120 Month Car Loans Are A TRAP | Episode 1008

It's noon here in Ventner City, New Jersey and New York, New York, a city so nice they

named it twice, and this is Car Edge Live for Tuesday, February 10th with your hosts,

me, Ray here in Ventner City and well, Zach in New York. How the hell are you today?

I forgot my razor at home, so kind of dealing with that. The hair is going a little crazy this

morning. I'm feeling a little all over the place, but you know what, Dad? I'm glad to be here with

you. Today's show is brought to you by CarEdge.com. Those of you that are tuning in, I encourage you

go to CarEdge.com slash dealers. This is brand new. It may break on you today. This is super,

super new. I'm only going to keep it up for a couple of seconds. Just check it out. Just check

it out. You can come here. You can see all sorts of information about car dealerships,

what fees they're adding, what their dock fee is. You can see other people who have gotten O.T.D.

quotes from dealers. Play around on this website. Share some feedback in the comments today here on

the live show. This is brand new. It literally just went up like an hour ago,

so lots of things work in process. Call it a beta, but CarEdge.com slash dealers. That'll

take you to this page, and you can even learn a bit more on our reports. You can see how we're

thinking about working with dealers as well, which is super interesting. So check that out.

Share your comments in the chat. Now, Dad, the big topic for today's show,

120-month car loans. This is becoming more and more common, which is super concerning. I'm going

to come here to your locccreditunion.com. What do you see on this chart, Dad? 2023 to 2026 vehicles,

7.9% up to 120 months. This comes on the other side of all sorts of conversations at NADA,

the National Automobile Dealers Association Conference. What is the best way to handle the

vehicle affordability issue? Auto finance leaders weigh in. Well, one way to handle it, Dad,

would be 120-month car loans to make things affordable. While you're talking about that,

I'm turning a fan on. They got the heat going crazy here today.

Well, I'm so glad they've got heat in New York City. 120-month car loans is, well, I would say

that's about as dumb as it gets. But my guess is that at some point in the not too distant future,

we won't be talking about 10-year car loans. We'll be talking about 12 and 14 and 15-year car

loans. The idea of making vehicles affordable payment-wise by extending the loan term is just

sheer folly. It will destroy people's economic buying power in the future because they will be

locked into these 10, 12, 15-year car loans for a very long time. If you do that to your customer,

you're assuring yourself, especially the 10-year note, that you probably can't see that customer

again to get them out of that 10-year note. I don't know, seven, eight years. I think realistically,

to continue to grow your business, you'd probably prefer to have your customers come back every

three to four years, not every seven to eight years. It's just in my world.

So these executives that these leaders in auto finance, I'm going to share some of their responses

when asked about how to make vehicles more affordable. Most third here, this is Robert

Cristini, Senior Vice President of Sales at CRIF Select. Vehicle affordability won't be solved

by rates alone from a lender perspective. The most effective approach is disciplined credit

expansion paired with smarter structuring, including longer loan terms and thoughtful

use of leasing. Where appropriate, you've got Scott Gunnell, the president of JMNA Group,

better understand how long customers plan to own vehicles as extended ownership cycles become

more common. Customers are placing greater value on protection that aligns with longer-term use,

particularly as vehicle complexity and repair costs continue to arise with ongoing affordability

pressures, helping customers manage unexpected expenses and reduce financial risk as increasingly

important. Clear education and needs-based conversations allow finance managers to match

solutions to individual driving habits and ownership plans supporting a more informed

decision and more customer-centered experience. You know, I read both of these, Deb.

Yes.

And it's, okay, we're going to have longer loan terms and we're going to sell more extended

warranties. That's what I'm just saying. It's as if this was written by the finance people

themselves. Yeah, we need to help these people out. If they're going to be keeping their cars

eight, 10, 12 years, you know, we need to sell them on the probability that there will be a

major repair that's going to come up and they're going to need an extended service contract for

their vehicle. That's all this is. This is a ruse to allow these providers of these products to

sell more of them. The idea of burdening people with longer-term loans is not the way you're

going to grow the economy in the future. It just, it doesn't work like that. You,

it was bad enough when we went to 60 months and then 72 months for extended terms to keep

people's payments at some affordable level. You can't just continue to extend the term

and expect that there's going to be buy-in from the public. And unfortunately, there probably

will be. But you are forcing your customers to have to keep that car forever. I don't know. I

used to see my customers every two, three, four years when I first started in the business,

because they could get out of a car every two, three, four years. Now they can't. And, and you

know, there is some question as to the quality and the longevity of some of the vehicles that

are actually being produced out there. So do you really want to burden them with a 10-year note?

And then on top of that, sell them a $4,000 extended warranty and other protection packages

to help them navigate those major expenses that come up. I mean, I saw that the thing for the

120 month loans was you had to finance a minimum of $50,000.

What's the interest on that? I mean, okay, so they're looking at 7.9%. Do that on a 10-year

loan and see how much interest you're paying on that $50,000 minimum that you can finance.

Let's do it, Dad. So here's, here's the default example when you go to calculator.net, $50,000

vehicle, 60 month loan term. We'll keep the interest rate at 5%, which is quite low. Let's

get rid of the down payment and you'll allow you to not do it. And that will keep everything else

the same, the sales tax, the fees. We'll just keep it all the same for the purposes of this

experiment. So $50,000 over a 60 month loan term at these settings has you with 5% interest rate at

$943 a month. You're actually spending on that $50,000 car, $62,538. What do you think happens here

when I make this 120 months and I increase that rate?

Well, you have to decrease the rate to 7.9 and the interest amount will probably more than double.

Okay, your $50,000 car, which to be clear here, your monthly payments now is only $604.

Only? Only. You're actually paying back $78,404 for that vehicle.

Yes. Okay, so that's more than half of the original amount financed you're paying back

in interest. I mean, think about it. You're paying back $22,480 in interest because you were

foolish enough to finance a vehicle for 10 years. And we talk about depreciation. We talk about

everything else. We talk about being underwater, negative equity. And people say, well, yeah,

but negative equity doesn't matter if you're never planning on trading in the vehicle.

Okay, I get that. But were you really planning on keeping the car for 10 years

when you originally purchased it? Do you think many people are doubted or do you think that's

the trap aspect of this? Is that it gets them into a payment that feels affordable but then

ultimately sets them up for failure down the line? Well, my experience was that people try to get

out of cars every three to four years. And so that if you're trapping them into a 10-year note,

they can't get out of it every three to four years, even if they wanted to. The amount that they

would still owe is significant. If we think that the amount of negative equity associated with trades

today at 60 months, 72 months, 84 months financing is a staggering amount. And I believe the average

was over $6,500 and that 20% of the people are $10,000 negative on the value of their car compared

to what is still owed on it, that number will seem tiny, tiny four years into a 10-year note

when somebody comes in and says, okay, I think I'd like to trade out of it. And you're looking at

the situation and they have $20,000 in negative equity. What are you going to do with that?

You can't just roll that into the next loan. So you're setting your business up for failure

by doing this because your customer can't come back to you and buy another car. They can't go

anywhere and buy another car. What's interesting, Dad, is that the same time that you're describing

what's going to happen in the future, we have the latest data on January sales and it's not

a pretty site. You can see here this comes from Cox Automotive. January data reveals a cautious

start to 2026 with competing forces shaping dealer outlooks. New vehicle sales softened

3.5% year over year to $14.9 million seasonally adjusted rate. This is the lowest I've seen

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Dear Savvy, Toyota says you can have it all with the Camry, the Corolla and the Corolla Cross.

You've got the tech, you've got the drive and you've got Toyota value that spells affordable.

You ready? Find yours at Toyota.com.

Toyota, let's go places.

Well, yeah, but it's that way because we can talk about affordability, but it was that way

because of the major snowstorm at the end of January, which really curtailed sales.

Those who can afford to buy are still buying, okay? It's just there's more and more people

out there who cannot afford to buy. The slice of pie is getting thinner and thinner every day.

Is there something that you can look at in these numbers and say to yourselves,

this probably isn't going to be a great, great year new car sales wise? I look at the numbers and

I go, yeah, it'll probably be somewhere between 15.8 million and 16.2 million new vehicles that

sold. That seems like a lot of cars. It's nowhere near the 17 or 17 and a half million that had

been sold previously a few years back. What I did look at today that was staggering to me

was the Black Book report that came out. If you compare what's happening to used car wholesale

values through the first six weeks or five and a half weeks of the year for 2026 compared to what

occurred in 2024 and 2025, the amount of vehicle appreciation during this timeframe is significantly

more than how 2024 and 2025 started out. The thought of will used car values are going to go

down and used car prices are going to go down. They're going to go up because more and more

people can't afford the new cars. Scroll down and you will see the beginning chart for the year

and keep going, keep going, keep going, keep going, keep going right there. Wholesale weekly

price index. Look at 2024, look at 2025, look where those numbers were in the beginning of the year

and look at 2026 and see how the wholesale values have been increasing much earlier this year

by months earlier this year than in years past. I don't see how that's going to bode well for

people out there who can't afford a new car and now are going to have to overpay for that pre-owned

car. It might be good if you have a trade-in, it might be good if you have a vehicle you want to

sell but you look at these numbers and that's a massive swing in the wrong direction for customers.

What do you think that indicates, Dad? We know new car sales, again I'll pull it back up here,

new car sales down. We have at the same time affordability pressures everywhere. That was the

other article that we were referencing is that essentially the auto industry and these auto

finance leaders are grappling with the reality that people can't afford vehicles. At the same

time, the chart that is going up and to the right is used car prices. Yes. So how do you reconcile

this? I think dealers, both new car dealers, used car dealers, new car dealers in particular are

looking at the expense of the vehicles that they have to sell and they realize that there is a

large percentage of potential customers that they can't satisfy on the new car side so that they

have to grow their pre-owned car business and they are willing to spend more earlier in the year to

try and get ahead of that and because of that, they realize that their customers can't afford

their new cars but what they will be able to afford is even slightly price increased pre-owned

cars or significantly price increased pre-owned cars because it'll still be significantly less

expensive than that brand new car. So I look at that and that's what I see. I see dealers saying

the hell with the new car business, that's going to be a struggle. The money to be made

is in the switch from new car to used cars. There's that old story about the world's greatest car

salesman and he's on his death bed and a young new salesperson says to him, he said,

I need some advice. What's the best piece of advice you can give me so I can have a successful

career as you have and almost in his dying breath, he goes, switch them. Okay, yes, switch them from

new to used because they can't afford that new car and you're going to switch them into that used car

that's going to allow you to make a bigger profit and keep their payment more affordable

and hopefully allow that customer to come back into the market sooner than those new car customers

that are entertaining 7, 8, 9 and 10 year finance. Now the other story that we talked a bit about

yesterday that ties into this directly would be these automakers trying to move quickly

to now bring these more inexpensive vehicles to the market. Ford plans to launch five new models

by $140,000 by 2030. We talked about it a bit yesterday and it's appropriate in the context

of this conversation as well. The issue is the last word there, 2030, the number. This doesn't

solve the pain points that we're experiencing today, which to your point is why so many customers

are getting switched onto those used cars instead of buying the new ones that they had wanted,

which I want to be clear here. We still are advocates for doing a real deep dive in research

on if new is a better value than used because a lot of cases, today I see this comment here

from Joseph, new car never. In many cases, if you're comparing a one or two year old used car

to a new one, the new is going to be a better value right now because new car sales are lower,

inventory has built up. There's still about 500,000 leftover model year vehicles from last year that

are new cars that you can get your hands on. They come with a warranty. I think the calculus here

for new versus used has evolved a little bit, but Ford is going to try their best to bring more

people back to the new car market by 2030. Okay, that's great. What are they doing between now

and then? When you were at the NAD convention, every manufacturer has what they call a make

meeting. That is that the dealers are brought in for that brand and then the brand explains

what their future plans are. Yeah, walked out the bunch of signage for General Motors meetings,

Subaru meetings, Ford meetings. What I would take from that is when Ford says, gee, we're going to

bring out five new models under $40,000 by 2030. If you're a Ford dealer, you have to hear that

and think to yourself, I need to stock up on used cars. I think I got to survive until 2030.

Yes, because you're speaking about how you're going to address it four years from now or three

and a half years from now. What are you supposed to do between now and then? You're going to bid

up the prices of used cars earlier in the year than in years past, which means that you're going

to ask more for those used cars and the spread between the price of the used car and the price

of the new car might be or probably will be significant enough for the people to buy the

used because they just can't afford the new. Yeah, look at those stats. I don't know how you

look at them and draw any other conclusion than people are screwed. Okay, customers are screwed

for the next several years when it comes to finding affordable new cars. We know the percentage of

vehicles below $30,000 that are offered is lower than it's ever been. So it's got to be used cars

and used car values are spiking earlier in the year than they ever have.

All right, let's switch gears, Dad. I've been working on a project for the past week or so. Again,

this is entirely in beta, so take it with a huge grain of salt. However, if you go to caredge.com

slash dealers and then under reports, click on state of dealer fees 2026. We have a really

cool report here that I want to share with everyone. As many of you know by now, we built

AI agents that contact car dealers to get out the door pricing for car edge pro users. We've got

over 33,000 verified out the door price quotes from over 8,700 dealerships in the United States

of America. Here's some of the interesting data we're able to find from that. First things first,

the number of quotes, the number of dealers, the average dock fee nationwide dad is up to $512.

The average add-ons, when dealers add add-ons to an OTD price, $1,206, about half the time,

there are no add-ons. We are now scoring every single dealership nationwide for how transparent

they are. You can see the distribution here of scores. A lot of dealers do operate transparently,

and then unfortunately, there are quite a few that could use a little bit of help.

I'm going to skip past the transparent dealers for a second here. I want to go to dock fees by

state. Again, some of this data needs to be reviewed, for example, to two dealers in Washington,

D.C. Look at Florida data and $967 dock fee is the average that we see in Florida, Virginia,

$859, Georgia, $826. Look at Maryland's even up there now with $757 is the average dock fee.

Aren't these stats crazy? They are crazy. What's really crazy is I remember when

I moved east from Scottsdale and took the job at Tissier Accura when it was Tissier Accura,

and that's in Laurel, Maryland. At that time, the state capped processing fee, which is a dock

fee in Maryland, was $100. Most dealers charged $99. A couple years later, it was up to $300,

and then the $500. I have no idea what the cap is today, but what you have to realize

when you look at those numbers, there is no expense associated with them. That is just

extra profit, pure unadulterated profit for a dealership. When the dealer says,

well, we're selling it to you for $200 below cost, but they're charging you a $999 dock fee.

I guess that really means they're still making $800, because that's pure profit.

That's what dock fees represent for dealerships. It's just an additional way for them to make money.

I believe California is capped at $85.

Yeah, we've got a couple examples in the data set of dealers going above $85, which again,

we'll double check. We'll review every single line item here, but

some interesting data to say the least. The most common add-ons, Dad, have you seen this?

No.

The most common add-ons across 32,000 OTDs, we've reviewed accessories.

We've seen that 627 times the average amount for accessories, $1,420.

Window tints, the second most common, $540 on average for window tint, $529 times window

tint with the lifetime warranty. That's actually cheaper at 499 bucks on average showing up 428

times wheel locks are averaging $187, 371 times on the door work.

Kill again.

Tint again, $489, low jacks averaging $828, door edge guards for 242. These appearance packages

for 745 mud guards, VIN edge. Isn't this incredible?

Yes. This is information that ultimately will be exceedingly valuable to a customer,

so that you'll be able to compare. Let's say you're looking at a Jeep and it'll allow you to

compare your CDJR dealers in your area to see who's adding for accessories, how much their

dock fees are, so that you can have a better understanding as to who you want to try and do

business with before you ever try to contact. This will be really valuable information and

perhaps it will shame some dealers into cutting back on what it is that they're doing because

they'll realize that they're just not competitive with other dealers in their area, so it might

cause them to take a closer look at what they're doing price-wise, especially when this becomes

readily available for all people. Give us another week or so. It's very much in beta right now.

If you go to that URL, expect certain things may not work. We're working on updating it,

but I just got so excited. I wanted to share it with everyone this afternoon.

That's all I have for today's show. Let's call it a show a little bit early. We're back tomorrow

with more CarEdge Live. Please tune in. We'll be here at 12 p.m. Eastern Time. But yeah,

Dad, enjoy the afternoon and thanks for watching. That's all I've got.

Media engagements coming out of my ears. I'll be on the radio in Hawaii at 1.40 Eastern Time

this afternoon, and then I have a TV appearance in Louisville at 3 o'clock. I'm going to try

to do all those media engagements.

Let's go, glasses.

120 Month Car Loans Are A TRAP | Episode 1008

About this episode

120-month car loans

NADA

loan terms

extended warranty

extended service contract

longer-term loans

60 months and 72 months

10-year note

interest rate

sales tax

monthly payments

amount financed

financing a vehicle

depreciation

negative equity

Toyota Corolla

Toyota Camry

Toyota Corolla Cross

pre-owned car business

new car business

used car

Ford

new car incentives

General Motors

new models

out-the-door price

dealer fees

transparent pricing

processing fee

dealer profit

OTD

add-ons

window tint

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