Insurance and Financing in the Auto Industry

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Why a lengthy auto loan could be a bad move

There’s been a big increase in consumers who owe more than the vehicle is worth

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Financing your vehicle for six years with little down may be a bad idea. With a 72-month loan, your vehicle may depreciate faster than you pay down the loan.

That’s apparently happening to millions of consumers. Automotive website Edmunds reports an increasing number of car owners owe more on their vehicle than it’s worth. With a small down payment and a lengthy loan term, more of your payment goes to interest, not paying off the loan.

Edmunds reports that in the third qu...

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    Rising interest rates are sending car payments into record territory

    A quarter of new car buyers are spending at least $1,000 a month

    Two new reports from automotive data company Edmunds show just what new car buyers are up against these days. Not only are prices near record highs, but so are monthly payments, thanks to rising interest rates.

    "High prices and rising interest rates are dealing consumers a one-two punch by catapulting monthly payments into a new realm," said Jessica Caldwell, Edmunds’ executive director of Insights. "With new vehicle purchases, automaker subsidies offer a bit of relief, but even those are far less generous than before. Consumers heading into the car market may be aware of high prices but also need to brace themselves for a different experience in the F&I office."

    Edmunds reports the average annual percentage rate (APR) on new financed vehicles in the third quarter of 2022 climbed to 5.7%, the highest rate since the third quarter of 2019.

    At the same time, the average auto loan for new cars and trucks hit an all-time record high in the third quarter, rising to $41,347. That compares to $40,602 in the previous quarter and $38,315 in the third quarter of 2021.

    Jaw-dropping payments

    That makes for some jaw-dropping monthly car payments. Edmunds estimates that 14.3% of consumers who financed a new vehicle purchase in the third quarter of this year agreed to a monthly payment of $1,000 or more. That’s the highest level that Edmunds has on record.

    The percentage is even greater for consumers purchasing an electric vehicle (EV). Edmunds says 26% of EV buyers are driving away with a monthly payment over $1,000.

    For car buyers, there are only two ways to get a lower monthly payment. Put down more cash or select a less expensive vehicle. Despite worrisome macroeconomic conditions, Caldwell says consumers have been less inclined to spend less.

    "Ongoing inventory shortages are partly to blame, but this trend is also a reflection of consumer preferences,” she said. “In the past decade, we've seen Americans embrace a bigger-is-better mindset by gravitating toward larger vehicles with more creature comforts, technology-heavy features, and more recently, electrified powertrains — but that all comes with added cost. Rising interest rates combined with higher prices has sent monthly payments soaring to new heights."

    Two new reports from automotive data company Edmunds show just what new car buyers are up against these days. Not only are prices near record highs, but so...

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    Here are five auto lease deals under $199 a month in September

    But the initial upfront payments make some of them less attractive

    New car prices are still near record highs and interest rates continue to rise, making the purchase of a new car increasingly expensive. But it turns out there are five lease deals this month with monthly payments at or below $199 a month.

    Automotive publisher Edmunds dug up the deals but notes these vehicles are not the most popular with consumers, which is why they are priced the way they are. Some require large initial payments, which must be considered along with the low monthly payment.

    Let’s start with two Buick Encore models – the Encore and the Encore GX. They both list for about the same – just over $27,000. However, the Edmunds editors favor the GX over the Encore for its “sprightly acceleration, competent handling, and a robust list of tech features.”

    Both small SUVs have $199 monthly payments but aren’t the values they might first appear. Both are 24-month leases and require upfront payments of over $5,600. When factored into the total cost, that $199 monthly payment is more like $432.

    The 2022 Chevrolet Trax is also a 24-month lease but has a slightly lower initial payment – $4,319. The downside? The Edmunds editors say the Trax is small and practical, “but it's also slow and it doesn't have the best ride.”

    36-month leases are more affordable

    The 2022 Hyundai Venue may be the most attractive lease deal available in September. It's Hyundai's smallest SUV and the Edmunds reviewers say the Venue, “packs a lot into a very compact package.”

    The MSRP is $20,295 but the lease carries a monthly payment of just $169 a month for 36 months. Even when adding in the $3,200 due at signing, the monthly cost is only $257.

    The last vehicle on the list is the only sedan, the Hyundai Elantra. With an MSRP of just over $21,000 the Elantra lease is for 36 months and a monthly payment of $199 – $287 when the $3,200 upfront cost is considered.

    The Elantra choice is a popular one with the Edmunds editors, who say that it “stands out with its high fuel economy, impressive technology and safety features, and roomy cabin.”

    Things to consider

    All of the lease deals end at the end of the month or early October. Keep in mind that these deals are not available in every state so car shoppers should make sure dealers in their states will honor them. Consumers leasing a vehicle in this environment should be mindful of one other thing.

    The “residual” value of the vehicle, what it can be purchased for at the end of the lease, has never been higher because of the current high market value of used cars. Chances are, at the end of the lease the market will be back to normal and the vehicle will be worth less than its residual value.

    Anyone leasing a car now should be prepared to turn it back in at the end of the lease, taking good care of it and staying under the mileage limit.

    New car prices are still near record highs and interest rates continue to rise, making the purchase of a new car increasingly expensive. But it turns out t...

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    Average car payments to likely set record in first quarter

    An industry report cites both the rising cost of vehicles and higher interest rates

    Not only are the prices of new and used cars going up, but so are the monthly payments used to finance them, according to a new report from automotive publisher Edmunds.

    Those higher monthly payments are the result of a perfect storm of economic conditions. The cost of the vehicle and the interest rate used to formulate the monthly payment continued to move higher over the last few months.

    As a result, Edmunds estimates that the average monthly payment for a new car or truck purchased in the first quarter was $648. That compares to $639 in the first quarter last year and $575 in the first quarter of 2020, just before the pandemic hit.

    The monthly payment for the average used vehicle isn’t that much lower. Edmunds estimates that the average monthly payment for used vehicles is expected to break a record, climbing to $538. That's up from $432 in the first quarter of 2021.

    Edmunds experts say the record monthly payments are the result of record prices for the cars and trucks themselves. They estimate that the average auto loan was $39,340 for a new vehicle and $30,040 for a used car or truck.

    Using those calculations, the average new car loan increased by 12.2% year-over-year, and the average used car loan surged 28.6% higher. Edmunds data suggests that luxury new vehicle lease penetration fell to 32% in March 2022, down from 53% in March 2019.

    Inventory is still a problem

    The researchers say lower inventories are a massive problem for buyers who are looking for a good deal on a vehicle.

    "Shrunken inventory continues to wreak havoc on both the new and used vehicle markets, and shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms," said Jessica Caldwell, Edmunds' executive director of insights.

    Edmunds also estimates that the average new car buyer made a down payment of $6,026 in the last quarter, a 27% increase compared to the same period in 2021. It’s the first time that number has crossed $6,000.

    “It’s a tough time to have to buy a car,” said Karl Brauer, executive analyst at iSeeCars.com, in a recent ConsumerAffairs interview. “I’m telling  people that if they can wait to replace their car, they should.”

    Not only are the prices of new and used cars going up, but so are the monthly payments used to finance them, according to a new report from automotive publ...

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    Feds worry about the increasing cost of used car loans

    The rapid rise in vehicle prices is resulting in higher monthly payments

    The skyrocketing cost of new and used cars means consumers who finance their purchases are facing ever-higher monthly payments. The Consumer Financial Protection Bureau (CFPB) says that’s a cause for concern.

    The CFPB says the problem is greater with used vehicles because the interest rate on a used car loan is typically higher than for a new car. The agency points to data showing that the consumer price index (CPI) for used cars and trucks increased by 40% percent since January 2021, while the CPI for new cars increased by just 12%. 

    As car prices continue to rise, the CFPB worries that loan amounts will continue to rise. However, that may not be immediately apparent to consumers since growing loan lengths may make those larger loans seem affordable.

    Consumers should shop around

    These circumstances make it more important for consumers seeking to finance a used car to shop around for the best terms. Some new players, including fintech firms, can be very competitive with banks and credit unions.

    Scottie, of Danville, Va., told us he had a good experience with LoanMart, citing its flexibility.

    “Unlike a regular car loan, you can pay towards the principal and get it down quicker than the months they had it set up for,” Scottie wrote in a ConsumerAffairs post. 

    ‘Average loan size will continue to increase’

    According to the CFPB, the danger for consumers is overextending the length of a loan. For example, financing a vehicle for six or seven years will result in a much slower payoff of the amount owed. At some point, the consumer will still owe more than the vehicle is worth – even in today’s hyperinflationary market.

    “As a result, we expect that both the total amount of debt and the average loan size will continue to increase and that larger car loans will put increased pressure on some consumers’ budgets for much of the next decade,” the agency said.

    Officials note that auto loans are already the third-largest consumer credit market in the U.S. at over $1.4 trillion outstanding. That's double the amount from 10 years ago, and it's expected to grow further. The CFPB has expressed concern that the inflated prices of used cars and trucks could create incentives for lenders to repossess cars more quickly than they would have in the past.

    The financial regulating agency said it will closely monitor lender practices to measure how they affect consumers. In particular, it will evaluate lending structures where lenders appear to rely on high interest rates and fees to profit, even when consumers fail.

    The skyrocketing cost of new and used cars means consumers who finance their purchases are facing ever-higher monthly payments. The Consumer Financial Prot...

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    NTSB releases report on fatal Tesla crash in Texas

    Officials say there was a driver behind the wheel and Autopilot isn’t to blame

    The National Transportation Safety Board (NTSB) has released its preliminary report on the recent fatal crash of a 2019 Tesla Model S in the Houston area. 

    On April 17, two men in Texas were killed after a Tesla Model S left the road on a curve and eventually crashed into a tree. The impact damaged the car’s lithium-ion battery, which started a fire. 

    Shortly after the crash, police told reporters that they were “100 percent certain that no one was in the driver seat driving that vehicle at the time of impact.” However, the NTSB said in its report that the car’s owner was seated in the driver’s seat and his companion was in the front passenger seat. 

    “Footage from the owner’s home security camera shows the owner entering the car’s driver’s seat and the passenger entering the front passenger seat,” the report said. 

    The agency said the car traveled "about 550 feet" from the owner’s home before leaving the road at the curb, going over the curve, hitting a drainage culvert, a raised manhole, and then a tree. A fire ensued when the vehicle crashed into the tree. 

    The agency also said in the report that Tesla’s Autopilot driver-assist technology couldn’t have been engaged at the time of the crash because it couldn’t be enabled in that location. 

    Tesla CEO Elon Musk previously insisted that Autopilot couldn’t have been active at the time of the crash, tweeting out data logs indicating that Autopilot was not enabled and that the car in question didn’t purchase the full self-driving feature. 

    Investigation ongoing

    The NTSB described the road being traveled prior to the accident as "a concrete two-lane road with one westbound and one eastbound lane and mountable concrete curbs on either side.” The road was level with no line markings, and the speed limit was 30 mph. There was a curve to the south where the Tesla crashed, the agency said. 

    Although the infotainment system in the car was destroyed by the fire, the "restraint control module" was recovered (albeit in damaged condition) and handed over to the NTSB to evaluate. The component stores data that includes how fast the car was going, acceleration details, whether seatbelts were in use, and more. 

    The NTSB’s investigation is ongoing, and it hasn’t yet decided on the probable cause of the accident. The agency is still looking to glean insights on several issues, including seatbelt use, crash dynamics, and whether the passengers were intoxicated at the time. 

    Once a probable cause is determined, the NTSB plans to issue safety recommendations to prevent future crashes.

    The National Transportation Safety Board (NTSB) has released its preliminary report on the recent fatal crash of a 2019 Tesla Model S in the Houston area....

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    IIHS releases its list of safest vehicles for 2021

    Tiger Woods’ Genesis SUV is on the list

    The Insurance Institute for Highway Safety (IIHS) released its list of the safest 2021 vehicles just a day after golf legend Tiger Woods survived a horrific highway crash in his Genesis GV80 SUV.

    Hyundai Motor Group, which makes the Genesis -- as well as Hyundai and Kia -- drove off with 12 regular Top Safety Picks and five pluses, the most of any manufacturer. Woods is recuperating in a Los Angeles hospital with serious leg injuries while his SUV is a twisted pile of metal.

    IIHS says its annual awards demonstrate that the cars and trucks on American roads are getting safer. This year, 41 vehicles earned Top Safety Pick designations, bringing the total number of 2021 award winners to 90, compared with 64 in February 2020.

    “With these awards, we want to make it easy for consumers to find vehicles that provide good protection in crashes, sufficient lighting, and effective front crash protection,” said IIHS President David Harkey. “Manufacturers have stepped up to meet the challenge, and the list of great options has grown to an impressive size this year.”

    To receive either award, a vehicle must earn good ratings in all six IIHS crashworthiness tests: driver- and passenger-side small overlap front, moderate overlap front, side, roof strength, and head restraints. 

    Vehicles must also be available with front crash prevention that earns a superior or advanced rating in both vehicle-to-vehicle and vehicle-to-pedestrian evaluations. Finally, Top Safety Pick winners must be available with good or acceptable headlights.

    Honda makes a strong showing

    Besides Hyundai, Honda also made a strong showing. Six Honda models earned a Top Safety Pick rating or better with three -- Accord, Insight, and Odyssey -- achieving the coveted Top Safety Pick+ rating. 

    In addition, the 2021 Accord, two Civic models, CR-V, Insight, and Odyssey each achieved a "Good" in all six IIHS crashworthiness tests. 

    Two minivans, the Honda Odyssey and Toyota Sienna, qualified this year for the Top Safety Pick+ award. A pickup truck, the Ram 1500 crew cab, is also a Top Safety Pick and is the only winner from Stellantis, the company created by the recent merger of Fiat Chrysler and Peugeot. A year ago, there were no minivans or pickups in the safest categories.

    IIHS noted that Mitsubishi failed to earn a single award so far and that General Motors recorded only two.

    The Insurance Institute for Highway Safety (IIHS) released its list of the safest 2021 vehicles just a day after golf legend Tiger Woods survived a horrifi...

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    Experts predict auto interest rates will head lower

    The trend could benefit both new buyers and present owners

    If you’re in the market for a new or used car and plan on financing it, it may pay to wait a little longer before making a purchase. Already-low auto loan rates are set to go lower.

    In its 2021 auto rate forecast, Bankrate.com predicted loan rates would drift lower over time. The Federal Reserve’s interest rate policy is aimed at keeping interest rates stable and low.

    “The fed funds rate is pinned to the floor of 0 to 0.25 percent until 2023 or so, but an equal part of the Fed’s strategy is keeping longer-term interest rates low,” said Greg McBride, CFA, Bankrate’s chief financial analyst.

    McBride said that while the Fed has primary control over short-term rates, it has a number of tools at its disposal, including purchasing debt, which can help keep nearly all rates to where the Fed wants them to be.

    It can help current owners too

    RateGenius, a fintech company, says the trend not only helps car buyers but also car owners who refinance their loans. Refinancing is mostly associated with home mortgages, but the company’s analysts say it can also save money on car loans.

    "Last year was a difficult one for consumers across the country," says RateGenius CEO Chris Speltz. "While it's not surprising that borrowers who refinanced saved money on their auto loans and lessened their overall debt burden, what our analysis found was that changes in consumer behavior as a result of the pandemic — such as fewer miles driven and choosing to purchase used cars over new — had an overall positive impact on vehicle collateral values, loan approvals, and savings in 2020."

    In fact, the company’s report on auto loan refinancing in 2020 found the monthly savings to be the highest on record. The study found:

    • Consumers saved an average of $989.72 a year on refinancing their car in 2020, the largest amount since 2016.

    • 42 percent of refinanced loans saw annual savings of $1,000 or higher.

    • With an average interest rate of 10.5 percent on their existing loans, the average interest on the refinanced loan was 5 percent — the greatest interest rate reduction in eight years.

    The trend should continue

    For borrowers hoping to refinance their auto loans in 2021, the forecast is promising. Scott Markland, vice president of business development at RateGenius, says 2021 is shaping up to be another year for record savings.

    He says the trend is likely to continue throughout the year, providing opportunities for consumers to save money and for lenders to land new business.

    ConsumerAffairs has collected hundreds of verified reviews of auto loan companies. You’ll find them here.

    If you’re in the market for a new or used car and plan on financing it, it may pay to wait a little longer before making a purchase. Already-low auto loan...

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    Autonomous vehicle company Waymo releases report on trials in Phoenix

    Despite dozens of collisions and near-misses, the company maintains that its technology could save thousands of lives

    Waymo -- the autonomous driving technology development company that’s a subsidiary of Alphabet Inc., the parent company of Google -- has released its first round safety numbers for its operations in Phoenix, Arizona.

    Overall, the company seemed pleased with the results and feeling good about the future of driverless vehicles.

    The scorecard shows that company vehicles were involved in 18 accidents and 29 near-miss collisions during all of 2019 and through the first nine months of 2020.

    In Reuters’ shakeout of the data, Waymo vehicles in Phoenix were involved in minor incidents once out of every 339,000 miles driven, adding that an additional 29 incidents were avoided with the intervention of a safety driver. 

    Applying the metrics to a real-life scenario, Waymo equated the number of miles traveled by its vehicles represents over 500 years of driving for the average licensed U.S. driver.

    The company couched the majority of incidents into the category of “typically unreported minor collision or contact,” but admitted that there were eight incidents it considered “most severe or potentially severe” where airbags were deployed. 

    Good news or bad news?

    Whether Waymo considers those results a glass half-full or a glass half-empty, it didn’t say. But Phoenix-area residents have been rather vocal about the 300+ vehicles operating driving around the Phoenix metro, calling them a hazard

    Undaunted, the company remains confident about the technology saying it believes that it could prevent thousands of lives from being lost to traffic crashes every year. The Waymo team defended its extensive efforts, writing, “The more miles we travel on public roads, the more opportunities to monitor and assess the performance of software.”

    “We take our responsibilities to the communities we serve seriously. Now that we’ve opened up our fully autonomous ride-hailing service to the public, we’re also sharing in detail the safety framework that guides our progress.”

    Waymo -- the autonomous driving technology development company that’s a subsidiary of Alphabet Inc., the parent company of Google -- has released its first...