My thoughts on car loan lengths
Lenders such as independent banks, credit unions and the car company “captives” have been making it easier and easier to get a car loan over the past two years. Despite this relatively “easy” money, one of the critical questions a borrower should ask is, what is the right length for a car loan?
The average car loan length right now for an automobile is 65 months, according to Experian Automotive. And an increasing percentage of those loans go to people whose credit rating is below 680, which is considered subprime. Over one quarter of all new car loans fit into this category, and more than half of all used car loans as well.
So, what is the risk with a longer car loan? While delinquencies (being 90 days or more behind on payments) are at historic lows, and repossession rates are less than during the boom years of the early 2000s, there are factors that tell us that a shorter loan is safer.
The most important one, outside of the government’s seeming desire to stop the recovery through hyper-partisanship battling, is the softening of used car prices. What’s driving this is that the improved economy has raised the number of new car buyers from a recession low of under 11 million in 2009 to over 15 million sales in 2013, with a projected market of 16.4 million for next year. All these cars will eventually be traded in or put back up for sale. And of those new car sales, 26 percent are leases, thus far this year. And when leases reach maturity, they come back into the wholesale market, generally lowering retail and trade-in values. Leasing hit an all time low of 17 percent in 2009, meaning there has been a dearth of three year old, used cars in the market for awhile. But with the huge increase in new sales and leases, more and more used cars, trucks and SUVs will be available in 2015 and beyond.
Disadvantage of long car loan lengths
The biggest problem is that a longer car loan means it takes longer to reach “break even,” where the car’s trade-in value is more than is owed to the bank. Lower used car values just exacerbate this. Over the past three years, with the strongest used car market in recorded history, people could hit break-even inside of two years if they had a 60-month (five year) loan. Now, with new car loans averaging over 72 months, that milestone has moved beyond three years, and as used car values soften further, it will only get even farther out.
When someone trades in a car that has a loan balance higher than what they owe, they can either pay the difference in cash—which very few do—or attempt to roll it into the financing on the replacement vehicle. But, since this drives up the payment, many opt (with the dealer cheering them on) to extend the length of the new car loan to make the payment more palatable. This can create a vicious cycle, where people get further and further behind.
When a lease is better than a car loan
The best solution, other than cash down, and/or paying off any negative equity on a trade-in, is to lease. I go into this in great detail in the Car Buying Tips Guide ebook (available here), but a short summary is that a lease’s benefits are magnified if there is any extra money owed on a trade-in. A lease payment is generally 25-35 percent—or more—lower than a comparable purchase payment on the same car, giving more “head room” to absorb negative equity.
Also, the term for most leases—and the only ones I recommend—are much shorter, generally being 36, 39, or 42 months, as compared to five or six years for a purchase. So, at the end of the lease, not only is the negative equity gone, but it is gone quicker.
Another point in leasing’s favor is that the lender (whether bank or car company) takes the risk on what the vehicle’s value is at the end of any closed-end lease. As long as the vehicle is properly maintained and turned back in without major damage, the lessee can walk away. And if the market does soften dramatically, or the lease company overestimates what said car’s value is, the loss is theirs, not yours.
In the ebook I also discuss how to take advantage of a situation where the lease residual value is lower than the market price, as there is money to be made here for a savvy shopper. In my own experience as an auto broker, about 65 percent of off-lease vehicles can be sold at a profit (its been over 90 percent these past few years, but I don’t expect that to continue).
There is substantially more to discuss on this topic, and there are important factors and some risks to know about before leasing. I have covered these in other blog posts such as this one, and in the ebook, but the bottom line is to either keep the loan term as short as feasible, put money down to be in an equity position as soon as possible, or to do a lease.
The Bottom line: Keep the car loan length as short as possible…For more on the pros and cons of car loans and leases, get the Car Buying Tips Guide ebook, here.
The New 2013 Jaguar XJ L AWD
Behold the 2013 Jaguar XJ L AWD. Since its introduction four years ago, the current Jaguar XJ has played the role of iconoclast. Offering up a radical new look to its predecessors, it also drove differently. Gone was the super supple ride and handling that could best be described as “graceful.” In its place was the lightest, sportiest and most aesthetically avant-garde car in the fullsize luxury class.
Now, without losing much of what made it so special, the 2013 Jaguar XJ L AWD has gone mainstream as well. Its exclusive reliance (Stateside, anyway) on V8 power and rear wheel drive was limiting sales dramatically in a class where competitors offered six cylinder motivation and available AWD.
Here you can read what I think of the V8 versions; suffice it to say they are some of the most enjoyable cars I test all year. But as someone living in the snowy, high-altitude Rockies, I completely understand the need for change. Enter the new, 3-liter supercharged V6, with outputs of 340hp and 332lb-ft of torque. Coupled to a ZF 8-speed automatic and a computer controlled all wheel drive system, it seems the perfect car to temp not just those who had never been able to justify a Jaguar on practicality grounds, but defectors from competing brands as well.
Intact is the XJs gorgeous body, which only gets better looking over the years. Also present and accounted for is the sumptuous leather-lined interior, which, in long wheel base form (as tested here) makes back seat passengers feel like plutocrats as they are wafted about. Still unsatisfying are the shapes of the Jaguar’s front seats, which can feel like you’re sitting on, not in, them.
Thankfully the XJ’s touch screen infotainment system acts faster to obey commands, meaning less time with eyes off the road, and the new Meridian surround sound system, while still ruthlessly revealing of badly recorded or low bit-rate source material, at least doesn’t constantly vary volume levels, as did the old one from B&W.
2013 Jaguar XJ L AWD Driving Impressions
Of course the biggest changes come courtesy of the new drivetrain. The 2013 Jaguar XJ L AWD stomps off the line with authority, and is less than one second slower to 60mph (still running a fast mid-fives) than the V8, while showing itself to be 2-3mpg more fuel efficient as well, despite the extra friction created by the AWD hardware.
That system is transparent in use; one never feels power being shuffled about—at least in the dry—and it has the added benefit of keeping the Jaguar from constantly activating its traction control system, like the rear drive models are prone to do. I think some more tuning of the tranny’s software is due, though, as it can take an extra half second or so to change ratios, even in the more responsive, Sport, mode. Also, the paddle shifters no longer work in normal operation, which is a mistake, as you can’t pop down a gear or two when traffic slows or other conditions suggest a lower ratio.
The only thing of substance really lost is the glorious aural character of the outgoing V8, whose bassy woffle was a welcome accompaniment under acceleration. Having driven the sibling Range Rover Sport (Jaguar and Land Rover are now one company, and share most underbody hard wear), I know this S/C V6 can sound good, so someone must have neutered the XJ in the name of “civility.”
But that’s not all this big cat is about. It doesn’t need to try to be a Mercedes or other German exec—it needs to be true to the values that have made it such a standout. Traits such as its slightly agitated low-speed ride (suggesting the performance it’s capable of), stellar handling, exceptional body control and sweet steering mark it out as the most athletic choice in the segment. Now they just need to give it back some of the growl worthy of a Jaguar.
The introduction of the 3.0 AWD model really makes the 2013 Jaguar XJ L AWD a contender in resale value and usability as well, for markets such as my home and New England. Having tried to sell rear drive luxury cars I’ve owned myself, I can tell you it is much easier to move something with AWD.
2013 Jaguar XJ L AWD buying tips
There is quite a bit of value in the XJ’s pricing structure, with models beginning in the mid-$70k range. What this means is that one can get a larger, more luxurious car for the price of competitors midsize sedans. Even my test vehicle, a Portfolio model, undercut rivals in terms of standard equipment and window sticker.
The spread from dealer invoice to MSRP on a lower spec model is good, too, at about $6,000 margin. This only increases as you move up the XJ food chain. Which means that there should be generous discounts on offer from the dealer. A wise strategy might be to consider a lease (as many do in this price segment) so that the company takes the risk on resale values, not you.
Jaguar continues to be haunted by peoples’ memories of the unreliability of their vehicles from ten or twenty years ago, which is a shame, as they score near or at the top of independent studies from outfits like JD Power, which show them to be on par—or ahead—of luxury rivals. Having exposure to so many vehicles, I can say that they appear to be at least as good in this regard as anything from the Fatherland.
But don’t expect that there will always be deals to be had on the Jaguars. The company has basically outgrown everyone else in the US, in percentage of increased sales this year, since the intro of the V6 and AWD models. While still a minority player compared to more “established” luxury marques, the English company’s rapid growth suggest XJs wont be such a rare site on our roads for much longer. For more great car buying tips get the Car Buying Tips Guide ebook, available here.
EPA ratings: 16/25; 19mpg combined
Price as tested: $86,295
Here is what the company thinks of the 2013 Jaguar XJ L AWD.
A vehicle inspection will save you money
Many people considering a used car do not understand the importance of a vehicle inspection. Buying a used vehicle out of your immediate area is fraught with peril. To reduce the risks, it is absolutely imperative you have a professional, independent inspection performed on whatever it is you are looking at; this is one of the most critically important used car buying tips I can offer.
Earlier this year, I spent almost an entire workweek trying to find one of my top clients a used Toyota Tacoma with two-wheel drive—almost impossible to source in Colorado, where we both live. As there was almost nothing running through the various dealer auctions like Manheim, I did what any shopper would: lots of internet searches on cars.com, autotrader.com and craigslist.com. I called over twenty dealers and private parties; the picture below is just some of the Tacomas that were worth a second look. I used CARFAX and AutoCheck reports properly (as I describe in this post): never accepting that a “clean” report showing there were no accidents was accurate, as about 35-40% of the time, they are not.
When I talked to someone about what they were selling, I assumed I was being lied to—at least to some degree. But since there was no way I could know what it was that they might be misrepresenting or slanting without being there, I did the next best thing: I hired a professional vehicle inspection company I have used for years, Alliance Inspection Management, to send out one of their investigators to check on the vehicles I was most interested in. Unlike many companies in the auto inspection business, AiM’s inspectors are all employees, not independent contractors. This means there is more consistency to their reporting. AiM is hired by many car companies to do end-of-lease inspections, and I have always figured that, if they’re good enough for the OEMs (original equipment manufacturers), they’re fine for me, and my clients.
They have multiple levels of inspection, from the more basic Plus for $129, up to ones including fluid analysis, an engine/transmission warranty and an AutoCheck report at $419.99. I usually stick with the 150-point Plus, which tells me all the critical things I need to know to make a good decision, such as:
-Is there paintwork or obvious signs of an accident
-How nice is the interior and does it have any smoke smell
-Did the vehicle perform well during a comprehensive test drive
-Lots of pictures of the vehicle and of any specific problems found
About the only gripe I have with AiM is that it can take them a couple days to get a vehicle inspection done, which means that I stand a chance of loosing a vehicle I am interested in. So I try to schedule inspections for early- or midweek, when dealerships are quieter. Most retail car business is done on Friday night and Saturday (and Sunday in states that allow dealers to be open), which generally precludes doing inspections on fast-selling vehicles, such as the Tacoma, at those times.
One of the related used car buying tips is to call the dealers on Monday or Tuesday; often there will be more room for movement on pricing at the beginning of the week, if a vehicle hasn’t sold over the previous weekend.
Back to the Tacoma inspection. Out of the 23 that I initially called on, only four vehicles looked worth pursuing, and before I could get one of them inspected, it had been sold. Another had a deposit on it, pending financing getting done for the prospective buyer, so I didn’t waste time on that one either. But I did negotiate a “Hold pending mechanical inspection outcome,” on the two vehicles remaining. That way my $258 ($129 per inspection times two) wasn’t wasted on vehicles that would be sold out from under me.
What was found during the vehicle inspection
The 2007 Tacoma in Arizona, which we will call number one, was described as being in excellent shape, with no accidents, and needing nothing. Below is a screen shot of the advertisement:
Number two was a 2006 Tacoma in Tennessee. CARFAX had reported that this Tacoma had been involved in an accident, but not how severe it was. The manager at that dealer told me that it had had a scraped plastic fender flare, which they repainted, but that sounded a bit suspicious. Here is a screenshot of that ad:
Each vehicle inspection showed that both dealerships had lied to me, but to vastly varying degrees. The 2007 had obviously been involved in at least one accident and had had structural repairs performed. It also had an oil leak from the engine block and other things that would keep any sane person from buying it. As the Arizona dealer knew I was having their Tacoma inspected, I am not sure why the salesperson would think it not worth mentioning all the damage, but there you have it. If I had gone only off the pictures and what he told me on the phone, I would have bought a horrid vehicle—and at a price that would have netted me a good one. Here is the inspection:
The vehicle inspection on the 2006, which you can see here, showed that the body damage was more extensive than the dealer had said (the bumper, fender flare and the possibly the fender itself had been repainted, in a mediocre fashion) but that overall this was quite a nice truck. We were also able to ascertain that the underside of this Tacoma was clean and rust free. This is very important on most all Toyota trucks, as they suffer from poor corrosion protection and many from the eastern states are really rusty down below.
Better decisions come from a vehicle inspection
Being able to go over this with my client made it much easier for her to decide which one to get. I really like that level of transparency I get with these inspections, and since it is my client’s money I am risking, I want them to have all the data possible in a situation like this. It empowers them and builds trust. The same logic applies when you are looking to buy anything too far away to touch and drive yourself. In fact, it applies even to vehicles local to you, if you don’t feel you can spot previous paintwork. If you want to learn how to do this yourself, watch this video on the CBTG YouTube channel.
When the truck showed up here in Colorado, it was in even better condition than we expected, as the inspector had really “drilled down” and we had very little mechanical or cosmetic work to do.
I simply cannot imagine buying any vehicle out of state without paying for a vehicle inspection; over the years I’ve found that about half of all the vehicles that I inspect aren’t nice enough to actually buy, meaning the money paid to Alliance Inspection Management for inspections is some of the best I’ve ever spent. You can use this link to order an inspection from AiM, or find them on the CBTG Resources page. Please note that if you link to them through this site the cost to you is the same, but they will send me a $10 referral fee. If you feel uncomfortable with that, contact them directly; what really matters is that you leverage their comprehensive inspection(s) to save you from a bad used car buying decision.
Paying $129 to save potentially thousands on a crap car, truck or SUV is, simply put, one of the best used car buying tips there is. For more insights into how to protect yourself when purchasing a used vehicle, watch my videos on how to properly appraise a car yourself on my YouTube channel and get the CarBuyingTipsGuide ebook, available here. And do not forget the vehicle inspection!
Simply put, best in (the midsize) class
Before I get to the car buying tips for the all-new 2014 Mazda 6, let’s discuss what makes the car unique and how it compares with the leaders in the midsize field.
Conventional wisdom is that a car company needs to produce over six million vehicles a year to be viable long-term. At about one third that volume Mazda looks to be at a competitive disadvantage. Yet its very size may turn out to be the secret not only to its longevity but also why almost every product they introduce—include the 2014 Mazda6—is the best in its segment.
In short, a smaller company like Mazda can be more nimble and less hidebound. Its hard to imagine a General Motors-sized behemoth going as back-to-basics as the Japanese firm did on their Skyactiv project, which not only produced clean-sheet designs like the award-winning CX-5 crossover, but also entirely recreated how R&D, engineering, design and marketing worked together, changed how Mazda's factories are designed and altered the very methods of production.
The results speak for themselves. The new Mazda6 is one of the two best looking cars in its ultracompetitive sector—the other being the Ford Fusion, reviewed here—it gets best-in-class fuel economy, has an interior second to none material quality, and is the most pleasing to drive. Skyactiv isn’t just a marketing name; it’s a catchphrase for a radical paradigm of holistically attacking every aspect of a car’s design, from the lighter, more rigid structure underneath to a suspension layout that improves both ride quality and steering feel to an engine design that is less expensive to produce, much more frugal and more powerful.
The 6 debuts the 2.5-liter version of the Skyactiv-G four-cylinder, which now also sees duty in the excellent CX-5 crossover. Its outputs of 184hp and 185lb-ft of torque understate its willingness and revability, imbuing this midsize sedan with a alacrity commensurate with its driver-oriented marketing message. Its very high compression and race-derived 4-2-1 exhaust header make it eager to rev and quick to respond, with 0-60mph in the mid seven second bracket. Yet its EPA ratings of 26mpg city and a class-leading 38mpg highway mean having one’s cake and eating it too. When equipped with the i-ELOOP capacitor system in the top trim, the numbers increase to 28/40mpg, and at the end of this year we’ll see a Skyactiv-D diesel too, with more torque and even higher mpg figures.
There’s two transmissions to choose from, and either is a peach. The six-speed manual feels like the one in the MX-5 Miata—which has one of the best shifters in the world—yet is light and easy to slot between ratios. And the Mazda automatic’s direct shift software make it feel like the perfect blend of twin-clutch and slushbox. Paddle shifts relay the driver’s command without delay and keep the engine right in the heart of its powerband, all the better to exploit the 6’s stellar chassis composure. It’s so good they haven’t needed to resort to the dreaded continuously variable transmission, with its mushy response and bovine-like soundtrack. It could use a separate, “Sport” mode though.
Mazda is one of the few companies who’ve figured out how to make electric power steering feel natural and the 6’s rack is no exception, with precise on-center feel (the result of a Skyactiv suspension design that includes lots of castor and trail), excellent linearity and even a modicum of feedback. The chassis it commands serves up taught body control, commendable neutrality and a deftness of touch approached—but not equaled—by the Ford Fusion and Honda Accord, the other two best driving cars in the midsize category.
All that was expected; what isn’t in a Mazda is a refined, polished ride and excellent road noise suppression—again legacies of the Skyactiv processes and much local tuning work over a variety of real American roads. In these regards the Mazda reminds of the VW Passat, another excellent competitor.
Where the Mazda6 pulls definitively ahead of most others is in cockpit design and execution. The overall look is restrained elegance; the polished detailing suggesting CNC-machined surfaces and many of the moldings being richly textured and soft to the touch. The most intriguing detail turned out to be the painted strip of trim running across the dash, finished in a one of two subdued hues that echo both the exterior paint and ‘70s hotrods and beach buggies.
There’s plenty of available tech, from blind spot monitors to rear cross-traffic alert to sensors that will brake the car to a stop automatically to prevent a one rear-ending the car in front to bi-xenon lights that shine around corners. The new TomTom-based navigation and infotainment system is simple to use and can be controlled by a rotary knob located between the seats or by its touch screen, and the optional Bose surround sound system is as good as anything in the class. While the Mazda’s tech setup isn’t as showroom titillating as the button-light MyFordTouch, and its graphical presentation is rudimentary, there’s no frustrating delays while commands are assimilated or the entire system crashes.
Speaking of the Ford, the Fusion provides the only real riproste to the Mazda’s slinky “Kodo” design, a major—and needed—improvement over the outgoing model’s innocuous, smiley-faced visage. While the 6 doesn’t have anywhere near the breadth of powertrain offerings of the Ford, it comes across as much better value, with its premium-level ride/handling and interior, yet a price that is thousands less.
Mazda’s biggest challenge these days isn’t its size; it is getting people to even realize it exists. Cars like the Mazda3, CX-5 and CX-9, all either near or at the top of their respective classes, have helped the firm grow and find new clientele. The Mazda6 is so good that one cant help but expect it to bring in a whole new raft of buyers to the fold, while it better holds onto those that have already experienced the excellence of the company’s other offerings. Who says smaller’s not better?
2014 MAZDA 6 CAR BUYING TIPS:
Since it debuted, the 6 has been so hot, it is almost impossible to find on dealer lots. Mazda clearly misread the tea leaves about demand here in the United States for its new midsizer. I sold one of the first ones to be shipped here in February, but then couldn’t hardly get a car to offer to interested clients. In July I sold one more and leased another, and to get one of these deals done, we had to poach the general manager’s car. At that time I was paying $400 to $500 over dealer invoice for the 6. Mazda finally ramped up production, and as the cars began to arrive from Japan (the only place they are currently built—and a good thing, in my opinion, as many American-built Asian cars are not as high quality as ones from the home countries), I have been able to secure better deals—now I can pay invoice for one. This still doesn’t save a huge sum of money, as the margin on the 6, like many newer cars, is quite slim. Expect invoice to be roughly $1,000-1,400 less than MSRP. Mazda 6 leases are very competitive, and the car is projected to hold a very high percentage of its price, along the lines of class leaders like the Honda Accord. Finally, reliability shouldn’t be an issue, as Mazda has been matching Toyota in most every survey of both short- and longterm toughness.
For many more car buying tips, including how to get the best pricing possible on new and used cars, trucks and SUVs, get the Car Buying Tips Guide ebook here.
EPA ratings: 26/38; 30mpg combined
Price as tested: $31,490
Here’s Mazda’s take on the new 6.
Car buying tips to protect you and your family
We are blessed to live in a country with incredibly safe cars. Though tens of thousands die each year in automobiles and hundreds of thousands are injure, the death rate based on miles driven per year is at an all time low. To reduce your own risk, it is important to access the more comprehensive data and not just “go with your gut” based on size or appearance.
When I was head instructor for the great company MasterDrive, I taught literally thousands of people—mostly teenagers and those injured in previous accidents—how to drive. I would often ask what they considered safe cars. The general answer was some that some big old “Yank tank” from the 60s or 70s, with thick sheetmetal and big bumpers that didn’t dent easily, would be the best place to be in an accident. Yet that was completely incorrect; these are some of the least safe vehicles on the road.
Vehicles engineered in those days rarely took into account how impact forces transferred through to the occupants. It doesn’t mean anything if the car looks intact yet those inside are severaly injured or perhaps dead. What you want is a car, truck or SUV designed to progressively disappate the forces of a crash, so the driver and passengers survive with as minimal injuries as possible. The external evidence of this is a crumpled car with its passenger compartment still intact—not a land yatch or truck that looks unharmed.
There is a terrific resource for all of us who are shopping for cars, that helps explain how the two leading safety rating agencies in the US, the Insurance Institute for Highway Safety (IIHS) and the National Highway Traffic Safety Administration (NHTSA), arrive at their conclusions, and how to turn them into essential car buying tips—new or used. This site is InformedForLife.org, and it is the best yet resource I have found for this potentially life saving data.
At InformedForLife.com you can research any car, and see how it has performed in standardized crash tests from both IIHS and NHTSA in areas such as front, side and rear impact, rollover testing, and the affect on both front seat occupants. There is also a new test called the Frontal Impact Rating: Small Overlap, where, instead of hitting a wall head on, a test vehicle is run into a barrier where only 40 percent of the car’s nose hits. This is actually a much tougher test to escape unscathed from, and few cars have been engineered to meet its demands. There’s a great feature done by Motortrend magazine here that goes into great detail on this, here.
The final piece of the puzzle is understanding the difference between active safety—the ability to avoid an accident by maneuvering out of harm’s way—and passive safety, which is the ability to avoid or minimize injury once one occurs. The most important factor here is driver ability and distraction. Looking ahead so as to avoid an incident in the first place is the best way to stay safe—and keep your insurance rates down!
Training to maneuver a car out of an impending crash or avoid a spin or rollover are also critical abilities in my opinion. As someone who has raced cars and taught racing for over two decades I know how critical these skill sets are. Yet there is no mandated training for Americans in this regard; driving tests are more focused on your ability to properly parallel park than to save yourself from a horrific crash, which is simply absurd. But there are plenty of great (and inexpensive) ways to bolster your skills in these areas, which I will talk about in another post.
Choosing the safest car, truck or SUV is obviously also one of the most important car buying tips, and leveraging the comprehensive information at InformedForLife.org is a terrific place to start. For more great car buying tips get the CarBuyingTipsGuide ebook, available here.