According to CNBC, auto leasing activity is the highest it’s been since Experian began tracking it in 2006.
Auto sales are strong this year as well, aided by buyers who are signing up for long-term loans in order to keep monthly payments “in check.” That means an average monthly payment for a new vehicle of $459, which is actually a few dollars less than the average at this time last year.
How have car buyers kept monthly payments from edging higher? In part they’ve done it by spreading out the length of their auto loans over a longer period of time.
In the first quarter the percentage of auto loans stretching out 73-84 months jumped 27.4% and now makes up 19.5% of all new vehicles financed.
“Loans of six plus years have become extremely popular, especially those that are 75 months,” said Experian’s Melinda Zabritski.
Recovering From Financial Bulimia
I’ve written before about people’s tendency to financially binge and purge, racking up debt when times seem good and becoming frugalistas when times are tough. Many people appear to be in binge mode again.
At the risk of stating the obvious, or sounding like the Grinch who stole everyone’s financial fun, wouldn’t it be better to always give, save, and invest portions of all that we make and then use a plan to divvy up what remains on all of the spending categories?
One problem may be that many of us are simply car crazy, and that can make us financially crazy as well. According to a survey cited by Juliet Schor in her book, “The Overspent American,” “nearly half of car owners saw their car as a reflection of who they are either ‘a lot’ or ‘some.’”
A number of years ago, I spent several weeks developing recommended spending guidelines for various size households across various income levels. One of the conclusions that jumped from the pages was that, except at the very highest edge of the income spectrum, if we are to live generously and save and invest adequately, it’s impossible to have any debt (or lease payments) other than a reasonable mortgage. Impossible. A $459 car payment (or one of any amount) just doesn’t work for the average household.
Turning Onto a Smoother Financial Road
For some people, breaking the cycle of financing vehicles may take some time. Early in the journey of recovering from my own Prodigal Son story, I leased a car. The car I had been driving had over 120,000 miles on it and was spending more time in the shop than on the road. At the end of the lease, I paid off the car, drove it until it had nearly 200,000 miles, and have never financed or leased a vehicle since.
Our vehicles may not elicit admiring stares or compliments, but they get us where we want to go—both physically and financially.
What’s been your experience with vehicles?
By Matt Bell
Matt Bell is Sound Mind Investing’s Associate Editor. He is the author of three personal finance books published by NavPress, leads workshops at churches and universities throughout the country, and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.