Friday, July 12, 2013

Bank Loans: "It's Getting Personal"

The following chart shows the finance rate on 24-month personal loans minus the finance rate on 48-month new auto loans.


Click to enlarge.

The 48-month auto rate for May 2013 was 4.13%.
The 24-month personal loan rate for May 2013 was 10.34%.

The spread between the two loans now stands at a new record: 6.21%.

This reminds me of something Ben Bernanke once said:

The world in which we live, as opposed to the one envisioned by the benchmark neoclassical model, is one in which credit markets are not frictionless, i.e., problems of information, incentives, and enforcement are pervasive. Because of these problems, credit can be extended more freely and at lower cost to borrowers who already have strong financial positions (hence, Ambrose Bierce’s definition of a banker as someone who lends you an umbrella when the sun is shining and wants it back when it starts to rain).

Got storm shutters?

Source Data:
St. Louis Fed: Custom Chart

3 comments:

Stagflationary Mark said...

Few buy new autos because they are desperate.

I say few because some are desperately trying to keep up with the Joneses. I am definitely not one of them. My Camry is 17 years old but has less than 90k miles on it. I expect to get many more years out of it.

Luke Smith said...

Is this a generational thing? Seems like a young person has more incentive to buy a new car...you know, to impress the opposite sex.

Stagflationary Mark said...

Luke Smith,

Yeah, I think you are right. In fact, I was married a year after I bought this car. It was a very short-lived marriage though. In hindsight, I might have saved myself some emotional trauma had I bought a used Yugo instead, lol.

I only half-joke. ;)