Earlier this year, Bankrate.com had an article with a headline that read…
“Auto loan delinquencies surge past Great Recession rate”
The article explained that some 7 million Americans were 90 days or more behind on their auto loan payments, on data that was released by the New York Federal Reserve Bank. That’s a huge number of people who are not able to make their car payments. It’s such a big deal that an economist at the New York Fed wrote in a blog post the following about the number of defaults, “That is more than a million more troubled borrowers than there had been at the end of 2010 when the overall delinquency rates were at their worst.”.
Unlike a credit card, a borrower cannot dial back their car payment to a minimum payment, so if a person has a $500 a month payment, it’s a $500 a month payment. You can’t adjust the payment and if you miss your payments, the lender is going to come and get their vehicle and your credit is going to be destroyed. To make matters worse, it’s mainly younger lenders who are getting creamed when it comes to auto loans. As the article on Bankrate.com explained
Younger Americans are struggling with auto loans the most.
The data reveals delinquencies on auto loans held by borrowers under 30 have crept up slowly over time, and the New York Fed says there’s a “sharp worsening” in delinquencies that age group from 2014-2016. Student debt may play a role in that considering younger Americans and their parents are facing repayment of $1.5 trillion in loans for education.
And it’s loans through auto finance companies more than car dealerships that are going deliquent more with 6.5% going more than 90 days pays due compared to only 1% at car dealerships. Even so, that doesn’t change the overall problem of 7 million loans being in default earlier this year.
Is there a better way to finance a vehicle?
Actually there is and it’s a policy loan against a cash value life insurance policy. A whole life insurance policy doesn’t pay a great deal of interest compared to investing in Wall Street, which is one of the reasons why so few people have these types of policies. What people fail to realize though is the benefit of not paying interest.
For example, if someone is putting money into a Wall Street type investment and earning 8% interest and then their credit is not that great and they are paying 5.9% APR on a $35,000 vehicle for 72 months, they are going to pay $6,644 in interest to borrow that money. The 5.9% APR sounds okay, but if you take $6,644 and divide it into $35,000 it’s really 18.98% to borrow that money. If someone had $50,000 in a cash value life insurance policy and they could borrow the same $35,000 at say 4.5%, but their $50,000 continued to earn 5% suddenly a whole life policy is a pretty good deal. The cost to borrow that money is now really 0% or less because you’re using the cash value of the policy as collateral to purchase the vehicle.
And if you miss a payment or have to lower a payment, you can do it whenever you want.
If you never pay it back and you pass away the life insurance death benefit will pay off the loan. If you pay it back your $50,000 has continued to earn interest while you’re paying back the $35,000 on your own term. And if you’re 90 days late on a payment the life insurance company isn’t going to come and take your vehicle because you have the title to the vehicle immediately. It’s an asset for you instead of a liability and you’re paying back your life insurance policy loan on your own terms.
Why don’t more people do this?
Most people have not been putting money into a cash value life insurance policy to build themselves a place to borrow money when they need it. Few life insurance agents explain this to people because they don’t want to hear from the Wall Street wizards about how the interest rate isn’t as good as other investments. Obviously, what 7 million people have been doing isn’t working though, so if you’re interested in finding out more about how you can be creating this kind of strategy let me know. Also, you might want to join TopCarBid and learn about how you can earn additional money promoting this website to make your car payment or start funding a life insurance policy for yourself.
Click on my Affiliate Link for more information on the Top Car Bid Affiliate Program
I also have a more detailed article at CoolCarsForLife.com
John Boyd is licensed to sell cars and life insurance in the State of Colorado. Cash value life insurance guarantees vary by insurance carrier and are based on the claims paying ability of the insurer. Dividends paid by a mutual insurance company are not guaranteed. Products, product features and riders vary by state. Some issuers are not available in all states.
All material in this article and on this website is for general use with the public and is not intended to provide investment, insurance or tax advice for any individual. By using this website for informational purposes you agree that you are responsible for doing your own investigation of the material being presented and Cool Car Guy, Inc., John Boyd, CoolCarGuy.com and Cool Cars For Life will not be held liable for sharing the opinions and/or your personal use of the information being provided here.