burst of innovation or growth in productivity. Instead, it is driven by another round of financial engineering that converts equity into debt. It sacrifices future growth for present consumption. And it redistributes even more of the nation’s wealth to corporate executives, wealthy investors, and Wall Street financiers. Predatory banking alive and well. Welcome to the Buyback Economy. Banks and private equity firms searching for high-yield investments have fueled a boom in subprime auto loans to buyers who can't afford the loans, including those who recently filed for bankruptcy. Today the Car Loans is The New Subprime Bubble. $60,000.00 trucks - no money down, no interest, no job required, seven-year loan. What could go wrong? Welcome to The Atlantis Report. Banks have been pumping the economy for as long as this country existed. The secret of banking is this. Some time ago, the supreme court said that and unconditional promise to pay is exactly the same as cash. They were trying to make gold/silver certificates to be accepted as money. Today the banks have taken that step a little bit further. When you go to a bank for a loan, you don't really get a loan. What the bank does is to have you sign a promissory note. Once the promissory letter is approved, they deposit, in a transaction account, the promissory letter as if it was money. The check the bank gives you is drawn from that account. The banks did not put any skin in the game, but on a foreclosure, the bank gets the property. With the money they make from doing this, some of this goes to buy politicians and educators and the media. They control the NEW YORK TIMES. They buy up all the public corporations. Now that is power far more than any president According to the latest data from the Federal Reserve, total auto loans and leases outstanding for new and used vehicles increased by another 4.3% year-on-year in the third quarter. This was a factor in pushing total American consumer debt to a new record of $4.15 trillion in September. How much more can the auto loan bubble blow up before it pops? Meanwhile, auto loan delinquencies are surging. Vehicle loans and leases outstanding have soared to a record of $1.19 trillion. Since Q3 2009, auto loan balances have grown by 62%. That compares to a 19% increase in CPI with a population growth of 8%. In other words, the overall burden of auto loans has increased in real terms. Over the last decade, auto-loan balances have ticked up from 5.1% of GDP in 2009 to 5.6% of GDP today. Digging deeper into the numbers reveals more troubling news. The increase in outstanding auto loan balances has occurred despite a 1.6% decline in new vehicle sales so far in 2019. Used vehicle sales have also been lackluster WolfStreet pinpoints a number of factors that help explain the increase in auto loan debt despite falling auto sales. Higher Average Transaction Prices for new vehicles ($38,000) and used vehicles ($14,000). Rising loan-to-value ratios. Lengthening the average duration of auto loans: 84 months are typical, 96 months are available. Increasing the popularity of leases by people who could otherwise have paid cash for their vehicles. Meanwhile, auto loan delinquencies reached a 19-year high earlier this year and have continued to push up to an all-time record of $62 billion in Q3. Delinquent loans now makeup 4.71% of outstanding auto loans, just above the level of Q3 2009 — in the aftermath of the 2008 crash, and just below the all-time peak in Q4 2010 when millions of Americans were unemployed. As current delinquencies are hitting the lenders’ balance sheet and income statement, the flow continues, and more loans are becoming delinquent. And lenders are still making new loans to risky customers, and a portion of those loans will become delinquent too. And now the flow of delinquent loans is increasing – and this isn’t going to stop anytime soon: These loans are out there, and the new one is being added to them, and a portion of them will be defaulting.” The Auto loan was mainly because they can always retrieve their money back. They can auction the vehicle off when you default. They also can sue you for the remaining balance you defaulted or put a lean toward your home. Have to educate yourself and stop making poor choices. The vast majority of these delinquent auto loans are “subprime.” About 22% of all auto loans are categorized as subprime. Currently, these subprime loans total about $300 billion. Of these, roughly $62 billion are seriously delinquent. That comes to nearly 20% of all subprime loans outstanding – one in five. This is happening in a period of low unemployment and an allegedly strong economy. What is going to happen when the economy turns? Many of these subprime auto loans have been packaged by banks, similar to what was done with subprime mortgages in the years leading up to the housing crash. As Bloomberg noted, the pain among small auto lenders “parallels with the subprime mortgage crisis last decade, when the demise of finance companies like Ownit Mortgage and Sebring Capital Partners were a harbinger that bigger losses for the financial system were coming.” The collapse of the subprime auto market probably won’t have the same impact on the economy as the housing crash did in 2008. The industry isn’t as big in terms of dollars. But what’s going on in the auto industry is indicative of broader trends in the US economy. As WolfSteet put it, this is all the result of reckless auto-lending “aided and abetted by yield-chasing investors piling into subprime auto-loan-backed securities because they offer a little more yield in an era of central bank engineered financial repression.” It’s a sign like so many others in this economy that the whole credit spectrum has gone haywire over the years. Thank you, Fed, for having engineered this whole thing with your ingenious policies. So now there’s a price to pay – even during good times.” The fact is we have much more debt now than ever before. If we have a robust financial disruption, the default will rise in importance and move front and center. In the last decade, debt has soared across the globe. Of great concern should be the growth in non-recourse loans as well as unsecured personal loans. These are particularly dangerous. Many investors have become seduced into thinking the backing of government adds tremendous validity to both the explicit and implied warranty that come with government-backed instruments. History, however, has shown public debt can also be mishandled with creditors not getting paid or being paid with a less valuable currency eroded by inflation. Yes, even government bondholders will suffer. Banks lend money to not-so-smart people at very high interest for a car that is not worth much. These people still take the loan. Anyone who signs up for a car loan with 21 percent interest deserves what happens. They have to learn the hard way since they didn't learn anything in school or from their parents. Greedy money lenders LOVE these kinds of people. Wish bankers had integrity. But that’s an old fashioned idea from a bye-gone era. Let’s have another crash, so Wall Street can turn us all into paupers. You have to be brain dead to buy a car when you're bankrupt. But I guess that's how American logic works. Predatory lenders target uneducated borrowers who don't understand the impact that high-interest rates have on the ultimate cost of their purchase. When I bought my first car, the typical term for a car loan was three years. I don't recall there even being an option for a longer-term. By the time I bought my next car, the dealers were offering 4-year terms. Now, dealers are offering words of 7 years plus. (Actually, its the dealer's finance providers that are setting these terms). Dealers will take advantage of customers by offering loans for several points above what the lender is offering. Those points are additional profit for the dealer, and the dealers aren't required to disclose this fact. Unsophisticated buyers aren't aware of the time it will take before they even begin paying down the loan principal (ofter for more than four years). For high-risk borrowers, the dealer will typically ask the buyer what he/she can afford each month and structure a loan around that figure. The buyers don't really stop to ask what interest rate they will be paying. For those with good credit, you should absolutely avoid dealer arranged to finance unless the brand's captive lender (Ford Credit, Toyota Credit, etc.) is offering 0% loans. But, if those aren't available, one is better off borrowing money from their bank or credit union With all the stuff that happened during the financial crisis and the loans, you'd think these people would read the goddamn loan contract before signing it. It's not just poor or dumb people that borrow more than they can afford. In the U.S, the culture revolves around "keeping up with the Jones's" And with this country's car culture, you are often judged by the car you drive. What even dumber than buying a car you cannot afford .people are being irresponsible, and as long as we keep bailing them out, they will continue being irresponsible. Rule #1 Never buy a new car unless you can pay cash, and that's what you want. Rule #2 Buy used, pay cash. Rule #3 for those under 25, Buy used, pay as much cash as you can, build credit. There are a bunch of other expenses in cars beyond payments like insurance, gas, maintenance and repairs, parking, traffic infractions, vandalism, and accidents that are not the owner's fault that devalue the car. The best way to buy a car is straight cash. Get a good deal and pay straight cash. My personal philosophy is that if you need a loan, you can't afford it. I don't buy anything I can't purchase outright. I'd rather have the money in my pocket than a beautiful set of wheels and no cash reserve. Why put that much money in a depreciating "asset" like a car. Keep your money making you more money while you pay the 3 or 4%. Buy a very used car in cash, like a $1,000 to $2,000 car. Keep saving and upgrade as your savings allow. Don’t make payments!! They will keep you broke your whole life. Live below your means. Cut up your credit cards and live a frugal life. Use cash envelopes and live on a BUDGET!! Trust me, this process works.








The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more