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Cheap auto loans make now the time to trade in

[Dec 6, 2010.]


Cheap auto loans and high trade-in values--a great combination

Back on November 22, this blog quoted a Wall Street Journal piece that showed that cheap auto loans and great trade-in values were making it very attractive to buy new cars. The Journal based its findings on an annual survey from Manheim Consulting.

Just one week later, Newsday ran a similar story using an entirely different analysis from a separate source. It reported that, in October, three-year-old cars were worth 10.3 percent more than they were in the same month in 2007. Over the same period, auto loan interest rates had dropped by more than 36 percent. Newsday quoted Ivan Drury, an industry analyst, as saying:

By taking advantage of these unusual market conditions, consumers who purchased cars three years ago may be able to get top dollar for their trade-in, lower their monthly payments and get a new car -- all at the same time.

Amazing trade-in values

Newsday's source gave some examples of trade-in values in October 2007 and October 2010. And it became clear that that 10.3 percent average increase was just that: an average. Some models had done way better.

For example, a three-year-old Chevrolet Suburban was worth $20,538 in 2007, but $26,398 in 2010, an amazing increase of 28.5 percent. Meanwhile, a BMW X5 had jumped 24.2 percent, and a Chevrolet Tahoe by 21 percent.

But it's the combination of high trade-ins and low interest rates for auto loans that is so irresistible. Someone who took out a $25,000 five-year loan at the average rate in October 2007 would have signed up for interest payments of $4,985. Today, those would total $3,101, a monthly saving on repayments of more than $30.

Auto loans market remains strong

Back in October, this blog raised the possibility that cheap auto loans may not be around for ever. Unless the economic recovery builds momentum, there's a real chance of lenders losing confidence in borrowers' ability to make payments, and such a loss would be likely to result in higher interest rates.

So the latest employment data, published December 3, from the Bureau of Labor Statistics was a little worrying. These showed that the unemployment rate had increased slightly to 9.8 percent. It's bad enough that 15.1 million Americans are formally jobless, but you have to add to that number another nine million who have been forced into part-time work, and 1.3 million who want jobs but who've given up looking because they believe their search is hopeless. That's an awful lot of people who are struggling to get by, and it seems inevitable that many of them have unmanageable debt.

Still, these figures are yet to worry many auto loan lenders. BusinessWeek reported December 2 that Moody's has upgraded two of its ratings of General Motors Financial Company, Inc. That was only three days after Fitch announced that it had similarly upgraded elements of the Wachovia Auto Loan Owner Trust.

So there's no sign yet of borrowing for cars getting more expensive. But, if you'd rather not take a chance on an uncertain future, you can get competitive auto loan quotes now.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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