Apparently, Toyota Motor Corp. (NYSE: TM) needs to clear out the 2016 version of its highly popular Corolla. It currently offers financing of 0% APR for 72 months. The deal may cause trouble for buyers.
Some economists are anxious about the long-term leases. They worry that as time passes, the cars will lose so much value that they will be dwarfed by the value of the loans. That makes trading the car in or selling it at a profit nearly impossible. Like underwater mortgages, they pose a risk to the car industry and car buyers alike.
Consumer Reports recently pointed out in its Why That Long-Term Car Loan Could Be Costly:
There were 17.4 million car sales last year, the most sales since the financial crisis, according to the U.S. Bureau of Economic Analysis. Alas, also on the rise is a financially questionable way to pay for the big-ticket purchase.
More than seven in 10 new cars purchased with a loan last year had a term of more than 60 months, according to Experian Automotive. While five-year loans have long been the most common, car loans lasting six to seven years have grown from 11 percent of the loan market in 2008 to 29 percent last year. The average car loan is now 67 months long. That’s a far cry from how your grandfather financed his Buick; in the early 1970s, car loans averaged less than 36 months.
But long-term car loans aren’t necessarily better. “If you are considering a new car loan beyond five years, it’s a signal you are buying a car that is too expensive,” says Greg McBride, senior financial analyst at Bankrate. “People make the mistake of shopping based on what the monthly cost will be, rather than focusing on the total they will pay.”
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The 0% for 72 months offer does come with some fine print:
0.0% APR Financing for 36 Months – $27.78 per $1,000 borrowed OR 0.0% APR Financing for 48 Months – $20.83 per $1,000 borrowed OR 0.0% APR Financing for 60 Months – $16.67 per $1,000 borrowed OR 0.0% APR Financing for 72 Months – $13.89 per $1,000 borrowed.
So, 0% is not really 0%.
The deal is part of a “clearance offer.” The company and its dealers cannot afford to have a large number of 2016 Corolla units on hand when the next model year version is available.
The Corolla was the sixth best-selling car or light truck in the United States through July, as it posted sales of 213,910, though that is down 2.9% for the period. The car has a base price of $17,300. Fully loaded with extra equipment and features, the price can pop over $25,000.
The 50th anniversary 2017 Corolla will be out soon. The 2016 version of the model is about to lose value.
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