Here’s a bit of news; auto sales aren’t booming because of the economy, but rather because of increased lending and subprime lending at that. Sound familiar⁉️
Skopos sold its first bond deal backed by pools of subprime loans in April. The company’s second deal was the November transaction, which raised $154 million. The bonds are backed by more than 10,000 loans, with terms averaging 5.6 years and interest rates of about 20%.
Some 87% of the loans were to borrowers with credit scores below 600, on a scale of 300 to 850. A third of those had scores below 500 or no credit scores at all.
Source: Subprime Flashback: Early Defaults Are a Warning Sign for Auto Sales, WSJ 3-14-16
No doubt there are some people who actually need a new car, for many people a car is a necessity. For others a new car may be desirable; something other than basic transportion is a luxury. Think what these folks are actually paying for a vehicle over five plus years at 20%. A $28,000 loan will cost $46,379 with payments of $703 per month.
By the way, the top three selling vehicles in 2015 were trucks, for non-commercial buyers probably not in the necessity class.
Categories: Observations on life