The Auto Loan Bubble

[DDJ]

This raises the question of what will mother Nature's recent, hopefully reducing, fury will do the car market.  There will be lots of cars "totaled" by the insurance companies.  The "owners" or these cars will be disappointed that they did not get a check big enough to pay off the loan or do not get a check at all because he did not have flood and or hurricane insurance on the car.  The insurance company will then auction off the cars to the highest bidder.  That guy will try to "flip it" for all that it is worth. Then in May or so it will show up at the discount dealer in Michigan for a real steal.  So now you have a flood of people buying cars to replace the ones that they could not get out of the storm.  Then you get people buying junk that was full of salt water in places that salt the roads.  Someplace there are debts going unpaid or minimal payments being made on them or the government going through and picking up the differences.  This sound like a giant flush to me. 

People who buy cars with Cash, have good credit but use it sparingly and the really poor are all the ones who get the short end.

And to top it all off the Data at the clearing houses of all of the companies and agencies are being hacked giving everyone's personal information to the "bad guys" dropping everyone's credit score so you are not eligible for the "good" financing.

Actually there are no long sticks in this contest and both ends have something on them that came out of the South end of a North bound something.

[RitaRose1945]

Isn't gap insurance required by the lender?  Similar to PMI for your mortgage when you put < 20% of the sale price down?

Think of some entitled idiot who puts no money down on a $50K car loan.  The vehicle gets totaled soon after purchase and insurances pays out less than $40K. 
Dude has no car, and even after throwing all the insurance payout at his loan, he's still in the hole $10k.

The risk of a borrower defaulting under good circumstances, but underwater with no vehicle, seems HIGH risk of default.

The bank would do as well playing roulette at the local casino.

You would think they would require it, but I know plenty that don't.

I insist on it, during the odd times that I actually have an auto loan.

[Smurf Hunter]

You would think they would require it, but I know plenty that don't.

I insist on it, during the odd times that I actually have an auto loan.

Or if you buy used at or around blue book values, you'd only be out your deductible for a total loss.
If you have your eyes on a particular car, call your insurance company and ask two things:

1) how will owning this prospective vehicle affect my premiums?
2) what book value does the company have for this car given the make/model/year/trim/mileage?

If #2 is way below the street price, either be prepared to keep a cash buffer for the difference, or perhaps you're not finding a fair deal.

If you are a payment or so in the hole, that kind of sucks, but you can survive it.  The people who get screwed are those who way over leveraged and also have little cash savings.

[osubuckeye4]

I'm almost positive that while it's a good idea to have, gap insurance is not legally required.

I'm a little less certain on this, but I do think it's required that if you're financing your car the dealer offers/quotes you gap insurance... but it's ultimately up to the buyer if they actually want to purchase it or not.


(I'm too lazy to do any research right now)

[RitaRose1945]

I'm almost positive that while it's a good idea to have, gap insurance is not legally required.

I'm a little less certain on this, but I do think it's required that if you're financing your car the dealer offers/quotes you gap insurance... but it's ultimately up to the buyer if they actually want to purchase it or not.


(I'm too lazy to do any research right now)

From what I have seen shopping for car insurance recently, at least in Nevada, you're required to have comprehensive insurance if your car is financed, but not gap insurance.  My son's car still has a little less than a year to go on the loan, while mine has been paid off for 4 years now, and the requirements are definitely different for the two vehicles.  I do wonder if some people assume comprehensive means the loan gets paid off, even though it doesn't.

[Smurf Hunter]

Protecting the lender is different from protecting yourself.

If you pay $20K cash for a used car that has a market value of $15K and total it, minus your deductible you'll get around $15K from your insurance (lots of factors, but hang with me).
That's your own dumb fault that you pissed away $5000.

Really what we're talking about is the lender of the auto loan losing out.  When you borrow $20K to buy something worth $15K.  If it's a total loss, or you just flake on the payments and they attempt to repo (think home foreclosure), the lender is out $5000.