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 ...
Used to be, the down payment required would cover the instant depreciation because that was one way the loan was secured. It’s different now.
I saw a beater that had this bumper sticker: "Out of date, but out of debt".
My philosophy as well.
Yup.
Funny reading this. No one in the car sales biz calls it “underwater”, it’s upside down.
And virtually ALL cars bought with credit are upside down unless they last more than the loan term.
Trade in values are a fraud because they are fictions of the over allowance on the new vehicle sales price.
But don’t tell the reporters. Their little fairy tale world might go pop....
Dave Ramsey is correct
All my old cars go to my kids who squeeze a few more years out of them before the car goes completely Tango Uniform.
Worth nothing at trade in.
And it helps my “new” cars are generally one year old with 15K miles when I buy them.
Another Barry scam
Don’t take out a 5 year loan for a car you only intend to keep for 4. Pretty straight forward really.
New car with 7 year loan...
Car gets totaled after 1-2 years, insurance gives them the value minus the deductible. It’s about $5,000.00 short of paying off the loan, much less buying something to replace it!
Now they have to come up with 5K to pay off...nothing, and are screwed.
This is why auto-insurance should decrease on a monthly basis, inline with the depreciation of the car. When you buy it you’re insuring something more expensive, so insurance is expensive, yet after owning it a while the insurance company will never payout on what it was originally insuring, only the *current* value - even though your premiums never went down. If anything they go up.
Curious isn’t it?
This is why I buy used cars that are serviceable. Then I do the servicing.
I made this mistake once before. Never again. Cash only for my last two gas-guzzling SUV’s!
“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 don’t see a problem with 5, 6 or even 7 year financing - if one typically keeps a car at least that long, and the financing is financially advantageous. I bought a car in 2004 and financed it for 5 years at 2.8% (IIRC). My own money was making more than that, so it would have been silly to buy it with cash, and I certainly couldn’t borrow from the bank at that rate. I replaced that car last year.
I see a couple of problems here:
People who lack any financial sense or any concept of deferred gratification. They just *have* to have that new car.
Predatory lenders taking advantage of low-information borrowers. Much like with the sub-prime mortgage blow-up. Yes, people shouldn’t have been buying houses they couldn’t afford. But the banks shouldn’t have been making those loans, either.
2-3 model years old ... 25-30k miles ... that’s the sweet spot to purchase a used car in my book. if they’ve been well taken care of and you continue the care they’ll run damn near forever
“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....”
The full plan of Extortion-Care. Trafficking
Because it’s all about buying and selling human flesh as Body Mortgages by “insurance”-”banking”. To be bought, sold, and traded, like animals, as the next Mortgage Backed Securities. Trafficking
Which is why Extortion-Care was bribed through, the ponzi MBS backstop. Trafficking in the selling of Human Body Mortgages by so called “insurance-banking.”
The new MBS, leveraged to any amounts, to any forced deductibles, any forced premiums, any forced coercion taxation, any forced account seizures. The selling and trafficking in Human Body Mortgages
If you can’t pay for a car in under 3 years, you need to look at a less expensive car. By the end of the term of the financing, you have bought a used car at new car prices plus interest.
What you said made absolutely no sense at all to me.
....However, I can be a little slow sometimes, so maybe it’s just me.
Just buy a a Mini Cooper for $19,000
I hear it will run with no problems for years and years as long as you do not need an engine....
http://www.cbc.ca/news/canada/bmw-s-mini-coopers-labelled-junk-as-owner-hit-with-10k-engine-repairs-1.2948855
I bought my last car in 2011, I paid cash. That's when I first learned from my dealer that most new car loans he dealt with were "under water" and banks and finance companies required loan recipients to purchase special insurance to cover the full debt. I had never heard of such a thing.
He also told me that it was not uncommon for people to owe double what the car was worth.
A family friend is a young guy that sells Toyotas.
He NEVER has a lack of customers.
But he has a SERIOUS lack of customers that can qualify for loans.
Says he spends >80% of his time working financing deals.
Back in the 90s, I stuck a for sale sign on my pick up, it had a retail value of about $2500. In 6 months time, I didn't get a single bite. I eventually gave it to my daughter - better than having a dealer steal it from me on a trade in.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.