Car buyers with bad-to-mediocre credit have had a rough go of it for the last few years. The lower interest rates of the ZIRP-era coincided with a massive supply shortage that sent prices through the roof, leaving many consumers in a situation where they spent more for a car than they probably should have. Rates have now gone up considerably, leading to higher total car costs, longer terms, and/or higher monthly payments.
This isn’t sustainable, and it seems like more consumers are beginning to opt for refinancing their current loans. This is a potentially good thing for these buyers, though it’s a bit of a warning sign for dealers and car companies. As many Morning Dump readers know, car companies are already in an uncertain environment, and this doesn’t help. What does help is cash, and Nissan just got an injection to help get through the next 12 months. Ongoing disruptions to the new car market are hitting the used car market as wholesale used vehicle prices continue to increase.
One of my big questions with the tax/budget bill is what conservative House Republicans got out of it given the continuation of some green tax credits. My guess? The White House promised Republicans that the money wouldn’t be spent. Ford doesn’t seem to agree and believes its Michigan battery plant is going to qualify for funds.
Consumers Are Finding Their Own Relief
If you have a great deal of disposable income and good credit, it’s sort of never a bad time to buy a car. There are always deals to be had, whether through 0% financing deals or lower prices. If your income is limited or you have bad credit, as David Ives once observed, it’s all in the timing.
The timing hasn’t been great over the last few years for income-challenged buyers, unless you were able to buy a new car right at the early pandemic bottoms and then had a car to sell during late-pandemic shortages. Most people were not so lucky or strategic. Sometimes you need a car, especially for work, and end up in a situation where fixing your current car is too cost-prohibitive.
Though we’re well past it now (I hope), the pandemic and the response to the pandemic caused all sorts of complicated and interrelated outcomes. Savings improved, spending temporarily dropped, and lower-income families saw improvements in credit. Childhood poverty decreased (and then increased again after support expired).
I’m going to focus on the credit portion because some households were able to stretch and buy new cars they otherwise wouldn’t have been able to afford. While interest rates were low, the values of these cars were higher due to decreased production and the resulting trimflation. The Cox/KBB chart above spells it out quite clearly.
There’s a specific vintage of loans that’s experiencing high delinquencies and is pretty terrible to hold because of this. These are people who got a higher-interest loan on a vehicle that was overpriced, and that loan is possibly even underwater still. The monthly payments are high, and the term could be as long as 84 months.
Trading in a car and trying to get a lower payment that way is difficult because the car was purchased at an inflated value, and higher interest rates mean consumers may just end up with a similar payment over a longer term. What are they to do? Refinance. In fact, according to this Automotive News article, there’s been a huge move towards it lately:
Michael Williams, senior vice president of consumer lending at American First Credit Union, said his company had seen a “seismic shift” in member demand for refinancing during the past 18 months.
Normally, American First’s auto lending involves 65 percent financing vehicle purchases and 35 percent refinancing existing deals, Williams told an Auto Finance Summit East audience in May. In the previous six to nine months, the business had shifted “closer to 50-50,” and the past couple of months had run 55-45 in favor of refinancing, he said.
“I was flabbergasted by it because the application count didn’t change,” Williams said.
The increased demand for refinancing didn’t lead to an increase in volume for the credit union as Williams expected, he said. Instead, it simply offset a decrease in consumer demand for fresh auto loans.
As the article points out, even major lenders like Chase are returning to the refinancing business, and consumers are seeing average savings of around $140 a month. If you got a decent loan with a low interest rate then it’s probably not helpful for you. This is specifically a good deal for consumers who borrowed at a high interest rate and now, having improved their credit over the last few years of regularly paying their high car note, can take the $30k or whatever they still owe on a car and refinance it at a lower rate.
Who is this not great for? Dealerships, which sell a bunch of extra related products alongside these loans (such as Guaranteed Asset Protection). When the loan transfers, it’s not a lock that these products will go along with them. It’s also a warning to car companies, as the inability to put these customers into new-car loans takes away potential sales (and deprives dealers of used cars (i.e. trade-ins)).
Nissan Gets A $1.4 Billion Cash Injection From Investors
Nissan is in a bad way, having stumbled along after its divorce from Renault and its failed tie-up with Honda. In an attempt to raise money, the company offered convertible bonds that have some steep terms, according to Bloomberg:
The convertible bonds carry a coupon of 1% a year, payable semiannually, and mature in 2031, the company said in a filing. The instrument has an initial conversion price of ¥397.2, representing a premium of 30% above Nissan’s closing share price on Wednesday.
The sale, one of Japan’s biggest in years, is part of Nissan’s broader effort to raise more than ¥1 trillion and revamp the carmaker. Chief Executive Officer Ivan Espinosa, who was appointed earlier this year, is seeking to revamp a carmaker that’s got an aging product lineup and is facing a huge loan repayment wall next year.
The company plans to use proceeds from the bonds to invest in new products and technologies, it said Monday. Nissan was also planning to issue a total of $4 billion in unsecured dollar- and euro-denominated junk bonds for general corporate purposes including refinancing debt, people familiar with the matter have said.
This is the clearest sign yet that Nissan is going for it, as you don’t borrow money this way unless you think you’re going to turn your company around.
Wholesale Used Values Are Still On The Rise
The new car market drives the used car market more than the other way around and the tariffs are starting to have an impact on used car values, which are still slightly rising according to Manheim/Cox Automotive:
“Wholesale appreciation trends have been more volatile over Q2 as tariffs really impacted new sales and supply, which impacted the used marketplace as well,” said Jeremy Robb, senior director of Economic and Industry Insights at Cox Automotive. “The Manheim index has generally been rising since last June, and we typically see the strongest changes for the year in the second quarter as the ‘spring bounce’ comes to an end. As we move through the second half of 2025, it’s likely that some of the reported strength in the market tapers, as the year-over-year comparisons are tougher in the back half of the year. Even so, retail sales continue to run a bit hotter than prior years, and off-lease supply into the market is still on a downward path, two factors which should be fairly supportive of higher values as we move onward.”
The second half of this year is going to be weird. I don’t quite know what to expect, but I assume costs will remain high in the third quarter as something has to break with tariffs, even as sales (of non-EVs at least) will slow. I’m expecting this trend to reverse in Q4 with slightly improved sales on a quarter-to-quarter basis, though probably down considerably on a year-over-year basis, causing prices to at least stabilize. But making predictions in this environment is kinda like wrestling a greased watermelon out of the community pool.
Ford Thinks Its CATL-Backed Plant In Michigan Will Go Through
Even though it’s maybe good for me, personally, I think that it’s likely the big tax/budget bill is bad for most people, and especially bad for the future of cars. My initial reaction to House GOP members turning around on the bill, in spite of the Senate retaining spending on environment projects, was that the White House just said they wouldn’t spend the money.
This was confirmed by one of those Reps, talking to Politico:
“We believe the administration is aligned with us on terminating those Green New Scam subsidies. We believe we’re going to get 90-plus percent of all future projects terminated,” said Rep. Chip Roy (R-Texas), a member of the House Freedom Caucus, after the megabill passed Thursday. “And we talked to lawyers in the administration. We believe that’s true.”
Roy added executive action would help “ameliorate” the “damage” added by the Senate at the 11th-hour on the renewable energy tax credits.
Contrast that with what Ford thinks in this Reuters article:
Ford Motor said Tuesday it believes its planned $3 billion Michigan electric vehicle battery plant, which is 60% complete, will qualify for production tax credits after a massive tax and budget bill revised the rules.
In May, Ford had sounded the alarm over the potential for the U.S. government to eliminate production tax credits that support the manufacturing of electric vehicle batteries using Chinese technology in the House version of legislation.
Ford said Tuesday the Marshall, Michigan, plant that is slated to employ 1,700 workers “is on track to qualify for the production tax credit ― a win for our customers and a win for American competitiveness.”
This really comes down to how you parse the word “future.” Maybe this project is in the present?
What I’m Listening To While Writing TMD
My freshman college roommate was a Taiwanese kid who looked like a punk rocker but listened almost exclusively to K-POP. This was not yet a music style popular globally, so I kind of took at as an enjoyable curiosity. In the following years, K-POP conquered the globe, and now “Gnarly” by KATSEYE is my first potential contender for Song of the Summer. It has a very Damon Albarn quality, actually, where I’m not sure how much it’s mocking itself or its listeners. The sarcasm is so deep it’s maybe not even sarcastic anymore. Either way, it’s a bop.
The Big Question
What’s the worst loan term you’ve had or heard someone have?
Top photo: Dodge/Depositphotos.com
Worst for me was 13.5% for a new 2013 KTM 990. Thought it was a loan, but it was actually a KTM branded credit card. That got refinanced ASAP.
I sold used LR/RR’s for a while, and man, let me tell you the mental and financial gymnastics some of them would go through to get themselves into a P38 or a ’02 Disco with like 110K miles was absolutely insane. It honestly made me feel terrible.
It’s immoral to let a sucker keep his money – Canada Bill Jones
Worst car loan? One of my sons went through a bad stretch of poor life decisions and ended up bankrupt in his early 20’s. Trying to rebuild his credit (which he has subsequently done) was a miserable slog and in 2018, he had a 25% loan on a 2012 Chevy Malibu. Ugh, sometimes kids have to learn things the hard way.
I’m glad to hear Nissan is going for it with this bond sale. I think they’re on a good path and, if the high quality of their recent products are any indicator (and I hope they are), I think they’ll make it. I’ve been super impressed by my 2024 Ariya and was similarly impressed with the 2025 Leaf I test-drove. Except for sheer acceleration, the Leaf was every bit as good a vehicle as my 2023 Polestar 2. I think the 2026 Leaf looks absolutely awesome and I’m planning to replace the Polestar with one of those in the next 12 months. Anyway, I’m hoping for a bright future for Nissan.
Worst ones I’ve heard are really anyone who calls in to ridewithyusuf on Instagram to ask about getting out of a car they’re underwater on. All high end luxury cars, really bad credit, 20+% rates, and significant negative equity. And they all want to upgrade to some newer, more expensive car. And shocker, all in Miami.
Must be the extra dumb ones because my impression when I lived in Miami was everyone was leasing.
probably the ones who cant qualify for leasing because their credit is so bad.
I haven’t had a car payment since 1987. Since then, we’ve purchased 10 cars for cash (6 new and 4 lightly used). Keep them a few years and the overall cost is so much lower.
My wife bought a new 2024 Grand Cherokee L in November of last year, and I got my 2024 Gladiator this March. We walked away with the provided financing to obtain incentives that were tied to it. I think her rate was about 6% and mine was 6.25% roughly, and that was with both of us touting 850 credit scores. We waited the minimum mount of time to refi and managed to catch our local bank with a deal where we paid no documentation fees and got to refinance both at 4.49% which, apparently, isn’t too shabby these days. Both are set to 3 year terms so we cut the amount of interest over the life of the loan by 50% each.
My worst loan was when I was fresh out of college and purchased a big, shiny, new-to-me 1989 Cadillac Brougham for the princely sum of $3,000. My credit union was thrilled to finance this, my first ever car loan, at the low rate of 12.9%. About six months later I got a call from Discover offering me 0% for a year on a balance transfer. Transferred the Caddy over and had it paid off in a year.
The worst I’ve personally seen was more of a style of loan(s) than a set of particular numbers. I was close friends with a couple in college who always seemed to be able to go out and try the latest restaurants, go to the big-ticket concerts, even take actual vacations. My guess was that they were up to their eyeballs in credit card debt and while that was correct, it turns out they were also refinancing their 1994 Buick Regal about every two years. I have no idea what their rates were, but literally 10 years after they bought it for $4,000, my buddy told me they still owed about $5000 on it and was wondering if he could borrow a couple grand to help them get out from under it (I politely declined).
10 years of refinancing and actually owing more!
Makes me think of that line from There’s Something About Mary. ” How the hell did you get the beans above the frank!” Painful situation however you think about it.
Gnarly is indeed a banger, but other than being a K-pop group it really isn’t a K-pop song. Sounds like it was produced by Sophie (RIP) and that makes it one of the best K-pop songs ever.
I heard this song literally last night and added it to my liked songs. What a coincidence. The music video really sealed the deal for me.
Hot take: Having a new car loan extend past the warranty period is a bad idea. I can’t imagine having to make car payments at the same time as a major repair on a vehicle. It seems like a bad fiscal choice, and as we all know, it is entirely plausible for a vehicle to need major engine/transmission work after 5 years of heavy driving.
I would venture to say this is less plausible now than at any time in history.
Unless you buy a KIA/Hyundai. But they have you covered with their 10 year warranty.
The wife ran out the 10 years part of her Kia warranty before the 100k miles part. I did not see that coming.
I try to do this, but based on the 5 year powertrain warranty, and not the 3 year bumper to bumper warranty. Probably not feasible for most people though, and a lot of people also chew through the miles much faster than the years.
Used EV’s and PHEV’s are one of the best ways to do this, because you can buy a 3 year old car for near 50% off MSRP, and still have 5 years of powertrain warranty left. Just sell it before that warranty is up though, if you don’t want to take on the risk of a battery replacement.
I had been driving 40-50k annually. Warranties were just to make sure the factory didn’t screw up. Driving a lot of miles quickly, though, everything lasts longer, so it was never an issue and I wasn’t torturing myself with Corollas.
I can’t remember the worst car financing I’ve ever heard of but I’m 100% certain I heard it while watching Caleb Hammer
My partner loves listening to Caleb Hammer. I appreciate his advice but good lord does the man sound like nails on a chalkboard.
I mean, most of the people on his show really need some sense yelled into them.
I remember seeing a girl who was underwater with an over 20% interest rate on a BMW X1 she bought used….IMHO shes lucky she’s not being sentenced at The Hague for that crime against humanity
Yeah I’ve really only tuned in in passing. He’s definitely entertaining and I appreciate that he’s using his platform to educate people on how to not be idiots with their money, but I also think sometimes it verges on exploitative. He generally has a reputation for being a good guy though, there are a lot of stories out there about him following up with people who were on the show and trying to continue helping them.
So, something like the Anti-Dave Ramsey?
I had just assumed he was another Ramsey, but this gives me at least a little hope that he’s better. But I still don’t know about turning people’s poor financial decisions and rough financial situations into entertainment. I haven’t listened, so maybe I’m too hard on his format, but I don’t know about Anti-Ramsey. Maybe just Dave Ramsey with basic human sympathy/empathy.
Caleb Hammer does a much better job at being realistic and pragmatic with a situation. Dave Ramsey rants and raves about ratios of income that are so deeply out of touch with reality, while Caleb and his team look at the totality of each persons finances and tries to get a budget and action plan in place to tackle the worst debts, guide decision making to an overall more healthy place, and try to help in a real way. Every clip I see of Dave Ramsey these days is basically saying it’s gross negligence to spend more than 25% of your post-tax income on housing, and anything other than a 10k used car in cash is a horrible decision that will end in bankruptcy. DR is out of touch with the reality of most Americans.
Yeah, Ramsey is ridiculous and encapsulates everything negative people say about Boomers. I’m glad to hear Caleb is a lot more realistic. I might give him a listen sometime, but it still feels weird to use people’s financial misfortune to create entertainment.
It does sound a lot better than Ramsey’s angry and disconnected schtick and the blatantly exploitative crap Mr Beast pulls.
It’s absolutely a mixed bag with Caleb. His stuff has recently started to border more on clip generating for the sake of growing as an influencer/podcaster/etc, but at the same time, him and his team have generated some useful tools and resources that are available to everyone. To their biggest credit, every person on the show who gets dug into gets a pretty good amount of resources for free like a handful of counseling sessions, budgeting tools, and some other things I can’t think of that are otherwise not free to the public.
He also does do follow-ups with people on occasion to see how they’re doing and genuinely seems invested in continuing to help them improve.
Unfortunately everything these days has some good and some bad to it. The way I try to view Caleb is it’s getting young people interested in personal finance and teaching them about what to do and not to do, since the older generations don’t seem to care about teaching it. I try to measure everything from a net-benefit standard, most influencers are a drain, but entertainment that educates tends to at least provide some good.
His show seems to be leaning into exploitation lately. At first he had a good balance of entertainment and money advice, but lately it seems like his show has leaned into mocking weirdos. It is unfortunate since his show seemed to resonate with a lot of young people who could use good money advice, which he generally gives.
As for car loans on his show, I remember one of his guests had loans for two Mustang Mach Es despite being 19 and not having a good job. I think that guy was probably the worst car loan I have ever heard of.
Had a coworker $10,000 underwater on a car worth $15,000, 25% (I think–wasn’t my loan, but I know she said in the 20s) interest. And she wanted to get out from under that by trading the car in on a car with a good lease deal (I don’t think she understood that the $10,000 would go into that lease and make the deal much worse or that the deal was for “well-qualified buyers”). I felt bad for her, because refinancing was going to be tricky that far underwater, but she ended up quitting after her first or second night shift (per the expectations laid out when she was hired–4 month shift rotations between days and nights). So I will probably never know if she ended up rolling 10k into a new loan or lease to get out of that deal.
It’s interesting to see just how this refinancing boom is working. Goes to show you how many people get raked over the coals because they don’t have a credit history. They got unfavorable loans while rates were low, built their credit, and got better rates while rates are higher.
My wife’s goddaughter is in a similar situation. She took out an awful loan on a car because she was young and had no credit history, coming from a very unstable home environment. Whatever lender she went with definitely took advantage of her naïveté. She’s a little older now and knows she got screwed. So when she leaves the country (nothing to do with the loan) she’s going to park the car in her lender’s lot and toss the keys to them. Enjoy your sub-$5,000 collateral on that loan, you fucking vultures.
It is tough, my advice for people (who I know to be measured and reasonably stable in their spending) is to use a Credit card for everything, pay it off in full before interest accrues, and leverage it to slowly build a history while taking full advantage of the rewards. Then roll that into a car loan (new or used) but ensuring you put at least 50% down for the sake of positive equity, and while it may not be a GOOD loan, it will do wonders to build credit. By putting at least half down, you limit the liability of depreciation, and limit the interest cost, while getting the benefit of a high-4 or low-5 figure loan paid off reliably over several years. These together go extremely far for an emergency loan, more expensive car purchase, or mortgage, and minimize the interest paid over time.
Unfortunately for most people though, that really only works when you have tons of time to build slowly, have a stable employment and housing situation, and are have limited recurring expenses. It’s easy to point at the 18 year old army recruit financing a used Mustang at 26% and laugh, but so many people are not able to build credit before having to leverage a loan to get through the day to day.
Yeah, I give similar advice. For her, I recommended paying down as much as she could on that car loan and trying to refinance if she could get it low enough. To her credit, I think (and hope) she had been making all her payments and keeping her credit card paid off, so she expected she could get a better loan if she could dig herself out of that one.
But she was also looking at cars that were far too expensive for her to maintain that trajectory, so I don’t know, especially after she quit a decent job pretty abruptly.
A thing that makes me sad is how much bad financial advice makes things harder on folks. Pay cash, avoid cards, and only buy cheap used cars with no loan and you’re going to struggle when you need a mortgage. It all sounds good and helps keep people from overspending, but it keeps their money from working for them and takes them out of the credit game, and you really need to be in the game.
I want a new car. My 2017 accord is paid off, has 120k, and i wouldnt mind something new. But i cant justify a 400+ payment for a new camry or prius or midrange maverick. Especially since I just bought a house and drained my savings on renovations and a new roof.
Instead I just bought a Pontiac Vibe. Because while Miata Is Always The Answer, Vibe Is Better Everytime.
The Maverick will always be there, but the Vibe won’t be.
I recently did the unfun repair below to ours. Now the master cylinder needs to be replaced. The Vibes aren’t always good.
https://forums.genvibe.com/phpBB3/viewtopic.php?t=38926
I still think Nissan should ditch the new Leaf, keep making the “old” (second gen) Leaf but give it NACS and make it work with Tesla’s network. There are also other areas where they could probably cut costs and pass those savings onto the consumer.
That might be doable for the Sentra (aside from NACS of course) but there’s literally nothing to be saved by scratching a new model when the design and engineering is all done, the tooling paid for and in place, the certifications set and the only major spend left is the launch ad campaign.
I used to do audits of credit unions that served low income communities, these places would often get federal grants to make loans to people that wouldn’t qualify for a loan from any other reputable institution. Most of the auto loans were pretty low amounts with some decently high interest rates but the people were generally buying sensible cars. The one that always stuck in my mind for being awful was one person took out like a $18K loan at 15% to buy a 15 year old BMW 7 series with 250K miles.
Yeah, that tracks. See my comment below, a similar type of lender (bank acting like a credit union). That’s not a bad rate for a questionable borrower on an ancient car. Sometimes CU’s have to grit their teeth and just do the deal, since their charters are based on serving the community and making no profit. You almost KNOW you’re going to be in the red on that one, but sometimes the goodwill is just worth it — getting deposits, word of mouth, etc. I have a lot of respect for that business model.
Worst Loan.
I drove a friend to a dealership to buy a three year old 1st gen TT (the mothership).
72 months at 17.99%
Sadly, I feel like there must be worse. In fact, TheDrunkeWrench’s post just showed up and I am staggered….
It was a total loanshark deal, but he couldn’t even qualify for a credit card at the time. So he used it as the only means he could think of to rebuild credit.
At least he didn’t go for something super expensive. He probably made the right move to build his credit, as much as that interest rate hurts. Small enough loan that he could take it.
A friend of mine bought an $8k truck at 28%.
While it sucked, it was manageable and helped him rebuild his credit after a bankruptcy. He made that Dakota last 10 years.
So another item for the car refinance/new car loans is the new interest write off that got passed. I am wondering if we’ll see a small bump in rates because now they can sell the whole “you get it back at tax time!”.
When I started my last job there was a woman in the HR onboarding meeting with me who had just been hired as a machine operator, making probably ~ $16/hr. She told us all about how excited she was because she was picking up her new Challenger after work and how her interest rate was *only* 13%!
During the Carter administration my Mom built a new house.
18% interest on her mortgage.
Unbelievable but true.
My parents like to use the double-digit high interest rates of the 80s as a “gotcha” in house buying.
I said “Mom, your house was $80k at 15%. The new houses are 700k at 7%. Do the math and tell me which one you’d rather pay.”
My parents do a little of that even though they bought from my grandparents. They were renting and then Grandpa said they were buying and their rent had counted as payments the whole time. He may have charged some interest, but it was certainly well below market rates.
They also like to pull the lower wages card without considering inflation.
Yeah, I’ve had that too “Yeah, I make four times what you did. Shame the house is EIGHT times more expensive!”
My parents had a book of interest rate tables from the early 80’s that showed payments at various rates and I think the lowest in the book was 11%. Single digit interest rates just weren’t a thing then.
Bought my first house back then. IIRC the interest rate was in the low 20’s. It was punishing, but got through it and came out the end owning the place and sold it at a profit. I was a uni student at the time, some creative slumlording on the backs of fellow students and a small loan from my father made it a bit easier. Houses were much cheaper back then.
I always chuckle a little when people complain about “high interest rates” today when by historical measures they are around average at worst. Even my first house purchased in 1991 had an 8 7/8 percent note on it. However, as someone else in the comments noted house prices have gone so crazy that even with “reasonable” interest rates payments are ridiculously high.
This is just another example of Trump’s Mafia-style governing. The incentives are on the books, but you gotta give him a taste to get funding for your particular project .
This is why he loves executive control of tariffs so much. He gets to dole out personal favors like when he was running the business he inherited from daddy.
I feel lucky that I’ve never had a car payment higher than $258. Even that sucked, and I paid it off as fast as possible. I can’t imagine having to make the payments some people do. My friend’s in-law has terrible credit but insists on driving a huge pickup, and she told me his payment is over $1500. That’s higher than my mortgage payment! It’s depressing just to think about.
my last car payment was $217/month for 48 months. paying that off early was nice and I never did the finance thing again. lesson learned.
I bet Ford’s lawyers are better than the current administration’s. This may be the one case when the revolving door between government regulators and industry helps people and planet.
LFP is a great technology since it can be charged to 100% and then discharged to 0% for thousands of cycles. Having that security blanket of a “full charge every day” will help adoption of cheaper LFP Ford EV’s. Not like NMC batteries which do not like sitting at full charge.
LFP does not preform as well in low temperature conditions, so the battery heater has to turn on more. This will not help winter driving range.
I think the future is going to be combo battery packs made of cells of different chemistries.
NMC isn’t a ton better. ICE vehicles likewise get worse range in the winter. Being able to fully charge will help range anxiety. Even if 10% is gone overnight being able to have the rest should help a lot with EV drivers who don’t care about the technical parts. Comparing it to a remote start that burns a quarter gallon to warm the car is a useful analogy.
I just helped a young family friend find a new used car after his old Malibu died. It was a bit of a nightmare. We ended up getting a salvage title Acura ILX with lowish miles (70k) after I was able to find records of the accident and repairs, and we had it inspected by a local dealer I know. All the damage was cosmetic; no airbags were set off. We got it for just under $9k.
Everything else decently reliable with a clean title was over $12k. The salvage title stuff is always a risk and takes a lot more due diligence, but it can be worth it in an inflated market.
I worked in auto and mortgage portfolio reporting for a small indirect lender during the Great Recession (indirect means one of the numerous lenders a dealer will use outside of their own financing arm, assuming they have one).
You can make loans to people with 750+ credit scores all day, but you’ll never make any money doing that. It takes the profit from 1,000 customers to make up for one loss (oversimplified for example purposes). 2% APR loans don’t yield much.
But if you lend to “quality people” in the 600-650 range, you can charge 10%-12% interest. The regulators hate this because they see it as borderline usury, but the fact is you might have 1 loan go bad out of every 10-20 borrowers. That means a lot of hassle to track down a moving asset that can be stripped overnight and never recovered. Even if you do repo it successfully, you’ll be lucky to get 50% back on a really good day. It takes a lot of interest payments from other borrowers to make up for a $10k+ loss because of one bad deal.
It’s fascinating, and in many cases the critics are just wrong — they ignore the fact that the borrower might have tried to get a loan from a dozen other places, and we’re the only one willing to do it. A lot of the big banks will have a hard cutoff, they don’t want to deal with the logistics of people with bad credit. But small banks and credit unions can get people started, then in 6-12 months of rebuilding their credit, they can refi (usually at no cost, unlike a mortgage).
Worst I ever saw was 22%, which today would probably be more like 28%.
Years ago, I had a friend whose 24-year-old brother was self-employed in the construction trade and looking for his first house. He thought he had been clever and had shifted income around to avoid paying taxes. He was proud to say that he hadn’t paid any federal taxes for three years. The mortgage broker gave him a wake-up call when she told him that obtaining the mortgage he wanted wasn’t feasible because his reported income was too low.
Yep, my best friend from childhood prided himself on making good money under the table (as a seasonal resort chef). But good luck trying to explain that to a mortgage broker or finance manager!
Co-worker’s daughter had same problem. She’s a bar tender, makes real good money, but doesn’t report most of her tips. She had to get her Dad to cosign on mortgage because she ‘didn’t make enough money’.
A dealer group I used to work for had a store just outside Biloxi, MS, and had this problem with most of their customers- all worked in the casinos, and most of their income was cash tips. The banks they worked with couldn’t get most of them financed. Meanwhile the buy here pay here guy next door was making a killing.
Mortgage guy here, I’ve worked with lots of self-employed borrowers who think they’re so clever for getting their on-paper income down to nearly zero in order to avoid taxes, only to find that they flat out don’t qualify for financing or, if their credit is perfect, they’ll get a rate 2-3% above market on a stated income program that’ll cost them $15k or more in extra interest per year.
You pay your taxes or you pay when it comes time to borrow, but one way or another you’re going to pay.
My first accountant helped me on this same issue. All the ‘expert’ friends advised to do the lower income to reduce taxes. My new accountant showed me via a spreadsheet and hard fact that it was a dumb idea and would hurt my credit going down the road.
So true. I am self-sufficient and have been cautious, but the older I get, the tradeoffs start to change. We almost have our mortgage paid off (it is only 2.5% so we didn’t rush), and have zero other debt. I now work to reduce my federal tax liability as much as possible and run almost everything through my businesses. With businesses, they tend to look at revenue and expect you to minimize the company’s visible income.
Plus, when you have significant assets, including the business, getting a loan isn’t difficult, no matter your income. There are numerous ways to do it right or wrong, and the rules are always evolving.
Thanks for the insider perspective! Sometimes taking a high rate loan is the only option.
Well, Venkman mortgaged Ray’s house at 19%…he didn’t even bargain with the guy!
To be fair, wasn’t a second mortgage? And also in the early 80’s that might have been a bargain.
I think the punchline was “Lots of people have third mortgage these days, Ray!”
Gold.
For your information, the interest rate alone for the first five years comes to $95,000.