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Deeper Into Credit Card Debt With No Regrets This Holiday Season

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Deeper Into Credit Card Debt With No Regrets This Holiday Season

This holiday season, spending increased 7.9 percent from a year ago (according to the MasterCard Spending Pulse report). People spent more money on gifts, making many retailers happy and helping the overall economy.

Although the increased spending will be applauded by retailers, many American households are left with a precarious post-holiday financial situation. The euphoria of giving gifts will undoubtedly be replaced by a predictable debt hangover in January. MagnifyMoney conducted a national survey, and found that:

  • American consumers spent without a plan. 50.7% of people set no holiday budget at all. A further 15.1% of people set a budget, but ignored it and spent more than planned. That means 65.8% of people had no control over their holiday spending.
  • After spending money on holiday gifts, a majority of Americans are “broke.” 56.3% of people surveyed have less than $1,000 combined in their checking and savings account.
  • Credit cards will be used to fund a big portion of holiday purchases. 38.3% of the people surveyed will not be able to pay off their credit card in full this month. High interest rate credit cards were used to fund holiday debt.
  • Despite the debt, there was “no regret.” Despite borrowing money at high interest rates to fund holiday purchases, 85.7% of Americans have no regrets about their holiday spending.

During the 2015 holiday season, American consumers have demonstrated their willingness, and apparent happiness, to spend money they don’t have on gifts they can’t afford.

But in just a few days, people will start making New Year’s Resolutions. And if 2016 is like any other year, two themes will dominate the resolutions made across the country. People will promise to become physically fit and financially fit in the New Year.

One of the top resolutions made in January 2015, according to Nielsen, was to “spend less and save more.” This is a recurring theme, and we can expect similar resolutions in 2016, as the credit card statements start to arrive and the debt hangover begins.

However, Nick Clements, Co-Founder of MagnifyMoney, has two messages for people who have found themselves deeper in debt after the holidays:

First, we need to learn valuable lessons from our grandparents and great-grandparents about how to manage money. Before credit cards ever existed, people would only spend money if they had it. Most of our grandparents would have never even considered borrowing money to buy people gifts during the holidays. If we don’t develop that same type of mentality, any New Year’s Resolution will fail. I don’t want to sound like a belated Grinch, but borrowing money to buy gifts should have left more people feeling regret.   

Second, people need to be wise about how they try to fulfill their New Year’s Resolution to become financially fit. Skipping a few lattes isn’t going to do the trick. I recommend taking a day off, and spending as much time and effort building a financial plan for 2016 as you did organizing your presents and your holiday parties in 2015. 

Survey Results in More Detail

There was no spending plan or budget in place

  • 50.7% set no budget. Instead, they “just spent.”
  • 34.2% set a budget and followed the budget.
  • 15.1% set a budget, but ignored the budget and spent more.

A majority of Americans are “broke”

  • 24.8% have less than $100 in their accounts.
  • 23.8% have between $101 and $500 in their accounts.
  • 7.7% have between $501 and $1,000 in their accounts.
  • 16.4% have between $1,001 and $5,000 in their accounts.
  • 27.3% have more than $5,000 in their accounts.

Most financial planners recommend having an emergency fund with at least $1,000. Ideally, the fund should cover three to six months of living expenses. 56.3% do not have even the minimum of $1,000.

A significant minority will be paying off their credit cards for a long time

  • 61.7% of people will be able to pay their balance in full.
  • 27% will take some time, but pay more than the minimum due.
  • 11.3% can only afford to pay the minimum due.

For the 11.3% paying the minimum due, they can expect to stay in debt for more than 25 years and will end up paying more interest than the original amount borrowed.

Despite the spending, we felt no regrets.

  • 85.7% do not regret the amount of money they spent.
  • 14.3% do regret the amount they spent.
  • Of those with no regrets, 13.3% felt they could have spent more.

Tips for A Successful New Year’s Resolution

When the credit card bills start to arrive in January, many people will start to feel the annual debt hangover. As an antidote, people will start making resolutions to spend less, save more and get their finances in order.

MagnifyMoney believes that people should spend as much time in January building a financial plan for 2016 as they did shopping in December for the holidays.

For people in credit card debt, MagnifyMoney has a free 45 page Debt Guide available for download. This guide helps people prepare a customized action plan to lower interest rates, build a budget, negotiate hard with creditors and become debt-free.

In addition, MagnifyMoney recommends that all people spend time in January 2016 doing the following:

  1. Understand where your money actually went. When people create forward-looking budgets, those budgets almost always balance. Yet, when people look back in time, they have usually spent more than they planned. The best way to diagnose your spending problem is to understand where the money has actually gone. And there are great apps, like LevelMoney or Mint, which can help you understand where your money has gone. We particularly like LevelMoney, because it splits your expenditure into fixed, recurring expenses and variable expenses.
  2. Review your credit report from all three reporting agencies. You need to know what is on your credit report in order to build a good credit score. You can download your report for free at AnnualCreditReport.com.
  3. Understand your credit score and put together a plan to improve your score during 2016. People with the best scores never charge more than 10% of their available credit and pay their bills on time every month. Not only is that good for your score, but it is good for your wallet. And you can now get your official FICO for free in a number of places. Otherwise, you can get your VantageScore at sites like CreditKarma.
  4. If you have a good credit score, all debt can probably be refinanced. Mortgages, student loans, auto loans and credit cards (with a balance transfer or personal loan) can all be refinanced. Although the Federal Reserve increased interest rates in December, the rates are still very low. Find ways to lock in much lower interest rates now to help you pay off your debt faster.
  5. There are two big warnings with refinancing. First, try to avoid extending the term to get a lower payment. The biggest trap people fall into with refinancing is that they lower their rate and extend their term. By doing this, you might end up paying more money in the long run. Second, be careful before you refinance federal student loans, because you give up valuable protection.
  6. Automate all of your decisions, including savings and making credit card payments. Data has consistently shown that automating decisions greatly increases the likelihood of achieving your goals. To build that emergency fund, set up automatic transfers from your checking to your savings account. (Even better, get a higher interest rate online account and keep it completely separate from your checking account). To build your retirement savings, automate your 401(k) or IRA contributions. And to pay your credit card bill, automate your monthly payments.
  7. “Net worth” is not just a concept for the rich, and you need to focus on your net worth now. Net worth is a simple concept: it is what you own minus what you owe. Building wealth and being financially responsible means you are building your net worth. It doesn’t mean you make your payments on time and have a fancy car. Focus on the right number: building your net worth.

holiday-spending-trends

Survey Methodology

The survey was conducted by Google Consumer Surveys for MagnifyMoney between December 24 – 26, 2015. 532 people responded to the questions in a nationwide, online survey. All respondents were 18 or older.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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How These Side Gigs Saved Our Finances

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As the summer came to a close, Anthony Garcia, 34, achieved a big financial goal: He bought a lightly used car that he loved, a 2015 Jeep Renegade, to be precise. When all was said and done, the purchase set him back $14,500.  

It’s Garcia’s active side hustles that cushioned the monetary blow, helping him make a $1,000 down payment before financing the rest with a low-interest loan.  

“My main side gig is deejaying,” the Long Beach, Calif., resident told MagnifyMoney. “What I make varies, but weddings range from about $800 to $1,000; corporate events, clubs and bars range anywhere from $200 to $500 per event.” 

Garcia, an online banking specialist for a local credit union by day, has been picking up work as a DJ on and off for about seven years. These days, he books two or three gigs per month. He plans to use the money to cover his monthly car payments. 

“It’s almost like not having a car payment,” says Garcia. “I love what I do and get a car out of it, as long as I’m working on a steady basis.” 

His story isn’t without precedent. According to new research from CareerBuilder, close to a third of American workers have side gigs, with those under 35 making up the biggest piece of the pie. What’s more, a recent Pew Research Center survey found that 24 percent of Americans bring in money from what they call the digital “platform economy” — think apps and online platforms like Uber, TaskRabbit, thredUp and beyond. Some do it by economic necessity, others for extra cash.  

The findings suggest that today’s most popular side gigs cover everything from ride services to shopping/delivery tasks to selling your old clothes and gadgets online. 

Then there are folks like Garcia, who leverage an existing skill to bring in some additional income. 

Along similar lines, Dana Bruce, a 38-year-old nonprofit executive in Alexandria, Va., spun a random hobby into a legit side gig that paid for most of her 2012 wedding. 

But how? 

‘A side gig paid for my wedding’

Bruce is living proof that your greatest interests might also be your best income generators. A longtime lover of antiques, she took to Etsy in 2012 and began selling vintage lamps; it’s a task she absolutely loved. 

“The overhead is very low, so at times it brings in as much as $1,000 net income a month,” said Bruce, who combs antique malls, thrift stores and estate sales for unique finds. After factoring in all her costs, she typically nets about $65 per sale.  

This wasn’t the first time she dipped her toes into the gig economy. From 2012 to 2013, she took on an adjunct professor position at a community college on the side, where she earned roughly $450 per month. She put the money toward her car payments, adding some wiggle room to her monthly budget. This, combined with her Etsy earnings, allowed her to kick in about $10,000 toward her November 2012 wedding.  

And she isn’t slowing down. Her next goal is to use side gig money to help pad her home-buying fund. 

A side hustle, and a career change

It’s no secret that a healthy emergency fund is the foundation of financial success, but actually building up three to six months’ worth of expenses is no small feat, especially on an average income. This is exactly why Hilary Murrell, a 27-year-old campus visit coordinator at a Birmingham, Ala., university, is upping her side gig game. A little over a month ago, she began tutoring student athletes in the evenings and on Sundays for $11 an hour. 

“Side hustling is very new to me, but very welcome since I’ve been looking for an online side gig for months,” said Murrell, who draws a $35,000 salary with her 9-to-5 job. “My big financial goal is to save up enough money, plus emergencies, to live for three months while my husband quits his full-time job to be a full-time Realtor.” 

Tutoring serves double duty, as it also gives Murrell more teaching experience, which will come in handy for her next side gig: teaching at a local community college next semester. Her goal is to bring in around $700 per term. 

Side gigs and your taxes 

Got a side gig, or even more than one? Just be sure to report your additional income to Uncle Sam. Paying taxes comes with the territory, regardless of how much cash your side hustles bring in. Uber and Lyft drivers, for example, are considered independent contractors, not company employees. As such, paying federal and state income taxes falls on you. Come tax time, those who earn $400 or more will likely be on the hook for a self-employment tax, too. 

In addition to filing an annual tax return, self-employed folks are generally required to pay estimated taxes on a quarterly basis. (Failing to do so could result in a big tax bill when tax time rolls around.)  

But wait, there’s good news, too. Many self-employed workers are also eligible for deductions to help offset their tax burden. If you use part of your home for business, for instance, you might qualify for the home office deduction 

In the end, every case is different, so it may be in your best interest to seek out a professional to help answer your individual tax questions. 

In the meantime, the gig economy appears to be going strong. According to the annual Freelancing in America survey put out by the Freelancers Union and Upwork, the freelance economy grew to 55 million Americans in 2016; that’s 35 percent of the U.S. workforce. The way we work is changing, and the side gig revolution seems to reflect that, as multiple income streams gradually replace the traditional “9-to-5 till you die” way of life. The takeaway? The rewards can be big for those who are willing to hustle. 

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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What Happens to Debt When You Get Married?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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According to the New York Federal Reserve, total student loan debt in the U.S. has reached $1.3 trillion, while more than 44 million Americans have student loan debt. Between these figures and soaring credit-card debt, paying off all we owe can take some people years, if not decades. 

The problem can seem particularly acute for young couples, more and more of whom are getting married with tens or even hundreds of thousands of dollars to pay off. In many instances, one partner has significantly more debt than the other. 

When Jeff and Cassandra Campbell of Austin, Texas.,  got married in 2006, Jeff was $61,000 in debt — his was a combination of credit card debt, a second-home mortgage and a car loan. Cassandra was debt-free, but the couple immediately agreed that with marriage, his debt was now the burden and responsibility of both of them.   

“I believe that successful couples combine everything when they say, ‘I do,’” says, Jeff, 53. “It’s no longer my income or your debt, it’s ours.”

Deciding how to tackle a single spouse’s or partner’s debt is no simple thing. It might be nice to chip in to help pay down your beloved’s debt, but in the eyes of the law, marriage doesn’t necessarily mean you have to. 

What happens to debt when we marry? 
 

Adam S. Minsky, a Massachusetts-based lawyer and expert in student loan law, says that although it varies by state, most of the time debt brought into a marriage only affects the spouse who brought it in.   

“Generally speaking, certainly where I practice here in Massachusetts, there is no way to make a spouse liable for a debt,” he says.

An exception might be if the couple did a form of refinancing once they got married and now jointly own the debt together. But if one spouse brought a debt into the marriage and both spouses paid off the debt together, the other spouse would not be liable for the debt, and that debt wouldn’t affect his or her credit score.

“As long as [the debt] only stays in one of their names, it’s only going to be reported for one of them,” Minsky says. 

There are, of course, slightly different rules when it comes to couples who are divorcing. For example, if a spouse helped pay off the other’s debt in marriage, that circumstance is often taken into account in divorce proceedings, Minsky notes. 

Learning the legal nuances of spousal debt, having necessary premarital conversations and understanding  optimal strategies for paying off debt can allow a couple to avoid the uncomfortable and frustrating conversations that might accompany one spouse having significantly more debt that the other.

Here are some tips on how to tackle debt as a couple:  

Have those tough (but essential) conversations before getting hitched.

Minsky says his greatest piece of advice for couples in which one partner has significant debt and the other doesn’t boils down to this: Talk about it openly before marriage. 

“Communication is the most important thing,” he says. “Because you don’t want to get married and then find out there’s a bunch of debt you didn’t know about, or you didn’t fully understand the nature of the debt, or you didn’t have a plan. I’d say develop that communication and be comfortable talking about it.” 

Eric Bowlin, 32, a real estate investor based in Worcester, Mass., says he and his wife, Jun — whom he met during graduate school—always approached their finances as a team. Eric says Jun accepted his roughly $85,000 debt ($60,000 of which was related to student loans) before they got married in 2009. But a tough conversation ensued when Eric wanted to make a large real estate investment before they had paid off the debt.  

“I deployed to Afghanistan” around 2010, he says, “and when I got home, we had saved about $100,000. We could have easily paid off all my student loans, car and half the multifamily house we owned, but I told her I wanted to use every dollar to invest in more real estate and I wanted to drop out of our Ph.D. program.” 

He says despite Jun’s hesitation, she agreed. “To this day I’m amazed she ever agreed to let me do that,” Eric says. He spent all of his savings, maxed out all his credit cards and borrowed about $40,000 from friends.  

“She was crying at night and I couldn’t sleep because of the stress,” he says. But his decision paid off. He has since built up a successful real estate portfolio, and the couple paid off their debt in 2016.

Employ strategies for paying the debt off together.

Once you and your partner have agreed to tackle the debt together, come up with a solid plan.  

“I’ve seen trouble happen when married couples never really talked about [debt], and then it’s a thing,” Minsky says. “Or they didn’t really come up with a plan and now there’s complicated feelings of resentment or guilt or shame.” 

The plan a couple employs will vary based on an array of variables: the amount and type of debt, income level, housing situation, location and more. The Campbells, for example, didn’t decide to pay off their debt until the birth of their first daughter. 

Shortly thereafter, they discovered the “snowball method,” popularized by personal finance personality Dave Ramsey, and decided to pay off their debts from smallest to largest.

They put retirement savings and vacations on hold, paid cash for everything except bills and generally limited their eating out and social activities. They became debt-free about five years ago.

Jeff’s advice for newly married couples is to agree on a budget before each month. 

“Some spouses will naturally be more of the spender, saver or math nerd,” he says. “So while it’s not crucial that both be involved in doing everything, the discussion should happen prior to the start of each month about where ‘our’ money is going to go, and what out of the ordinary expenses may be happening.” 

Don’t forget about your taxes.

Minsky advises giving thought to how you will file your taxes, especially in the case of student loan debt.

For example, if one spouse mostly has federal student loans and is going to do an income-driven repayment plan, there could be incentives for filing taxes as an individual as opposed to making a couple’s joint filing. That way, the income of the spouse without student loan debt won’t be factored in.   

We have previously explored the nuances of deciding whether or not to file jointly or single when spouses have student loan debt. 

Have a story to share? Send us a note at info@magnifymoney.com.

Jamie Friedlander
Jamie Friedlander |

Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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I’m a Single Mom With a 6-Figure Business. Here Are the 3 Rules I Live By Every Day.

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Emma Johnson and her two children. ( Courtesy of Emma Johnson)

Emma Johnson thrived, both financially and professionally, after enduring a complex, costly and painful divorce in 2009.

Johnson, now 40, a journalist and founder of WealthySingleMommy.com, an online community of professional single mothers, was at that time pregnant with her second child, working just 12 hours a week and living paycheck to paycheck. The fear of not being able to support her children on her own drove her to juggle multiple jobs and painstakingly manage her finances.   

Today she’s an entrepreneur with a successful digital marketing business, which includes her blog and podcast targeting professional single mothers, along with a new book, “The Kickass Single Mom: Be Financially Independent, Discover Your Sexiest Self, and Raise Fabulous, Happy Children.” In the book, which debuted Tuesday, Oct. 17, Johnson tells her personal journey as an entrepreneur and mom. She also maps out financial management strategies she hopes other single mothers can use, both to improve their finances and to establish a career they love.  

“Money is power and money is control,” Johnson tells MagnifyMoney. “Men have been very comfortable with that since a long time. And women are never going to have equality in the world, we’ll never have control of our life individually … until we have our money and just as much as men.” 

We spoke with Johnson about the three mantras of her daily life.  

1.Create a lifestyle that you can afford now.

Johnson lived a comfortable life, largely dependent on her ex-husband’s income and benefits while she worked part time. She found that separating from her husband also meant learning to recalibrate her money mindset. 

Legal expenses from the divorce quickly piled up, and she decided to return to full-time freelance work, which meant shelling out $2,000 a month for child care. She knew she had to live frugally in order to make ends meet. Some of the immediate changes she made: Stop buying new clothing for herself. And find as many useful secondhand items for her children as she could. 

“You absolutely have to go frugal,” she says. “I don’t care how rich you were before you were divorced or your kids’s dad is. … Your lifestyle is determined by how much money you have coming in the bank right now.” 

For other single mothers looking to cut spending, she has suggestions both big and small — downsizing to a smaller home, for instance, or just getting rid of unnecessary expenses like a cable subscription or a rarely used gym membership. 

When you are successfully living beneath your means, especially as a breadwinning single mother, Johnson says you can finally start to feel as though you’ve got control over your life again. “You have no control of your life,” she says, “if you are worrying about paying your rent.”   

2. Focus on earning more — unapologetically.

Single mothers shouldn’t just focus on saving more. They should also be unashamed about taking steps to earn more, Johnson says.   

The median income for families led by a single mother in 2014 was about $24,000, far below the $88,000 median for married-parent families in which Mom was the higher earner and the $84,500 median for households where Dad was the principal earner, according to a Pew Research Center report. 

Emma Johnson

The surprising upside of her divorce, Johnson found, was that she realized she had unintentionally suppressed her own financial and professional goals during her marriage to preserve the status quo. 

“Our society definitely values monogamous partnerships and marriage, and women genuinely do want that, but it often comes at a price for reaching our own potential,” she says. 

For Johnson, embracing her ambition wasn’t just a matter of choice. She was granted only one year of child support from her ex-husband, and the clock was ticking. She set about beefing up her income from freelance assignments, taking on everything from corporate blog posts to journalistic articles.  

By the time child support ended, she felt financially stable enough to refinance the the apartment in Queens, N.Y., that she and her ex-husband had bought in her own name. Roughly half a year later, she says, she had lined up enough consistent writing work to confidently support her family independently for the first time.   

Something else happened when she re-entered the labor force full time. She found she had bigger career ambitions than simply writing. She started WealthySingleMommy.com in 2012 as a hobby and slowly grew a loyal audience. (She reports 100,000 unique monthly visitors and 190,000 monthly page views.) 

A few years later, she experimented with monetizing the effort, snagging a mix of brand partnerships, speaking engagements and eventually, a book deal. While she worked on building the WSM brand, she continued to work as a freelancer (her primary income source).  

Finally, in 2016, Johnson says, she made an “internal shift” to focus on her business full time because she saw in it a better financial opportunity.  

“I really feel like it was an important internal shift I had to make because all the freelance writers I knew were [complaining] about not making money,” she says.  

This year, she expects to bring in $400,000 in revenue.  

3. Outsource labor — time is money.

Efficiency is the centerpiece of Johnson’s finance management philosophy. She quickly learned the value of paying professionals to take on some tasks in order to free up hours she could use to work, spend time with her children or focus on her personal needs.  

“You have to be very diligent with how you use all of these things — your time, your money, your energy, your headspace and your emotions,” she says.  

Johnson says that over the years she has invested heavily in child care, housekeeping and outsourcing chores (like laundry) that that take time away from work and her children and aren’t enjoyable. In her book, she writes that she has a handyman on call.  

To be sure, not all single mothers earn enough to outsource, a fact Johnson acknowledges. But she still encourages women not to feel guilt over delegating some household duties in pursuit of that extra quality time. She argues that it’s a worthy investment for peace of mind and efficiency. 

The bottom line: ‘You have to go bigger’

An advocate for gender equality, Johnson says her ultimate goal with the new book is to empower women across society — not just single mothers — to pursue their passions and become role models for a next generation with increasingly abundant resources and opportunities available. 

She hopes single moms will stop taking pity on themselves or viewing their situations as detrimental. “I want women to start seeing themselves as more than they are, and that their family status can be an an asset,” she says. 

For women living in small communities, Johnson’s advice is that maybe they should consider relocating for better job opportunities or finding work that they could be doing virtually.  

The fear of being on one’s own, Johnson says, can become the biggest motivator for pursuing a big goal, be it starting a business or returning to school. And she is convinced that the risks women take and sacrifices they make along the way will eventually pay off. 

“You have to go bigger,” she says. “You have to go bigger because there is less security.” 

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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New CFPB Rules Get Tougher With Payday-Lender Debt Traps

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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In early October, the Consumer Financial Protection Bureau announced it would implement long-awaited new rules aimed at limiting the power of payday and title lenders. The bureau director, Richard Cordray,  has been a vocal critic of the nonbank lenders, and the agency has been working on new rules to regulate lenders in this space for several years.

“The CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country,” Cordray said in a statement. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”These rules will apply to both brick-and-mortar and online lenders.

What changes are happening

Lenders are going to have to prove that a borrower can afford to repay the loan

One of the major rules is a “full-payment test” that will determine if borrowers can “afford the loan payments and still meet basic living expenses and major financial obligations.” Payday lenders typically don’t run a credit report on borrowers and only usually look at a pay stub to determine if you qualify.

Most consumers end up unable to repay the loan when it comes due, usually a couple weeks later. According to the CFPB, more than 80 percent of all payday loans are rolled over or renewed. The same is true for title loans, with 20 percent of borrowers losing their vehicle to title loan companies. Because there is little regulation on interest rates, these loans usually have APRs of 300 percent or more.

However, borrowers can avoid the full-payment test if the lender meets the following requirements: It must make 2,500 or fewer covered short-term or balloon-payment loans per year and earn no more than 10 percent of its revenue from such loans.

It won’t be as easy for lenders to access funds in borrowers’ bank accounts

Another issue is that many payday and title loans require access to the user’s bank account, where payments will be automatically debited. If the user does not have the amount available in his or her account, the account will be overdrawn. This usually results in the consumer being charged overdraft fees on top of the hefty interest already going to the payday lender.

According to the CFPB, “these borrowers incur an average of $185 in bank penalty fees, in addition to any fees the lender might charge for failed debit attempts, specifically, a late fee, a returned-payment fee, or both.”

One of the rules that the CFPB installed is a limit on attempted debits, so the lender has to get authorization from the consumer to debit the account more than twice. The CFPB also hopes to limit the amount of times a loan can be extended, as a way to decrease the fees the borrower must pay.

Borrowers can repay debt more gradually

To avoid the full-payment test, payday lenders can lend up to $500 if they structure the payments so the borrower can pay them off “more gradually.” However, there will be strict rules in place for this type of loan.

For example, lenders won’t be able to offer gradual repayment plans to customers who have recent or outstanding short-term or balloon-payment loans. They also can’t make more than three loans in quick succession and can’t make loans under this option if the consumer has already had more than six short-term loans or been in debt for more than 90 days on short-term loans over a rolling 12-month period.

Few options for borrowers in need

The CFPB’s long-awaited rules may help protect borrowers from predatory lenders, but don’t solve a key issue: There just aren’t that many viable alternatives for people who need to borrow small sums quickly.

A report from the Milken Institute, “Where Banks Are Few, Payday Lenders Thrive,” found that neighborhoods with more banks tend to have fewer payday lenders, and vice versa. There was also a strong correlation between payday lenders and neighborhoods with higher African-American and Latino populations as well as a greater instance of payday lenders where there are fewer high school and college graduates.

Jennifer Harper, who researched predatory lending in Chattanooga, Tenn., as part of the Financial Independence Committee for the Mayor’s Council for Women, said she hopes there will be a solution for consumers that doesn’t require them to take out a payday loan.

“We want to find an alternative to payday lending that would still allow people to access they need, without those crazy interest rates,’ she said. “Getting that quick access to cash may be fine for that day, but then it really puts a burden on the borrower long-term.”

Jason J. Howell,  a certified financial planner and fiduciary wealth adviser in Virginia, agrees with the new regulations taking place.

“The CFPB is taking the opportunity to protect the most vulnerable consumers: lower-income borrowers that are typically ‘un-banked,’” he said. “The proposed rule would reduce fees that make payday loans especially hard to pay back; and that could also reduce the issuance of these loans in the first place.”

Zina Kumok
Zina Kumok |

Zina Kumok is a writer at MagnifyMoney. You can email Zina here

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The Risky Way Retirees Use Reverse Mortgages for Extra Income

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If you’re approaching retirement, you’re probably already aware that taking Social Security at age 62 results in getting a much smaller benefit than someone who waits until full retirement age. For most retirees today, full retirement age is 66 or 67, but you can earn an even larger pay out if you can wait till age 70 to start tapping in to your benefits.

Living off your existing savings while you wait the extra eight years to start receiving Social Security benefits can be challenging. For that reason, an increasing number of financial experts are encouraging retirees to use a reverse mortgage as a source of additional income while they wait to start drawing on their Social Security benefits.

Using a reverse mortgage for extra income in retirement can be risky — so risky, in fact, that the Consumer Financial Protection Bureau (CFPB) recently spoke out against it.

“A reverse mortgage loan can help some older homeowners meet financial needs, but can also jeopardize their retirement if not used carefully,” CFPB Director Richard Cordray said in a statement. “For consumers whose main asset is their home, taking out a reverse mortgage to delay Social Security claiming may risk their financial security because the cost of the loan will likely be more than the benefit they gain.”

Still, retirees with significant equity built up in their homes might be tempted to tap into that equity to bridge the gap between when they retire and when they can maximize their Social Security benefit.

A quick recap of what a reverse mortgage is and how it works:

A reverse mortgage is a special type of home loan that allows homeowners age 62 and over to withdraw a portion of the equity they have in the home. Instead of paying interest and fees each month that amount is added to your overall loan balance. When you no longer live in the home, the total loan must be paid back and you will pay no more than the value of the house. With a reverse mortgage you are no longer responsible for the regular monthly payments on your mortgage loan but you are required to keep the home in good condition, as well as paying the property taxes and homeowner’s insurance.

Most reverse mortgages are federally insured by the Home Equity Conversion Mortgage (HECM) program, which requires a strict set of rules and regulations that must be met in order to qualify. Some of those requirements include: occupying the property as your principal residence, continuing to live in the home and not being delinquent on any federal debt. The U.S. Department of Housing and Urban Development has a full list of requirements here.

The pros of using a reverse mortgage

Using a reverse mortgage can provide some additional, predictable income during retirement. Whereas relying solely on your investments could result in unstable returns depending on your portfolio. But a reverse mortgage loan isn’t a bottomless source of cash.

The amount of money you can receive from a reverse mortgage first depends on your principal limit. That’s the amount a lender will be willing to loan you based on a several factors, like your age, the value of the home and the interest rate on your loan. This is where older borrowers have an advantage. According to the CFPB, “loans with older borrowers, higher-priced homes, and lower interest rates will have higher principal limits than loans with younger borrowers, lower-priced homes, and higher interest rates.”

Another big advantage of reverse mortgages are that the proceeds are generally tax free and will not affect Medicare payments.

The risks of a reverse mortgage

It reduces the amount of equity you have in the home, which can complicate a future sale. The equity in your home is generally defined as the amount of ownership you have in a property less any remaining debt. With a regular mortgage you borrow money from the bank and pay down the balance over time. With each payment the loan balance goes down and your equity increases.

You’ll lose home equity. Since a reverse mortgage allows you to borrow from the equity you have in the home, your debt on the home increases and the equity is lowered. A reverse mortgage may limit the options for someone looking to sell their home in retirement, because the loan must be paid upon the sale and there may not be enough equity left to purchase a new home.

It increases your overall debt. As seen in the images above, a reverse mortgage reduces the amount that you own in your home and adds that amount back into your loan balance. This increases your overall debt.

The cost of a reverse mortgage can outweigh the benefits of increasing your Social Security payments. Though you are borrowing from the money you’ve paid into your home, a reverse mortgage isn’t free. Just like your regular initial mortgage you will have to pay interest and fees. Reverse mortgages are very similar and usually include costs such as: mortgage insurance premiums (MIP), interest, upfront origination fees, closing costs and monthly servicing fees.

In the figure above, the CFPB estimates a reverse mortgage will cost $21,600 for someone who uses the option from age 62 to age 67; but the lifetime gain in Social Security from 62 to 67 is $29,640.

Monetarily, in this scenario a reverse mortgage makes sense. However most borrowers use a reverse mortgage for seven years not five as in the previous example. This would bring the cost to $31,900, approximately $3,900 which is more than the lifetime benefit of waiting until 67 for Social Security.

You’re putting your home at risk. You could also lose your home if you no longer meet the loan requirements. This includes not living in the home for the majority of the year for non-medical reasons or living outside of the home for 12 consecutive months for healthcare reasons.

You’re putting your heirs at risk.  When you pass away your heirs will have to pay back the loan, usually by selling home. If there is money left over after the sale, they can keep the difference. However, if the loan balance is more than the value of the home and they want to keep the home they will need to pay the full loan balance or 95% of the appraised value, whichever is less according to the CFPB.

When does it make sense to use a reverse mortgage for income in retirement?

In general, Chartered Financial Analyst Joseph Hough says reverse mortgages are best for retirees who are in good health and expect to live long after retirement. Also, it can be one of the few options retirees have when their retirement income is simply not high enough to cover their basic needs.

Speak with a financial advisor who can help you weigh the particular pros and cons with your specific situation. Every person is different, and there is no one size fits all answer.

When does it not make sense?

A reverse mortgage may not be a good fit for those in bad health due to the risk of losing the home. If you’re planning on selling your home, having a reverse mortgage can complicate the issue because it reduces the amount of equity you have. You could be left in a scenario where the proceeds of the sale do not cover a purchase of a new home because of the cost and fees associated with reverse mortgages.

What are some other ways I can maximize my SS benefit?

Working beyond 62 may be the best option to maximize your Social Security benefit. Doing so allows more time to save for retirement and pay off any debt. You could potentially increase your overall Social Security benefits if your latest year of earnings is one of your highest. Also, if you’re married, consider coordinating your Social Security decisions with your spouse. Other alternatives to a reverse mortgage include selling your home and downsizing to a less expensive place or selling your home to your adult children on the condition you get to live rent-free, says Houge.

Kevin Matthews II
Kevin Matthews II |

Kevin Matthews II is a writer at MagnifyMoney. You can email Kevin here

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The Pumpkin Spice Tax: Retailers Charge More, Shoppers Get Less for Pumpkin-Flavored Products

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Cue the pumpkin spice tax rebellion.

A MagnifyMoney analysis of pumpkin spice-flavored items at several grocery stores and coffee shops found that customers often pay a premium for that perennial autumn flavor — in essence, a “pumpkin spice tax” that can be up to 133 percent higher on a per-unit (ounces) basis.

In the study, we compared the prices of the pumpkin spice and standard flavors of more than 200 food and beverage items at a half-dozen Manhattan-area retailers and restaurants in late September. We reviewed items in person at Trader Joe’s, Whole Foods, Fairway, CVS, Starbucks, Pret a Manger, Panera, Dunkin’ Donuts and McDonald’s. We supplemented our findings with a review of products at three online retailers — Walmart.com, Target.com and FreshDirect.com.

Pumpkin spice mania has reached a fever pitch in recent years, as retailers have rushed to incorporate the flavor into just about every item in our pantries — from cookies and cereals to bagels and waffle mixes.

Not only are some retailers charging significant surcharges on pumpkin spice-flavored products, but consumers are often paying more and getting less in return.

Read on for our full analysis. Or skip ahead to:

Retailer Spotlights:

Key Findings:

The average pumpkin spice rate: Across the roughly 200 products reviewed, we found an average pumpkin spice tax rate of 7.98% (per ounce/unit). That rate could be many times higher depending on the retailer. At Trader Joe’s, for example, the average pumpkin spice tax rate was 62%.

Pumpkin spice fans often pay more for less. Many retailers don’t just charge more for seasonal items — they give shoppers less product for their money. On FreshDirect.com, for example, a 6.5-oz. Pumpkin Pie Spice version of Land O’Lakes Spreadable Butter sold for $2.99, while the 8-oz. Land O’Lakes Spreadable Butter With Canola Oil sold for about 10 cents less, or $2.89. On a price per ounce basis, the Pumpkin pie spice option sold at a 28 percent premium. We found many more examples of retailers charging more for pumpkin-flavored products but offering less product.

Trader Joe’s was the worst pumpkin spice tax offender. Some retailers are more aggressive with pumpkin spice surcharges than others.. It claimed three of the top 10 highest pumpkin spice tax rates in our study. Among 10 products analyzed at Trader Joe’s, for example, we found an average pumpkin spice tax rate of 62%. By comparison, the average pumpkin spice tax rate at Target.com was just 14% across 20 items.

Coffee drinkers’ highest pumpkin spice premium? Welcome to Starbucks. The highest tax on the seasonal coffee drink was charged by the Pumpkin Spice Latte’s originator, Starbucks. The coffee chain charged $5.25 for its 16-oz. Pumpkin Spice Latte — exactly one dollar more than its 16-oz. Caffe Latte, sold for $4.25, in Manhattan’s Chelsea neighborhood. That’s an effective pumpkin spice tax rate of 23.53%.

McDonald’s, Dunkin’ Donuts and Whole Foods don’t charge a seasonal premium on most items. MagnifyMoney observed no significant pumpkin spice premium on any of the 10 seasonal items we identified at Whole Foods Market. Nor did we observe a premium on pumpkin spice drink options at McDonald’s or Dunkin’ Donuts.

The Top 10 Pumpkin Spice Tax Rates

Across all items reviewed, millennial-centric retailer Trader Joe’s charged the highest premiums on its pumpkin-flavored products. It claimed three of the top 10 highest pumpkin spice tax rates in our study.

The retailer is also one of several in our study that not only charges more for pumpkin-spice products but often offers less product by weight as well. That means shoppers are spending more but getting much less for their money.

Take Trader Joe’s Pumpkin Pancake and Waffle Mix as one example. The national chain charged $1.99 for its 32-ounce Buttermilk Pancake and Waffle Mix and $2.99 for its 21.2-ounce Pumpkin Pancake and Waffle Mix variation — $1 more for a product with 10 fewer ounces.

Based on the sticker price alone, shoppers may think they paid 50% more for the pumpkin spice version. But on a price-per-ounce basis, they paid more than twice the price — an effective pumpkin spice tax rate of 133%.

Trader Joe’s certainly wasn’t the only retailer taking advantage of the pumpkin spice hype.

At first glance, a Target.com shopper might see no difference in the price of Nabisco’s Oreos vs. the pumpkin spice version. As of late September, they had the same sticker price of $2.99. But the pumpkin spice version came with just 10.7 ounces — 3.6 ounces less than the original flavor. On a price per ounce basis, that’s an effective pumpkin spice tax rate of 33%.

See some of the highest-taxed items below. Percentages may be rounded, and list prices are used for comparisons. Per-unit cost is based on per-ounce figures where available, or per unit/count):

Pumpkin Spice Tax

Retailer

Product

Sticker Price

Price Per Oz./Unit

Per Oz./Unit

Sticker Price

1. Trader Joe's

Buttermilk Pancake
and waffle mix — 32 oz.

$1.99

$0.06

133%

50.25%

Pumpkin Pancake and
waffle mix — 21.2 oz.

$2.99

$0.14

2. Trader Joe's

Joe Joe's cookies —
20 oz.

$2.99

$0.15

87%

0.00%

Pumpkin Joe Joe's —
10.5 oz.

$2.99

$0.28

3. Trader Joe's

Joes O's —
15 oz.

$1.99

$0.13

69%

35.18%

Pumpkin O's —
12 oz.

$2.69

$0.22

4. Walmart.com

Twinings of London
Winter Holiday Spiced
Apple Chai, K-Cup
Portion Pack — 12 ct.

$8.11

$0.68

59%

60.17%

Twinings Pumpkin
Spice Chai Tea Keurig
K-Cups — 12 ct.

$12.99

$1.08

5. Target.com

Archer Farms Dark Chocolate Almonds — 13 oz.

$5.99

$0.46

59%

-33.4%

Archer Farms Pumpkin Spice Almonds — 5.5 oz.

$3.99

$0.73

6. Target.com

Krusteaz Honey
Cornbread & Muffin
Mix — 15 oz.

$1.67

$0.11

36.4%

35.9%

Krusteaz Pumpkin
Spice Muffin
Mix — 15 oz.

$2.27

$0.15

7. Target.com

Oreo Original
Chocolate Sandwich
Cookies — 14.3 oz.

$2.99

$0.21

33%

0.00%

Oreo Pumpkin
Spice Creme Sandwich
Cookies — 10.7 oz.

$2.99

$0.28

8. FreshDirect

Land O'Lakes
Spreadable Butter With
Canola Oil — 8 oz.

$2.89

$0.36

28%

3.46%

Land O'Lakes
Spreadable Butter,
Pumpkin Pie
Spice — 6.5 oz.

$2.99

$0.46

9. Walmart.com

Victor Allen's
Coffee Donut Shop
Blend Medium Roast
Single Serve Brew
Cups — 0.35 oz., 12 ct.

$3.25

$0.27

26%

26.8%

Victor Allen's Coffee
Pumpkin Spice Medium
Roast Single Serve Brew
Cups — 0.34 oz., 12 ct.

$4.12

$0.34

10. Walmart.com

Entenmann's Dark
Roast Coffee Single Serve
Cups — 0.35 oz, 10 ct.

$6.99

$0.69

23.2%

21.6%

Entenmann's Coffee
Pumpkin Spice Cups —
10 ct.

$8.50

$0.85

The above items were reviewed in-person at retailers in the Chelsea area of Manhattan on Sept. 22 and with online retailers on Sept. 25-26.

The Pumpkin Spice Latte Tax

Some may notice that the coveted pumpkin spice latte (PSL) — made popular by Starbucks after its debut in fall 2003 and now offered by coffee shops worldwide — typically carries a noticeable mark-up.

Starbucks’ grande-size PSL, for example, is sold at a 23.5% premium above the price of its non-pumpkiny caffe latte counterpart.

Pret a Manger and Panera also charge more for pumpkin lattes, although neither quite as high as Starbucks.

What you ultimately pay for your PSL may simply come down to how you like your coffee. You won’t pay a PSL tax at McDonald’s or Dunkin’ Donuts, but If you prefer Starbucks or Panera, paying the premium may be worth what you get.

Here’s what it will cost you to buy a 16-ounce pumpkin spice latte at some prominent national coffee chains in the Chelsea section of Manhattan.

Coffee Shop

Product

Sticker
Price

Pumpkin Spice
Tax Rate

Starbucks

Caffe Latte
16 oz.

$4.25

23.53%

Pumpkin Spice Latte
16 oz.

$5.25

Pret A Manger

Latte
16 oz.

$3.59

13.93%

Spiced Pumpkin Latte
16 oz.

$4.09

Starbucks

Chai Latte
16 oz.

$4.45

11.24%

Pumpkin Spice Chai Latte
16 oz.

$4.95

Panera Bread

Caffe Latte
16 oz.

$4.09

4.89%

Pumpkin Spice Latte
16 oz.

$4.29

Dunkin’ Donuts

Latte
16 oz.

$2.99

0.00%

Pumpkin Flavored Latte
16 oz.

$2.99

McDonald’s

Latte
16 oz.

$2.59

0.00%

Pumpkin Spice Latte
16 oz.

$2.59

The above items were reviewed in-person at retailers in the Chelsea area of Manhattan on Sept. 22.

Retailer Spotlight: Trader Joe’s

As mentioned above, America’s favorite grocery store after Publix and Wegmans had the highest-taxed seasonal items in our analysis.

Among the highest-taxed items: Trader Joe’s Pumpkin Pancake and Waffle Mix — costing much more per ounce than TJ’s Buttermilk Pancake and Waffle Mix — and Joe Joe’s cookies.

Both the seasonal and nonseasonal Joe Joe’s are priced at $2.99 on the sticker. However, the seasonal Pumpkin Joe Joe’s cost 28 cents per ounce, while the regular Joe Joe’s cost 15 cents an ounce. In this case, customers pay almost double per ounce — something like the same price for half the cookies.

MagnifyMoney reached out to Trader Joe’s for comment but did not receive a response.

See below for a breakdown of some products.

Trader Joe's

Pumpkin Spice Tax

Product

Sticker Price

Price Per Oz./Unit

Per Oz./Unit

Sticker Price

Buttermilk pancake and
waffle mix — 32 oz.

$1.99

$0.06

133%

50.25%

Pumpkin pancake and waffle mix — 21.2 oz.

$2.99

$0.14

Joe Joe's cookies — 20 oz.

$2.99

$0.15

87%

0.00%

Pumpkin Joe Joe's — 10.5 oz.

$2.99

$0.28

Joes O's — 15 oz.

$1.99

$0.13

69%

35.18%

Pumpkin O's — 12 oz.

$2.69

$0.22

Plain bagels — 6 ct.

$2.29

$0.38

10.5%

8.73%

Pumpkin bagels — 6 ct.

$2.49

$0.42

Gluten-free buttermilk
pancake mix — 18 oz.

$3.99

$0.22

9.1%

12.53%

Gluten-free pumpkin
pancake mix — 18.5 oz.

$4.49

$0.24

The above items were reviewed in-person at the Trader Joe’s at 675 6th Ave. in New York City on Sept. 22.

Retailer Spotlight: Target

We found the highest seasonal-item, per-unit “tax” at Target.com on chocolate-covered pumpkin spice almonds.

At first glance, the seasonal almonds look cheaper than the comparable dark chocolate-covered almonds, sold in a larger package. When you look closer, you realize the pumpkin spice almonds are sold for almost 60 percent more per ounce. However, it’s important to note the discrepancy could be due to the difference in packaging.

MagnifyMoney contacted Target for comment but did not receive a response.

See below for a breakdown of the PST applied online at Target.com.

Target.com

Pumpkin Spice Tax

Product

Sticker Price

Price Per Oz./Unit

Per Oz./Unit

Sticker Price

Archer Farms Dark Chocolate Almonds — 13 oz.

$5.99

$0.46

59%

-33.4%

Archer Farms Pumpkin Spice Almonds
— 5.5 oz.

$3.99

$0.73

Krusteaz Honey Cornbread &
Muffin Mix — 15 oz.

$1.67

$0.11

36.4%

35.9%

Krusteaz Pumpkin Spice
Muffin Mix — 15 oz.

$2.27

$0.15

Oreo Original Chocolate
Sandwich Cookies — 14.3 oz.

$2.99

$0.21

33%

0.00%

Oreo Pumpkin Spice Creme
Sandwich Cookies — 10.7 oz.

$2.99

$0.28

International Delight® French
Vanilla Singles Coffee Creamer — 24 ct.

$2.64

$0.11

18.2%

20.8%

International Delight Pumpkin
Spice Coffee Creamer — 24 ct.

$3.19

$0.13

Tazo Organic Tea Latte
Chai Black Tea — 32 fl. oz.

$3.14

$0.10

10%

11.2%

Tazo Chai Pumpkin Spice
Latte Tea Concentrate — 32 fl. oz.

$3.49

$0.11

Keurig Green Mountain Breakfast
Blend Light Roast Coffee — K-Cup Pods — 18 ct.

$10.99

$0.61

9.8%

9.1%

Keurig Green Mountain Coffee
Pumpkin Spice Coffee K-Cups — 18 ct.

$11.99

$0.67

KISSES Halloween Fall Harvest
Milk Chocolates — 11 oz./approx. 69 ct.

$3.59

$0.33

9.1%

0.00%

KISSES Halloween Fall Harvest
Pumpkin Spice — 10 oz./approx. 64 ct.

$3.59

$0.36

Tazo Chai Black Tea — 20 ct.

$3.14

$0.16

6.3%

11.2%

Tazo Chai Pumpkin Spice
Tea — 20 ct.

$3.49

$0.17

Quaker Fruit & Cream Instant
Oatmeal Variety — 8 ct.

$2.59

$0.32

6.25%

5.8%

Quaker Pumpkin Spice Instant
Oatmeal Limited Edition — 8 ct.

$2.74

$0.34

Archer Farms Antioxidant Trail Mix — 9 oz.

$5.99

$0.67

-50.7%

-50.1%

Archer Farms Trail Mix Pumpkin Spice —
9 oz.

$2.99

$0.33

The above items were reviewed online, at Target.com, on Sept. 25-26.

Retailer Spotlight: Walmart

At Walmart.com, the most-taxed item was tea. Specifically: Twinings of London’s Pumpkin Spice Chai Tea Keurig Cups. Compared with the brand’s Winter Holiday Spiced Apple Chai flavor, the pumpkin spice variant costs about 60 percent more for the same number of cups. MagnifyMoney contacted Walmart for comment but did not yet receive a response.

See below for a breakdown of the Pumpkin Spice Tax applied online at Walmart.com.

Walmart.com

Pumpkin Spice Tax

Product

Sticker Price

Price Per Oz./Unit

Per Oz./Unit

Sticker Price

Twinings of London Winter Holiday
Spiced Apple Chai, K-Cup Portion Pack — 12 ct.

$8.11

$0.68

59%

60.17%

Twinings Pumpkin Spice Chai Tea
Keurig K-Cups — 12 ct.

$12.99

$1.08

Victor Allen's Coffee Donut Shop
Blend Medium Roast Single Serve Brew Cups —
0.35 oz., 12 ct.

$3.25

$0.27

26%

26.8%

Victor Allen's Coffee Pumpkin Spice
Medium Roast Single Serve Brew Cups —
0.34 oz., 12 ct.

$4.12

$0.34

Entenmann's Dark Roast Coffee
Single Serve Cups — 0.35 oz., 10 ct.

$6.99

$0.69

23.2%

21.6%

Entenmann's Coffee Pumpkin
Spice Cups — 10 ct./p>

$8.50

$0.85

Coffee-Mate Sweetened Original
Liquid Coffee Creamer — 1.5-liter pump bottle

$24.36

$0.48

18.7%

19%

Coffee-Mate Liquid Creamer, Pumpkin Spice — 1.5-liter pump bottle

$28.98

$0.57

Keurig K-Cups, Green Mountain
Nantucket Blend Coffee — 18 ct.

$10.98

$0.61

8.2%

8.74%

Keurig K-Cups Green Mountain
Pumpkin Spice Coffee — 18 ct.

$11.94

$0.66

Nestle Professional Coffee-Mate
Peppermint Mocha Liquid Coffee Creamer Singles,
Peppermint Mocha Flavor — 0.38 fl. oz. - 50/box

$15.04

$0.30

6.7%

6.3%

Nestle Coffee-Mate Pumpkin Spice
Liquid Coffee Creamer — 50-0.375 fl. oz. tubs

$15.99

$0.32

Oreo Sandwich Cookies — 14.3 oz.

$3.83

$0.27

3.7%

-22.2%

Oreo Sandwich Cookies Pumpkin
Spice — 10.7 oz.

$2.98

$0.28

Pepperidge Farm Milano Milk
Chocolate Cookies — 6 oz. pack

$3.83

$0.64

-14.1%

0.00%

Pepperidge Farm Pumpkin Spice
Milano Cookies — 7 oz.

$3.83

$0.55

Lindt Lindor Hazelnut Milk
Chocolate Truffles — 5.1 oz.

$3.78

$0.74

-16.2%

16.4%

Lindt Lindor Milk Chocolate Truffles
Pumpkin Spice — 5.1 oz.

$3.16

$0.62

Quaker Life Multigrain Cereal,
Vanilla — 18 oz. box

$3.83

$0.21

-19%

-21.7%

Quaker Life Pumpkin Spice
Multigrain Cereal Limited Edition — 18 oz.

$3.00

$0.17

International Delight French Vanilla
Non-Dairy Coffee Creamer Singles — 24 ct. box

$3.28

$0.14

-28.6%

-24.4%

International Delight Pumpkin Pie
Spice Non-Dairy Coffee Creamer Singles — 24 ct. box

$2.48

$0.10

The above items were reviewed online, at Walmart.com, on Sept. 25-26.

The future of pumpkin spice

The latest Nielsen data shows Americans’ taste for all things pumpkin spice is still going strong, but has begun to wane in recent years. Sales of pumpkin-themed consumer goods were up 6.3 percent from July 2016 – July 2017, bringing in $414 million vs. $389.5 million from July 2015 – July 2016. But that was a slower rate of growth than the year prior, when sales grew by 10.8%.

Still, that won’t stop retailers from seizing an opportunity to cash in on the trend while it’s still hot, said food industry analyst and editor of Supermarketguru.com, Phil Lempert.

“A lot of that has to do with the time of year that it is packed and the amount of money that it takes to store those products…which is why at times we are going to see higher prices on those products,” he told MagnifyMoney.

Lempert added that companies have to make up the cost of carrying and storing the additional seasonal items in a warehouse. “You want to get it out there at a fair price but you want to cover your costs otherwise you don’t have a business,” he said.

If you’re determined to get your pumpkin spice kick this year, the longer you wait to buy, the more likely you’ll be able to score a deal. Seasonal items tend to get the steepest price cuts as the season ends and retailers move to clear out their inventory.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Auto Loan Interest Rates and Delinquencies: 2017 Facts and Figures

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Led by a prolonged period of low interest rates, consumers now have a record $1.2 trillion1 in outstanding auto loan debt. Despite record high levels of issuance, the auto lending market shows signs of tightening. With auto delinquencies on the rise, consumers are facing higher interest rates on both new and used vehicles. In particular, over the last three years, subprime borrowers saw rates rise faster than the market as a whole. MagnifyMoney analyzed trends in auto lending and interest rates to determine what’s really going on under the hood of automotive financing.

Key insights

  1. Overall auto delinquency is on the rise, and the first quarter of 2017 saw near record volume ($8.27 billion) in new severely delinquent auto loans.54
  2. Interest rates are on the rise, with average new car loan rates up to 5.2%, 93 basis points from their lows in late 2013.2
  3. The average duration of auto loans (new vehicles) is up to 66.53 months. The longer loans make monthly payments more manageable even as interest rates rise.31
  4. The median credit score for an auto loan borrower dropped to 698.6 This broke a five-quarter trend for rising credit scores among auto loan borrowers.

Facts and figures

  • Average Interest Rate (New Car): 5.2%2
  • Average Interest Rate (Used Car): 9.02%3
  • Average Loan Size New: $28,5694
  • Average Loan Size Used: $17,0785
  • Median Credit Score for Car Loan: 6986
  • % of Auto Loans to Subprime Consumers: 34.3%7

Subprime auto loans

  • Total Subprime Market Value: $234 billion8
  • Average Subprime LTV: 113.4%9
  • Average Interest Rate (New Car): 11.35%10
  • Average Interest Rate (Used Car): 16.49%11
  • Average Loan Size (New Car): $27,85312
  • Average Loan Size (Used Car): $16,24013
  • % Leasing: 24.5%14

Prime auto loans

  • Total Prime Market Value: $733 billion15
  • Average Prime LTV: 97.91%16
  • Average Interest Rate (New Car): 3.96%17
  • Average Interest Rate (Used Car): 5.42%18
  • Average Loan Size (New Car): $31,96419
  • Average Loan Size (Used Car): $20,84720
  • % Leasing: 36.5%21

Auto loan interest rates

Interest rates for auto loans continue to remain near historic lows. Interest rates for used cars is now 9.02% on average. The average interest rate on new cars (including leases) is 5.2%. However, the historically low rates belie a tightening of auto lending, especially for subprime borrowers.

New loan interest rates

Consumer credit information company Experian reports that the average interest rate on all new auto loans was 5.2%, up 93 basis points from the trough in the third quarter of 2013.24 Compared to the previous year, interest rates are up 38 basis points for new cars. The interest rate increase reflected underlying tightening in the auto loan market for new vehicles.

During the last few years, lenders tilted away from subprime borrowers. In the second quarter of 2017, just 10.02% of new loans went to subprime borrowers compared with peak subprime lending of 11.48% in the fourth quarter of 2015. The movement away from subprime borrowers led to a smaller increase in new car interest rates.25

Across all credit scoring segments, borrowers faced higher average borrowing rates. Subprime and deep subprime borrowers saw the largest absolute increases in rate hikes, but super prime borrowers also saw an 18-basis-point increase in their borrowing rates over the last year. The average interest rate for super-prime borrowers is now 3.05% on average, the highest it’s been since the end of 2011.27

When comparing credit scores to lending rates, we see a slow tightening in the auto lending market since the end of 2013. The trend is especially pronounced among subprime and deep subprime borrowers. These borrowers face auto loan interest rates growing at rates faster than the market average. Consumers should expect to see the trend toward slightly higher interest rates continue until the economic climate changes.

Even with the tightening, interest rates remain near historic lows for borrowers with fair credit and above. However, the low rates aren’t translating to consumers are paying less interest on their vehicle purchases. The estimated cost of interest on new vehicle purchases is now $4,378,29 up 52% from its low in the third quarter of 2013.

Growth in interest paid over the life of the loan stems from longer loans and higher average loan amounts. The average maturity for a new loan grew from 62.4 months in the third quarter of 2008 to 66.5 months in early 2017.31 During the same time, average loan amounts for new vehicles grew 15.3% to $29,134.32

Used loan interest rates

Over the past year, interest rates for used vehicles swung to their lowest rates ever, but recent movements show that interest rates for used cars may be stabilizing or climbing. Year over year, used car interest rates increased by 5 basis points to 9.02%. The drop in average interest rates came from a dramatic increase of prime borrowers entering the used car financing market. In the second quarter of 2017, 46.91% of used-car borrowers had prime or better credit. The year before, 45% of used borrowers were prime.34

On the whole, borrowers in the used car market face modest increases in interest rates compared to this time last year. Super prime and prime borrowers saw upticks of 27 basis points and 19 basis points, respectively. This brought the average super prime borrowing rate up to 3.68% for used vehicles, and the prime rate to 5.42%.36 Despite the recent increases, interest rates for prime borrowers are still near historic lows.

On the other end of the spectrum, subprime and deep subprime borrowers saw larger than average interest rate increases last quarter. Deep subprime interest rates grew to 19.73%, a 44 basis point increase from the previous year. Subprime borrowers face rates of 16.49% for used cars, up 39 basis points from the previous year. Interest rate hikes for subprime borrowers are part of a broader trend that started in 2009. Since 2009, interest rates for subprime borrowers are up nearly two full percentage points, and interest rates for deep subprime borrowers are up 3.5 percentage points.

Along with interest rate increases, the estimated interest paid on a used car loan sits at $4,279, up $227 from this time four years ago. Rising interest rates factor into the increased interest costs, but they are not the primary driver of interest costs. A more important factor in the total interest cost is the longer average loan terms for used cars (61 months vs. 59 months),38 leading to more interest paid over the life of a car loan.

Auto loan interest rates and credit score

As of June 2017, the median credit score for all auto loan borrowers was 698.40 Following a five quarter increase in median credit scores of auto borrowers, median credit scores fell below 700 for the first time since 2016.

In the second quarter of 2017, just 34.3% of all auto loans were issued to subprime borrowers compared with an average of 35% over the past three years. Ally Financial, the nation’s largest auto lender, limited subprime lending to just 11.6 percent of their auto loan portfolio, and Wells Fargo, the nation’s third largest auto lender, announced intentions to limit subprime auto lending to less than 10 percent of their auto portfolio. Despite the actions of these big banks, trends towards lending to the highest quality auto borrowers may show signs of normalizing near the 35% number again.

Total auto loan volume decreased dramatically between 2008 and 2010. During that time, subprime and deep subprime lending contracted faster than the rest of the market. Since early 2010, auto lending rebounded to near pre-recession levels, but subprime lending lagged in recovery. However, in the last year and a half, subprime lending volume has shown signs of total recovery. In the second quarter of 2017, banks issued $50.9 billion to subprime borrowers, surpassing the average $48.2 billion of subprime auto loans issued each quarter between 2005 and 2007.

Loan-to-value ratios and auto loan interest rates

One factor that influences auto loan interest rates is the initial loan-to-value (LTV) ratio. A ratio over 100% indicates that the driver owes more on the loan than the value of the vehicle. This happens when a car owner rolls “negative equity” into a new car loan.

Among prime borrowers, the average LTV was 97.91%. Among subprime borrowers, the average LTV was 113.40%.44 Both subprime and prime borrowers show improved LTV ratios from the 2007-2008 time frame. However, LTV ratios increased from 2012 to the present.

Research from the Experian Market Insights group46 showed that loan-to-value ratios well over 100% correlated to higher charge-off rates. As a result, car owners with higher LTV ratios can expect higher interest rates. An Automotive Finance Market report from Experian47 showed that loans for used vehicles with 140% LTV had a 3.03% higher interest rate than loans with a 95%-99% LTV. Loans for new cars charged just a 1.28% premium for high LTV loans.

Auto loan term length and interest rates

On average, auto loans with longer terms result in higher charge-off rates. As a result, financiers charge higher interest rates for longer loans. Despite the higher interest rates, longer loans are becoming increasingly popular in both the new and used auto loan market.

The average length to maturity for new car loans in the second quarter of 2017 is 66.5 months.48For used cars, the average is 61.1 months.49 Loans for both new and used cars are now more than six months longer on average than they were in 2009. Based on data from Experian, the increase in average length to maturity is driven primarily by an increasing concentration of borrowers taking out loans requiring 73-84 months of maturity.50

In the second quarter of 2017, just 7.3% of all new vehicle loans had payoff terms of 48 months or less, and 33.8% of all loans had payoff periods of more than 6 years.51 Among used car loans, 17.7% of loans had payoff periods less than 48 months, and an equal number, 17.7% of loans, had payoff periods more than six years.52

Auto loan delinquency rates

Despite a trend toward more prime lending, we’ve seen deterioration in the rates and volume of severe delinquency. In the first quarter of 2017, $8.27 billion in auto loans fell into severe delinquency.54 This is near an all-time high.

Overall, 3.92% of all auto loans are severely delinquent. Delinquent loans have been on the rise since 2014, and the overall rate of delinquent loans is well above the prerecession average of 2.3%.

Between 2007 and 2010, auto delinquency rates rose sharply, which led to a dramatic decline in overall auto lending. So far, the slow increase in auto delinquency between 2014 and the present has not been associated with a collapse in auto lending. In fact, the total outstanding balance is up 36% to $1.19 billion since 2014.57

However, the increase in auto delinquency means lenders may continue to tighten lending to subprime borrowers. Borrowers with subprime credit should make an effort to clean up their credit as much as possible before attempting to take out an auto loan. This is the best way to guarantee lower interest rates on auto loans.

Sources

  1. Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  2. State of the Automotive Finance Market,” New Car Average Rates – Page 25, from Experian.TM
  3. State of the Automotive Finance Market,” Used Car Average Rates – Page 25, from Experian.TM
  4. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
  5. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, October 2, 2017.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  7. Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  8. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q2 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.(3.71% of All Loans Are Deep Subprime + 15.97% of All Loans Are Subprime)X ($1.190 trillion in Auto Loans)
  9. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  10. State of the Automotive Finance Market,” New Car Subprime Average Rates, Page 25, from Experian.TTM
  11. State of the Automotive Finance Market,” Used Car Subprime Average Rates, Page 25, from Experian.TM
  12. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  13. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  14. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  15. Calculated metric: “State of the Automotive Finance Market” Loan Balance Risk Distribution Q2 2017 – Page 5, from Experian,TM and “Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.(41.7% of All Loans Are Prime + 19.74% of All Loans Are Super Prime)X ($1.190 trillion in Auto Loans)
  16. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  17. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  18. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (Used Car), Page 25, from Experian.TM
  19. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  20. State of the Automotive Finance Market,” Average Loan Amounts By Tier, Page 19, from Experian.TM
  21. State of the Automotive Finance Market,” % Leasing By Tier, Page 16, from Experian.TM
  22. Graph 1 – Auto Loan Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  23. Graph 2 – Average New Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  24. State of the Automotive Finance Market,” Average Interest Rate Prime Rating (New Car), Page 25, from Experian.TM
  25. State of the Automotive Finance Market,” New Loan Risk Distribution, Page 15, from Experian.TM
  26. Graph 3 – % of New Car Loans Issued to Subprime Borrowers, data compiled from historic Experian State of the Automotive Finance Market Reports.
  27. Average Interest Rate by Credit Score, data compiled from historic Experian State of Automotive Finance Reports.
  28. Graph 4 – Average Interest Rate by Credit Score (New Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  29. Calculated metric: Total Interest over the Life an Auto Loan (New Car).
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  30. Graph 5 – Estimated Interest on New Car Loan.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October, 2017.
    3. Average New Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  31. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
  32. Board of Governors of the Federal Reserve System (US), Average Amount Financed for New Car Loans at Finance Companies [DTCTLVENANM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENANM, October 2, 2017.
  33. Graph 6 – Average Used Vehicle Interest Rates, data compiled from historic Experian State of Automotive Finance Reports.
  34. State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  35. Graph 7 – Lending By Credit Score Q2 2016 vs. Q2 2017 “State of the Automotive Finance Market,” Used Car Loan Risk Distribution, Page 15, from Experian.TM
  36. State of the Automotive Finance Market,” Average Loan Rates By Credit Tier (Used Cars), Page 25, from Experian.TM
  37. Graph 8 – Average Interest Rate by Credit Score (Used Car Loans), data compiled from historic Experian State of Automotive Finance Reports.
  38. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  39. Graph 9 – Calculated metric: Estimated Interest on Used Car Loans.
    1. Board of Governors of the Federal Reserve System (US), Average Amount Financed for Used Car Loans at Finance Companies [DTCTLVEUANQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUANQ, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
    3. Average Used Car Interest Rate, data compiled from historic Experian State of Automotive Finance Reports.

    Calculated Total Interest is Amortized Interest as a function of Average Amount Financed,a Average Interest Rate on New Cars,c and Average Length to Maturity of new car loans.b

  40. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  41. Graph 10 – Credit Score at Auto Loan Origination “Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  42. Graph 11 – % of New Loans Issued to Subprime Borrowers. Calculated metric from “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score ((<620+620-659)/Total Lending), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  43. Graph 12 – Auto Loan Origination by Credit Tier “Quarterly Report on Household Debt and Credit August 2017.” Auto Loan Originations by Credit Score, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 17, 2017.
  44. U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  45. Graph 13 – Average LTV at Auto Loan Origination “U.S. Auto Loan ABS Tracker: January 2017,” from S&P Global Ratings. Accessed July 17, 2017.
  46. Understanding automotive loan charge-off patterns can help mitigate lender risk,” from Experian.TM Accessed July 17, 2017.
  47. State of the Automotive Finance Market Q4 2010,” Pages 25-26, from Experian.TM
  48. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
  49. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  50. State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  51. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  52. Calculated metric: “State of the Automotive Finance Market,” Percentage of new loans by Term, Page 22, from Experian.TM
  53. Graph 14 – Average Auto Loan Length to Maturity (Months).
    1. Board of Governors of the Federal Reserve System (US), Average Maturity of New Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVENMNM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVENMNM, October 2, 2017.
    2. Board of Governors of the Federal Reserve System (US), Average Maturity of Used Car Loans at Finance Companies, Amount of Finance Weighted [DTCTLVEUMNQ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DTCTLVEUMNQ, October 2, 2017.
  54. Quarterly Report on Household Debt and Credit August 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  55. Graph 15 – New Severely Delinquent Auto Loans (90+ Days) “Quarterly Report on Household Debt and Credit August 2017.” Transition into serious delinquency (90+ days): Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  56. Graph 16 – % of All Loans Severely Delinquent “Quarterly Report on Household Debt and Credit August 2017.” % of Balance 90+ Days Delinquent: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017.
  57. Quarterly Report on Household Debt and Credit August 2017.” Total Debt Balance and Its Composition: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 7, 2017. (Q1 2014 compared to Q2 2017.)
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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News

Your Netflix Subscription is About to Get More Expensive

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Your Netflix-and-chill date is about to get a little more costly.

Mashable first reported that the online media streaming company is raising the price of both its mid-level and premium subscription plans by November. MagnifyMoney confirmed details of the price hikes with a Netflix rep on Thursday.

The mid-level, ‘standard’ plan will rise one dollar to $10.99 a month, while the price of the company’s ‘premium’ service will rise to $13.99 a month from $11.99.

The silver lining: Subscribers to the “basic” $7.99 plan will not see a price increase. If you happen to be reading this from another country, you are safe, too, as prices are only rising for U.S. customers.

When will my bill rise?

Existing customers should receive an email this month letting them know they will see a rise in their bills starting November. The company says it will begin sending out notifications Oct. 19. New subscribers will be charged the new prices immediately.

Under its FAQs, Netflix states it sends users an email a month before their next billing date to inform them of a price change whenever these occur. The company also displays a message with price-change details when users sign in.

Netflix has three subscription tiers. What a user pays comes down to how many screens they would like to be able watch at once. All of the plans allow users to download titles onto their mobile devices.

$7.99 — Basic

Users can only stream what they are watching on Netflix on one device at a time, and in standard definition. Users may download titles on one device.

$10.99 — Standard

Netflix’s standard plan lets users stream content  on two devices at once and in high definition if it’s available. This plan also lets users download titles to two phones or tablets.

$13.99 — Premium

At the highest tier, users may stream Netflix’s content on four devices at a time. They can also view shows and movies in high definition or ultra-high definition if it’s available. Those subscribed to the premium plan can download content on up to four devices.

Why is the price going up?

Netflix last increased its prices October 2015. The company justified the price hike in a statement on Thursday, saying it has “added a downloading feature, introduced interactive content, announced a robust slate of new content (including films) and have continued to improve the member experience.”

The company issued the following statement to MagnifyMoney:

From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience to help members find something great to watch even faster.

Over the years, Netflix has continued to expand its business internationally while simultaneously beefing up its exclusive content, produced in-house. So far in 2017, the company has announced exclusive content deals with big names like Shonda Rhimes and Adam Sandler, among others. The company also recently completed its first acquisition when it purchased the comic book publisher Millarworld in a deal estimated to have cost between $50 million and $100 million, according to The Wall Street Journal. All of that activity isn’t cheap.

Netflix is poised to spend nearly $6 billion on content alone, in 2017 and company execs say it plans to spend another $7 billion in 2018.

In addition to increased spending, Netflix is seeing competition from new and existing companies, as activity in the streaming space grows. Apple, for example, reportedly plans to spend $1 billion on original content in 2018, and — just this summer — Disney announced plans to launch its own streaming service in 2019, end an exclusive distribution deal with Netflix and pull some of its content from that service.

And let’s not forget Amazon. Business Insider reports that the internet giant is likely to spend $4.5 billion on video in 2017.

Besides that, older, well-established media giants are finally cashing in on the cord-cutting trend and launching their own services. AT&T a year ago announced its DirecTV Now service that offers consumers 100+ channels for about $35 a month.

Users questioned the Netflix increases on social media. Some users stated they would end their subscriptions, while others questioned whether Netflix would increase the quality and availability of content with subscription prices.

A previous 2011 price increase cost Netflix an estimated 800,000 subscribers. Back then, the company announced it would charge different prices for its DVDs-by-mail and streaming video plans. Time will tell if they face similar backlash this time around.

The bottom line

The prices for the middle and premium tiers are going up, which may bother anyone who shares their Netflix account with other people. But, at the basic level, Netflix’s offering is still cheaper than those offered by many of Netflix’s competitors.

For example, Hulu’s commercial-free plans start at $9.99 and HBO’s popular streaming service, HBO Now, costs $14.99 each month.

The price of Netflix’s basic plan also hasn’t changed since its 2010 launch.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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U.S. Mortgage Market Statistics: 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Homeownership rates in America are at all-time lows. The housing crisis of 2006-2009 made banks skittish to issue new mortgages. Despite programs designed to lower down payment requirements, mortgage originations haven’t recovered to pre-crisis levels, and many Americans cannot afford to buy homes.

Will a new generation of Americans have access to home financing that drove the wealth of previous generations? We’ve gathered the latest data on mortgage debt statistics to explain who gets home financing, how mortgages are structured, and how Americans are managing our debt.

Summary:

  • Total Mortgage Debt: $9.9 trillion1
  • Average Mortgage Balance: $137,0002
  • Average New Mortgage Balance: $244,0003
  • % Homeowners (Owner-Occupied Homes): 63.4%4
  • % Homeowners with a Mortgage: 65%5
  • Median Credit Score for a New Mortgage: 7546
  • Average Down Payment Required: $12,8297
  • Mortgages Originated in 2016: $2.065 trillion8
  • % of Mortgages Originated by Banks: 43.9%9
  • % of Mortgages Originated by Credit Unions: 9%9
  • % of Mortgages Originated by Non-Depository Lenders: 47.1%9

Key Insights:

  • The median borrower in America puts 5% down on their home purchase. This leads to a median loan-to-value ratio of 95%. A decade ago, the median borrower put down 20%.10
  • Credit score requirements are starting to ease somewhat The median mortgage borrower had a credit score of 754 from a high of 781 in the first quarter of 20126
  • 1.24% of all mortgages are in delinquency. In 2009, mortgage delinquency reached as high as 8.35%.11

Home Ownership and Equity Levels

In the second quarter of 2017, real estate values in the United States surpassed their pre- housing crisis levels. The total value of real estate owned by individuals in the United States is $24 trillion, and total mortgages clock in at $9.9 trillion. This means that Americans have $13.9 trillion in homeowners equity.12 This is the highest value of home equity Americans have ever seen.

However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 63.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership corresponds to banks’ tighter credit standards following the Great Recession.

New Mortgage Originations

Mortgage origination levels show signs of recovery from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25 percent lower than their pre-recession average.8 So far, 2017 has proved to be a lackluster year for mortgage originations. Through the second quarter of 2017, banks originated just $840 billion in new mortgages.

 

As recently as 2010, three banks (Wells Fargo, Bank of America, and Chase) originated 56 percent of all mortgages.13 In 2016, all banks put together originated just 44 percent of all loans.9

In a growing trend toward “non-bank” lending, both credit unions and nondepository lenders cut into banks’ share of the mortgage market. In 2016, credit unions issued 9 percent of all mortgages. Additionally, 47% of all mortgages in 2016 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($249 billion) and Chase ($117 billion), Quicken ($96 billion) was the third largest issuer of mortgages in 2016. In the fourth quarter of 2016, PennyMac issued $22 billion in loans and was the fourth largest lender overall.9

Government vs. Private Securitization

Banks tend to be more willing to issue new mortgages if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence who buys their mortgage, but mortgage securitization influences who gets mortgages and their rates. Over the last five years government securitization enterprises, FHA and VA loans, and portfolio loan securitization have risen. However, private loan securitization which constituted over 40% of securitization in 2005 and 2006 is almost extinct today.

Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring that banks will issue new mortgages. Through the second quarter of 2017, Fannie Mae or Freddie Mac purchased 46% of all newly issued mortgages. However, in absolute terms, Fannie and Freddie are purchasing less than in past years. In 2016, GSEs purchased 20% fewer loans than they did in the years leading up to 2006.8

Through the second quarter of 2017, a tiny fraction (0.7%) of all loans were purchased by private securitization companies.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today private securitization companies hold just $490 billion in total assets, including $420 billion in subprime and Alt-A loans.14

As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23 percent of all loans issued in 2016, and 25 percent in the first half of 2017. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. Prior to 2006, FHA and VA loans only accounted for $155 billion in loans per year. In 2016, FHA and VA loans accounted for $470 billion in loans issued.8

Portfolio loans, mortgages held by banks, accounted for $639 billion in new mortgages in 2016. Despite tripling in volume from their 2009 low, portfolio loans remain down 24% from their pre-crisis average.8

Mortgage Credit Characteristics

Since banks are issuing 21% fewer mortgages compared to pre-crisis averages, borrowers need higher incomes and better credit to get a mortgage.

The median FICO score for an originated mortgage rose from 707 in late 2006 to 754 today. The scores on the bottom decile of mortgage borrowers rose even more dramatically from 578 to 648.6

Despite the dramatic credit requirement increases from 2006 to today, banks are starting to relax lending standards somewhat. In the first quarter of 2012, the median borrower had a credit score of 781, a full 27 points higher than the median borrower today.

In 2016, 23% of all first lien mortgages were financed through FHA or VA programs. First-time FHA borrowers had an average credit score of 677. This puts the average first-time FHA borrower in the bottom quartile of all mortgage borrowers.8

Prior to 2009, an average of 20% of all volumes originated went to people with subprime credit scores (<660). In the second quarter of 2017, just 9% of all mortgages were issued to borrowers with subprime credit scores. Who replaced subprime borrowers? The share of mortgages issued to borrowers people with excellent credit (scores above 760) doubled. Between 2003 and 2008 just 27% of all mortgages went to people with excellent credit. In the second quarter of 2017, 54% of all mortgages went to people with excellent credit.6

Banks have also tightened lending standards related to maximum debt-to-income ratios for their mortgages. In 2007, conventional mortgages had an average debt-to-income ratio of 38.6%; today the average ratio is 34.3%.15 The lower debt-to-income ratio is in line with pre-crisis levels.

LTV and Delinquency Trends

Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger mortgages than ever before. Today a new mortgage has an average unpaid balance of $244,000, according to data from the Consumer Financial Protection Bureau.3

The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10

Today, half of all borrowers put down 5% or less. More than 10% of borrowers put 0% down. As a result, the average loan-to-value ratio at origination has climbed to 87%.10

Despite a growing trend toward smaller down payments, growing home prices mean that overall loan-to-value ratios in the broader market show healthy trends. Today, the average loan-to-value ratio across all homes in the United States is an estimated 42%. The average LTV on mortgaged homes is 68%.16

This is substantially higher than the pre-recession LTV ratio of approximately 60%. However, homeowners saw very healthy improvements in loan-to-value ratios of 94% in early 2011. Between 2009 and 2011 more than a quarter of all mortgaged homes had negative equity. Today, just 5.4% of homes have negative equity.17

Although the current LTV on mortgaged homes remains above historical averages, Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 16.5% of their annual household income.18

Mortgage delinquency rates stayed constant at their all-time low (1.24%). This low delinquency rate came following 30 straight quarters of falling delinquency, and are well below the 2009 high of 8.35% delinquency.11

Today, delinquency rates have fully returned to their pre-crisis lows, and can be expected to stay low until the next economic recession.

Sources:

  1. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS September 28, 2017.
  2. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed June 22, 2017.
  3. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed June 22, 2017.
  4. U.S. Bureau of the Census, Homeownership Rate for the United States [USHOWN], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USHOWN, September 28, 2017. (Calculated as percent of all housing units occupied by an owner occupant.)
  5. “U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates,” Mortgage Status, Owner-Occupied Housing Units. Accessed September 28, 2017.
  6. Quarterly Report on Household Debt and Credit August 2017.” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 28, 2017.
  7. Calculated metric:
    1. Down Payment Value = Home Price* Average Down Payment Amount (Average Unpaid Balance on a New Mortgageb / Median LTV on a New Loanc) * (1 – Median LTV on a New Loanc)
    2. Home Mortgage Disclosure Act, Consumer Financial Protection Bureau, “Average Loan Amount, 1-4 family dwelling, 2015.” Accessed September 28, 2017. Gives an average unpaid principal balance on a new loan = $244K.
    3. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Page 17, Median Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  8. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” First Lien Origination Volume from the Urban Institute. Source: Inside Mortgage Finance and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff.
  9. Mortgage Daily. 2017. “Mortgage Daily 2016 Biggest Lender Ranking” [Press Release] Retrieved from https://globenewswire.com/news-release/2017/04/03/953457/0/en/Mortgage-Daily-2016-Biggest-Lender-Ranking.html.
  10. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Combined LTV at Origination from the Urban Institute, Urban Institute, calculated from: Corelogic, eMBS, HMDA, SIFMA, and Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  11. Quarterly Report on Household Debt and Credit August 2017.” Mortgage Delinquency Rates, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed September 28, 2017.
  12. Calculated metric: Value of U.S. Real Estatea – Mortgage Debt Held by Individualsb
    1. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, September 28, 2017.
    2. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, September 28, 2017.
  13. Mortgage Daily, 2017. “3 Biggest Lenders Close over Half of U.S. Mortgages” [Press Release]. Retrieved from http://www.mortgagedaily.com/PressRelease021511.asp?spcode=chronicle.
  14. Housing Finance at a Glance: A Monthly Chartbook, September 2017” Size of the US Residential Mortgage Market, Page 6 and Private Label Securities by Product Type, Page 7, from the Urban Institute Private Label Securities by Product Type, Urban Institute, calculated from: Corelogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  15. Fannie Mae Statistical Summary Tables: April 2017” from Fannie Mae. Accessed June 22, 2017; and “Single Family Loan-Level Dataset Summary Statistics” from Freddie Mac. Accessed June 22, 2017. Combined debt-to-income ratios weighted using original unpaid balance from both datasets.
  16. Calculated metrics:
    1. All Houses LTV = Value of All Mortgagesc / Value of All U.S. Homesd
    2. Mortgages Houses LTV = Value of All Mortgagesc / (Value of All Homesd – Value of Homes with No Mortgagee)
    3. Board of Governors of the Federal Reserve System (U.S.), Households; Owner-Occupied Real Estate including Vacant Land and Mobile Homes at Market Value [HOOREVLMHMV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOOREVLMHMV, September 28, 2017.
    4. Board of Governors of the Federal Reserve System (U.S.), Households and Nonprofit Organizations; Home Mortgages; Liability, Level [HHMSDODNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HHMSDODNS, September 28, 2017.
    5. U.S. Census Bureau, 2011-2015 American Community Survey 5-Year Estimates, Aggregate Value (Dollars) by Mortgage Status, September 28, 2017.
  17. Housing Finance at a Glance: A Monthly Chartbook, September 2017.” Negative Equity Share, Page 22. Source: CoreLogic and the Urban Institute. Data provided by Urban Institute Housing Finance Policy Center Staff. Accessed September 28, 2017
  18. Survey of Consumer Expectations Housing Survey – 2017,” Credit Quality and Inclusion, from the Federal Reserve Bank of New York. Accessed September 28, 2017.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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