Stretched car loans gain traction with buyers

Stretched car loans gain traction with buyers Jul 12th 2013, 11:06 Scott Greenberg could have handled a bigger car payment. But with a baby on the way and the dealership offering a rock-bottom interest rate, Greenberg stretched the loan to 72 months — about as long as the average American keeps a new car. At 2.64% interest, the long term cut about $100 from his monthly payment on the Volkswagen Touareg SUV. "I will be putting that savings into her college fund," Greenberg said of the daughter he's expecting. The Santa Monica technology consultant is among a record number of car buyers taking out loans of six, eight or even 10 years. Loans of six years or longer account for 30% of all financing deals so far this year, including leases, according to research firm J.D. Power and Associates. That's up from 23% five years ago. The standard length of car loans — once four years, then five — has been creeping up for some time. Extended terms are gaining traction in an era when cars last longer and have better warranties. Automakers have marketed the long loans aggressively, persuading some buyers to move up to pricier models they couldn't otherwise afford. The median-priced new car now costs $28,555 , according to Kelley Blue Book. "Someone who really has the budget for a Corolla figures if they extend the financing out, they can buy a Camry," said James Lentz, chief executive of Toyota Motor Corp.'s North American division. It's the kind of trend that normally makes personal finance gurus sound the alarm. And long loans can still get consumers in trouble, particularly those with tarnished credit who can't qualify for the best deals. But at historically low rates, longer loans can make sense for savvy buyers with good credit and the intent to drive their vehicles for many years. Such consumers are slashing their car payments and diverting the money to higher-interest debt, investments or other priorities. Bradley Gallant of Plymouth, Mich., plans to divert extra money each month to investments. He borrowed for 72 months at 1.89% from Wells Fargo when he bought a Honda Accord in March. The finance executive at an energy company slashed about $130 from his monthly payment compared with the traditional four-year loan. He'll shell out only about $370 more in interest over the life of the loan. "I am confident I could invest the cash in alternative investments and earn a much higher return," Gallant said. Although interest rates on home mortgages have started to rise, analysts believe the low rates on auto loans should stick around for some time. Automakers are often more concerned with selling cars than profiting from financing. "Low finance rates are what is keeping America spending," said Jessica Caldwell, an analyst at auto information company Edmunds.com. Automakers make more in interest on longer loans, with little additional risk. Car loan defaults typically take place within six months after purchase, when the car still has much of its value, Lentz said. Consumer finance experts warn that longer loans work only because of the rock-bottom interest rates — and even then, they should be approached with caution. "It's treating a car like a home mortgage," said Casey Bond, managing editor of GoBankingRates.com, a personal finance information company. "You really have to do the math. Personally, I don't like paying extra money for the privilege of being in debt." Even at low rates, it's not smart to use debt for purchases that don't fit your budget, she said. "My suggestion would be to buy a cheaper car," Bond said. Car shoppers pursuing a long loan need to have stellar credit and financial reserves, said Christopher Kukla, senior vice president of the Center for Responsible Lending. They'll need cash for a replacement vehicle if their car gets totaled, because longer loans and smaller payments leave drivers vulnerable to owing more than the insurance company will pay on a claim, Kukla said. Otherwise, they can quickly find themselves in the financial quagmire that caught Gilberto Chacin, a U.S. Army sergeant at Fort Irwin, the sprawling base in the Mojave Desert. Chacin bought a 2013 Mazda CX-5 after an aging Dodge Caravan became unreliable. He had to take out an 84-month loan to get the monthly payment down to a manageable $469. That's because he still owed $5,000 on the old van and had to wrap that debt into the new 6.1% loan.

Deal of the Day: CSD Credit Union Auto Loans at 1.49% - Go Banking Rates Jul 12th 2013, 09:37 Searching for great interest rates can be difficult, and this is especially true when it comes to car loans. Gone are the days of low rates enticing prospective car shoppers onto the lots. Of course, this is not to say that there aren't good auto loan deals to be found. Members of CSD Credit Union should be fully aware of the great auto loan rate that their financial institution offers. Its current rate of 1.49% APR on all new auto loans should be more than enough to bring car shoppers out of the woodwork once more. CSD Credit Union Auto Loan Terms and Conditions The auto loan rate of 1.49% APR is available on new or used vehicles with a model year of 2013 or older, with a term of up to 30 months. Members can borrow up to three times on the same collateral, with a minimum individual borrowing amount of $1,000. Actual rates might vary based on factors such as the borrower's capacity to pay, credit history or the vehicle's loan-to-value ratio. About CSD Credit Union Since 1959, CSD Credit Union has been serving the state of Missouri by promoting thrift and offering low cost banking solutions. From its humble beginnings offering membership to the employees of Hickman Mills School District, it has grown to include a number of employer groups, such as Grandview School District, O'Hara High School, St. Regis School,  Blue Ridge Christian School, Grandview Christian School and the Metropolitan Community Colleges. OthertTerms and conditions may apply. Additionally, interest rates are based on the institution's online published rates and may have changed since this offer was posted. Please contact the financial institution for the most  recent rate updates and to review the terms of the offer.

Russia Revives Subsidies for Car Loans - Wall Street Journal Jul 10th 2013, 13:17 MOSCOW—Russia is again turning to government-backed loan subsidies to help boost auto sales after a drop in demand this year has cast doubt on forecasts that Russia would soon become Europe's biggest car market. Sales of new cars and light commercial vehicles have fallen for the past four months and are down 6% on the year through the end of June, according to the Association of European Businesses in Russia, a trade group. Last month, Russia's Ministry of Industry and Trade said it would revive a program in which banks will hand out subsidized loans through the end of 2014 to customers buying cars that cost 700,000 rubles ($21,300) or less. A similar subsidy program had been in place between 2009 and 2011. Minister of Industry and Trade Denis Manturov said in late June that he hoped the loan subsidies would help auto makers sell an additional 250,000 cars a year. In 2011, the ministry said the government subsidized 263,000 auto loans. That year, car sales in Russia surged 39% to 2.65 million vehicles. Strong growth continued last year, with sales increasing 11% over the year earlier to 2.94 million vehicles. Foreign manufacturers have bet heavily on Russia as sales have slumped in Europe. Declining sales so far this year amid an economic slowdown has led the trade group to forecast a 2013 year-over-year sales drop to 2.8 million vehicles. Analysts say it is unclear whether the subsidy plan would have the same impact as in 2011, when it was paired with other government programs. "It is hard to say if they can match what we saw the last time, but the segment covered by this subsidy is one of the largest in Russia so it should be a good stimulus measure," said Artem Egorenkov of Uralsib Capital. "At the very least, it should have a good psychological effect." When a consumer applies for credit to buy a car, the bank gets reimbursed by the government for the discount the bank gave on the loan. The subsidy requires the buyer to put 15% down for a car that costs no more than 700,000 rubles and with a loan that is no longer than a 2 ½ years. Joerg Schreiber, head of Mazda Motor Corp. in Russia and chairman of the AEB's automobile manufacturer's committee, is hopeful the subsidy program will help auto sales bounce back in the second half. "We hope these plans will be implemented quickly for the expected positive effect to be felt in the coming months," he said on Monday when the AEB released its June sales report. The subsidy program will mostly benefit Russian domestic manufacturers such as OAO Avtovaz, which dominate sales of lower-price vehicles, and some foreign brands, such as Ford Motor Co. and General Motors Co., which produce vehicles in Russia through contract manufacturing agreements, Mr. Egorenkov said. GM last month said it would suspend production at its St. Petersburg assembly plant for a month beginning July 22 due in part to weaker demand. GM sales in the country were down 12% through June, AEB said. On Wednesday, Russian manufacturer Ulyanovsky Avtomobilny Zavod, or UAZ, which specializes in sport-utility vehicles and vans starting as low as 399,000 rubles, said it had arranged with commercial bank VTB 24 for buyers to get a 25,000 ruble discount on auto loans with as little as a 15% down payment. "This new subsidized credit program for UAZ automobiles is an extra and very useful tool to make our cars more affordable for our customers," said UAZ's director of distribution, Anton Karpov. Write to Lukas I. Alpert at lukas.alpert@dowjones.com

Loans for Ladas Pushed as Medvedev Revs Car Sales: Russia Credit - Bloomberg Jul 10th 2013, 09:44 Russia's two biggest banks are betting a resumption of subsidies for the automotive industry will return car sales to growth, bolstering lending. Car loans will increase 13 percent this year amid government help for consumers, the retail arm of VTB Group, the nation's second-biggest bank, said last week in an e-mailed response to questions. The program will support demand for credit, OAO Sberbank (SBER), the largest lender, said by e-mail. Financing through car loans and leasing contracts increased 4 percent last year in Germany, according to car-lending association AKA's website. The banks are counting on a resumption of state incentives to revive auto sales, after they slumped for the fourth straight month in June, amid the slowest economic growth since 2009. Car loans are more profitable than corporate lending, with a net margin as much as 18 percent, compared with 5 percent for companies, said Nadezhda Bozhenko at UralSib Financial Corp. "The government is trying to boost demand for automobiles and producers," Rinat Kirdan, head of fixed-income research at Aton LLC in Moscow, said in a phone interview on July 4. "The measure will help in the short term, but as soon as the subsidies end, the market will decline." Government Support Prime Minister Dmitry Medvedev's government plans to start supporting sales of budget vehicles this month, Yuri Koritsky, an Industry and Trade Ministry spokesman, said by phone from Moscow on July 4. The program will help sell as many as 250,000 additional cars in the period, Industry Minister Denis Manturov said on state television on June 21. The nation began assistance for the automotive industry in 2010, with a rebate program to encourage Russians to buy domestically made cars to replace old models. Sales of new cars and light vehicles rose 30 percent in 2010, 39 percent the following year and 11 percent in 2012 to 2.94 million units, according to the Association of European Business. Sales decreased by 11 percent in June, the group, which expects a decline of 5 percent for 2013, said on July 8. Under the plan, the banks will be able to provide subsidized loans for customers buying cars priced as high as 700,000 rubles ($21,200) until the end of 2014, according to the Industry Ministry. A Lada Granta starts at 279,000 rubles, according to the website of OAO AvtoVAZ, Russia's biggest automaker. A Ford Focus retails from 542,00 rubles, the Ford Motor Co. (F) website in Russian shows. Bank Plans Russia's car loan market expanded 20 percent to $26.1 billion in 2012, according to an Ernst & Young LLP report. State-controlled Sberbank and VTB hold more than half of the market, data of Russian research company Avtostat show. VTB24 plans to increase its share of the auto-loan market, Chief Executive Officer Mikhail Zadornov, said in an interview in St. Petersburg in June. The bank increased the number of car loans it gave out by 32 percent in the first five months to 65,000, VTB24's press-service said in response to questions by e-mail. VTB raised $275 million by securitizing car loans in August 2012, the bank said at the time. Sberbank provided 62,728 auto loans valued at 30.1 billion rubles in the first five months, a drop of 8 percent from the same period in 2012, the bank's press service said by e-mail. The lender aims to increase market share by year-end, it said, without specifying what it is now. "The question now is whether the market can do better in the second half of the year," Joerg Schreiber, chairman of the AEB Automobile Manufacturers Committee, said in the July 8 statement. "The chances for that have increased with the announcement of government plans to subsidize credit-backed vehicle purchases. We hope these plans will be implemented quickly, for the expected positive effect to be felt in the coming months." Sovereign Yields Russia is rated Baa1 at Moody's Investors Service, the third-lowest investment-grade category. The yield on Russia's dollar bond maturing in March 2030 fell two basis points to 4.21 percent as of 12:30 p.m. in Moscow. The extra yield investors demand to hold Russia's debt rather than U.S. Treasuries was unchanged at 234, compared with 213 for debt of Mexico, according to JPMorgan Chase & Co. indexes. While car loans account for less than 10 percent of the portfolios of Russia's biggest banks, the margins are attractive, UralSib's Bozhenko said. "Lending for buying new cars is a small but profitable bank business," she said by phone from Moscow on July 4. "So it makes sense for banks to develop it for additional proceeds." To contact the reporter on this story: Anatoly Temkin in St. Petersburg at atemkin@bloomberg.net To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net Enlarge image Loans for Ladas Pushed as Medvedev Revs Car Sales Customers inspect Range Rover automobiles on display in an independent auto showroom in Moscow. Russia's car loan market expanded 20 percent to $26.1 billion in 2012, according to an Ernst & Young LLP report. Customers inspect Range Rover automobiles on display in an independent auto showroom in Moscow. Russia's car loan market expanded 20 percent to $26.1 billion in 2012, according to an Ernst & Young LLP report. Photographer: Andrey Rudakov/Bloomberg