Posted on 02/11/2015 9:03:36 AM PST by george76
More than a quarter of car buyers still owed an average of $4,257 more than their vehicles were worth.
Unlike a home, which can increase in value, a new car loses 11 percent of its value on average the minute it’s driven off the dealership’s lot. After five years of depreciation, the same car has lost two-thirds of its value and is typically worth just 37 percent of its original purchase price.
The problem is that many car loans now exceed five years. Although the longer loans mean lower monthly payments, they leave many owners with negative equity in a vehicle that continues to lose value over time.
And rolling the debt from an older vehicle into a loan for a newer vehicle just increases the problem, “like a snowball rolling downhill,” Edmunds points out. “If you brought a balance over from a previous car, you might never break even.”
...
Even some large banks have gotten into the act, making loans to customers with low credit scores and minimal down payments that, combined with extended warranties, dealer mark-ups and other add-ons, sometimes exceed the value of the car.
The practice is prompting fears that the $337 billion market in sub-prime auto loans, which are securitized just like mortgages, will “start blowing up.”
(Excerpt) Read more at cnsnews.com ...
Just feel that recovery.
Sensible consumers pay off a relatively inexpensive car loan for their first car, then drive that car until they've saved monthly payments ahead of time so the next vehicle is paid for cash.
I would never consider trading in a car that was underwater. Even if it’s ugly or out of style, you have to keep it until it is (1) worth far more than you owe, or (2) completely and totally dead. Actually, I never trade in any car until it needs more work than the car is worth, but trading in while it’s still drivable and you owe money seems shockingly irresponsible. And if your family grows and no longer fits? You plan for that before you buy the car or before you have more kids.
In 2008, Obama told us sell-off our clunkers (for cash)
and to buy a Gubermint Motors gas saver!
This is a great opportunity for Obama to offer a Federal bailout of all these under water borrowers.
“This is news? Auto loans are “underwater” as soon as that vehicle leaves the dealer’s parking lot. Always have been.”
Depends on money down and trade-in value.
Would work except for maintenance costs, they are killer. Most used cars are trash because they are treated like crap. I will say this my 2001 camry has stopped depreciating and is worth about the same as last year. Hasn't need much in repairs either. Pretty good car. A quality car eventually stops depreciation.
Aren’t most car loans “underwater?”
A car is rapidly devaluing asset. You drive it off the lot, whether new or used, and its value drops significantly.
I guess its really a function of what % of value loans are being given for, which speaks to easiness of cheap credit (thanks Federal Reserve) and aggressiveness of low-grade auto lenders.
” This is news? Auto loans are “underwater” as soon as that vehicle leaves the dealer’s parking lot. Always have been.”
Add to that, 5-6 year payment schedules we never had until the past decade. And bad credit auto loans have been around for 50 years!
I had to continue payments while I drove loaners for over a year to pay off a car I didn't own anymore and back then, no dealership would touch me for another car
I have since bought nothing but (until about 5 years ago) 300 dollar miracles.
Used cars are no longer sold by folks that just want to get rid of it for more than scrap
If someone isn't mechanical, a low cost new car can be cheaper than a used car with unknown longevity.
That’s interesting. What we both have is a strategy for not being car-payment slaves for our whole lives.
You have no business buying a new car if you can’t put at least 25% to 30% down.
In general, the cheapest car you’ll ever own is the one you’re driving now.
I always buy late model high mileage used cars.
My current car I bought as a 3 year old car with 145K miles. Now has 260K.
Hell, as soon as your sign the contract on a new car and drive off the lot, you’re technically ‘under water’. Everyone knows that.
Regarding value, a loan for a new car is financially about the most stupid thing someone can do. You pay tens of thousands of dollars for something that depreciates monthly, and when it’s paid off, you can barely GIVE the thing away. If you’re gonna do that, the best thing you can do is drive it until it literally falls apart.
The above philosophy is a car dealer’s, the bank’s, and the auto industry’s worst nightmare, because they want you trading in every 3 or so years, and having a car payment for the rest of your life....
Other factors, which make and model, and interest rate.
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