By on April 10, 2014

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As more consumers trade-in their old vehicles for a newer model, a growing number of consumers are owing more on their trade-in than their vehicle’s actual worth.

Automotive News reports a gradual rise in negative equity among trade-ins beginning in Q3 2011 according to information from the Power Information Network. At that time, 22 percent of trade-ins were upside down; however, by Q1 2014, the percentage reached 27.3 percent after hitting 25.9 percent and 23.6 percent in the first quarters of 2013 and 2012, respectively.

The cause? Longer loan terms of 73 to 84 months (and now, beyond), increased subprime borrowing, and declining values in the used-car market as negative equity takes hold.

Regarding the aforementioned loan terms, Experian Automotive said the loans were the fastest growing category in Q4 2013 compared to the previous year, taking 20.1 percent of the new-car market and 23 percent of used-car retail volume in comparison to 19 percent and 12.5 percent respectively in Q4 2012. However, PIN senior director Thomas King explained that while 73+-month loans should be watched carefully, the only consumers who suffer from being upside down are those who roll the negative equity in their trade-ins into the next vehicle repeatedly.

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132 Comments on “More Trade-Ins Pulled Underwater As Negative Equity Level Rises...”


  • avatar
    dwford

    This is the key problem: “the only consumers who suffer from being upside down are those who roll the negative equity in their trade-ins into the next vehicle repeatedly.”

    I used to see it all the time. Eventually they just hit the wall and are stuck in their vehicles. People would come in with $700 payments and $10,000 negative equity looking to lower their payments with no money down.

    • 0 avatar

      I would argue that anyone who is underwater when it comes time to trade-in is suffering each and every-time they trade in this fashion. Sure if they chose to kick the can down the road until they can’t they simply pile up the suffering. It’s a pay me now or pay me later situation. The suffering isn’t limited to those who kick the can down the road.

      Every consumer who is upside down at trade time suffers.

    • 0 avatar
      Snowdog1967

      To be honest, the banks making these type of loans are predatory.
      If you are upside down in your car loan, you should not be allowed to TRADE and get a new loan.
      I have had 2 72 month loans (which are now paid off) and let me tell you, that is a LONG time to be paying for a car!
      I won’t do that again. My desire for “new car” is tempered by my desire to not be under crazy car payments! It took me a while to figure out my priorities.

      • 0 avatar
        sgeffe

        Could not pay that long in good conscience!

        With my current car, my broker and I got screwed-over on the trade ($8.5k when I was almost counting on $10k.) Ended up with almost $420 payment.

        Should have had my broker draw up a two-year lease and dump that trade money into SOME SORT of investment, then bought it out two years later; I’m OCD about maintenance and appearance upkeep, and put around 7,000 miles/yr. on a car, so I’m an ideal lease candidate! Might have even been able to pay off the whole deal in 4, who knows?!

        This was a year ago. My trade? A near-mint 2006 Accord EXL-V6 with only 60,000 miles!

  • avatar
    28-Cars-Later

    I would say its the increase in new pricing and/or any new taxes between say CY2011 and now which contributed to the 5.3% increase. Until maybe recently most cars were very high in valuation as was discussed yesterday. Dealers may have also taken advantage of the high wholesale valuation by further socking the buyers with lower trades (to then make a quick buck on turning it around) but in both cases you’d need figures to prove or disprove these assertions.

    • 0 avatar

      RE: “Dealers may have also taken advantage of the high wholesale valuation by further socking the buyers with lower trades (to then make a quick buck on turning it around) but in both cases you’d need figures to prove or disprove these assertions.”

      You’d also need some common sense. Its not like a dealer does business in a vacuum. Dealers have competitors and both dealers and consumers know it.

      Used car values are still at historical highs, just somewhat less than recently. Values moderated somewhat during the winter due to really nasty weather and the influx of off lease vehicles. They have again spiked, as is normal in the spring, fueled by robins and tax season.

      Negative equity, while showing an recent small increase, is nothing like it was pre-Great Recession. In short, the sky is not falling. The stats Jim cites are for the first quarter. Let’s see what happens in the second quarter with the higher demand driving pre-owned prices at wholesale higher.

  • avatar

    ALL CARS are DEPRECIATING ASSETS.
    It doesn’t matter if you woke-up-in-a-new-Bugatti…as soon as you start driving it, you lose value.

    The only way to avoid ending up underwater on a trade-in is to lease a vehicle and keep re-leasing it with the same company. Problem is:

    #1 You have to keep coming up with the taxes + lease fees (which is usually between $3500 and $10,000 (on German Luxury cars))

    #2 You have to have full coverage (typically) which costs you more for insurance.

    This is part of the reason I only buy a car fully loaded and in a special edition. SRT holds value really nicely and if the Government does kill the Naturally Aspirated HEMI, my depreciation will be even slower – holding at around $28,000.

    A used JEEP SRT WK1 with over 60,000 miles and a clean carfax still fetches over $25,000.

    • 0 avatar
      FormerFF

      “The only way to avoid ending up underwater on a trade-in is to lease a vehicle and keep re-leasing it with the same company.”

      Or you could wait until it’s paid off before getting a new vehicle.

    • 0 avatar
      VelocityRed3

      I have an Aunt who has been leasing Fords for the better part of the last 10 years. She regards the payment the same way any other “utility” like her gas or water bill.

      BigTruck I just subscribed to your YouTube channel. Really looking forward to seeing if that CTS Coupe is worth $82,000 bucks. LOL

      • 0 avatar

        I will drive the CTS-V Coupe 2015 as soon as I can.
        Personally I’m not interested in GM vehicles. I did a short lease on an EXT and wasn’t as happy as I thought I’d be. Now it’s just SRT for me!

      • 0 avatar

        I pay all my bills using my Capital One app on iPhone. I “treat my car note” and insurance like “utilities” as well.
        Same with my mortgages.

        • 0 avatar
          gtrslngr

          If you’re paying your bills with your iPhone or any SmartPhone son .. you are flying head first into a World of hurt as well as revealing your lack of knowledge when it come to the financial world . The only less secure system being that iPhone / SmartPhone on WiFi .

          Wake up . Read the news … and get a clue . Online Security is a blatant myth as well as propaganda . Code Rule #1 – ANY code created by a human being … or a machine created by a human being …. CAN and WILL be broken .. especially if there is financial/intelligence etc gain to be had

          BTW ; Bone up on leases along with cars actual residual values [ vs online prattle ] as well . Cause at the moment son … yer more than a bit behind the proverbial Eight Ball on a plethora of subjects

          BWTM – In all honesty and in light of your uninformed posts today I wouldn’t so much as waste the time it takes to view one of your YouTube offerings …. never mind subscribe . Just more worthless Digital Noise taking up space .

    • 0 avatar
      gtrslngr

      Not true

      1) First up .. the German luxury lease issue . Upfront fees for those of us that qualify [ I do ] – Bupkiss ! Nada ! Nunca ! Neit ! ZERO !

      2) Generally with all leases a single 6 – 12 month extension at the end of term is available .. but after that you either buy – hand in – or lease a new one

      3) The only JEEP that holds its value despite CarFaxes bs is the JK

      4) Fully loaded is no guarantee of residual value come turn around time

      5) All civilized States in the US require full coverage for cars ten years or newer

      6) When it comes to leasing less than 10% of the car buying population should even be considering leasing … never mind doing so ! The basics ? To benefit from leasing you need to ; A] Have the cash on hand to purchase the car outright .. choosing rather than needing to lease B] Be willing to invest or keep the cash saved by leasing thereby making the saved cash work for you C] Be able to afford a luxury car lease as you will not benefit in the slightest on anything middle class and especially economy D ] Make sure you lease either German luxury or at the very least a Lexus … leaving JLR , Infiniti , Cadillac etc on the lot

      • 0 avatar

        Most people are NOT going to qualify for a 0% rate.

        The residual value is based on what the market is willing to pay for it. An SRT JEEP holds its value really, really well and if the naturally aspirated V8 disappears, it will be worth probably more than its KBB value in a private sale.

      • 0 avatar
        Jimal

        #5 is factually incorrect. There is no state requirement for full insurance coverage on any car. Full insurance coverage is a requirement for financing or leasing. In Connecticut, the Insurance Capitol of the World, if you pay cash or pay off your car you can immediately reduce your insurance to liability only, regardless of model year or value. Until late last year I was driving a 2007 Passat wagon that we bought CPO. As soon it was paid off I dropped the comp and collision.

        • 0 avatar
          Snowdog1967

          I keep comp & Collision on my cars because “things happen”.
          My folks were in the insurance industry. I’ve experienced the issues with not having collision on a car I really couldn’t afford to replace (I always bought my own cars and thus when I crashed one from a hit&run and was stuck replacing it myself, I QUICKLY understood the value of insurance)
          I’ve seen people’s reasoning for just having liability insurance and I’m just not going to be able to invest that difference in money enough to BUY A REPLACEMENT for that vehicle if I do something dumb and crash it.

      • 0 avatar
        jpolicke

        “All civilized States in the US require full coverage for cars ten years or newer”

        There are NO states that require full coverage for anything. State laws require liability and personal injury coverage; lenders require full coverage for the duration of the loan.

    • 0 avatar
      bumpy ii

      “ALL CARS are DEPRECIATING ASSETS.”

      Should have bought a 1M.

      • 0 avatar
        Jimal

        The private or collector car market isn’t what this article is about. If you bought a 1M from your local BMW dealer and then returned to trade it in on some other model at a later date, I guarantee you that the dealer would offer you less – probably much less – than you paid for it. Within the context of the article, 100% of new cars are depreciating assets.

    • 0 avatar
      fredtal

      Specifically all NEW cars are depreciating assets. My 1965 Elan is going up in value and my 1999 Silverado is probably at the bottom, as long as it keep it in decent shape. My new 2014 TSX SW tho is on the down slope.

    • 0 avatar
      krhodes1

      @BTS

      I think you will find that even if the retained percentage is better, you will lose more money in a given timeframe on an SRT than on a base model.

      If you get added pleasure out of the nicer vehicle, totally worth it but don’t think you are somehow saving money.

      The BEST way to buy a car is to buy it and keep it until the depreciation is just a memory. Any expensive car is cheaper to fix than it is to buy new in the first place, even the Germans.

      • 0 avatar
        DC Bruce

        In the absence of seeing hard evidence to the contrary, I think you are right. Fully loaded and “stripper” versions depreciate more rapidly than versions with the “popular options.” Complicating the calculation is that, often there is more negotiating room on buying a fully loaded model. For example, no one pays close to sticker price for a fully loaded GMC Denali, Ford King Ranch or RMA Laramie Longhorn truck. On the other hand, the percentage discount available on the “work truck” versions of these trucks is a whole lot less.

        The Jeep SRT appeals to a very narrow audience, so who knows if you can say there is a “real” market for it with enough participants to reliably determine a “market” price. It’s almost a one-off.

        • 0 avatar
          krhodes1

          With rare exceptions, you never make your money back on options. Sometimes lack of certain things can make a vehicle very hard to sell though – lack of A/C in the South, 2wd SUVs in snow country. But I do agree that the “popular” mid-trim config is usually the best bet. You might still lose a little more than the stripper, but it will be easier to sell and a lot more enjoyable along the way.

    • 0 avatar
      David Walton

      I own one car and drive it everyday.

      Owned for just over two years.

      It has appreciated during my tenure of ownership (2.3 years, 23k miles).

      How is this possible, financial wizard??????????????

      • 0 avatar
        KixStart

        David Walton,

        That’s very unusual. What did you buy, when did you buy it, how much did you pay and what do you think it’s presently worth?

      • 0 avatar
        darkwing

        You OBVIOUSLY must have bought a JEEP or an SRT because they are not SUBJECT to the NORMAL laws of FINANCE and here are SOME OTHER randomly CAPITALIZED words

        TASTE my iron BLOCK

      • 0 avatar
        krhodes1

        On paper this may be true. If you got a REALLY good deal on a popular car depreciation may effectively be zero compared to MSRP for a year or two. But I doubt you would actually see it if you tried to sell the car. Unless you are rocking a BMW 1M! Limited production tosses all of this out the window, of course.

        Geography plays into it too – I know someone who got a stunning deal on a new Saab in Atlanta, brought it back to Maine and sold it for a tidy profit 6mo later.

      • 0 avatar

        I know a guy who is real good at not loosing his shirt on late model used cars. He buys the popular model of a some what popular car 2-4 years old drives it for 1-2 years and trades for another one or sells outright. He tells me the key was buying the car as cheaply as possible and trading it in on the right car , he said he would look 4-5 months for just the right combo to work.

        Here are the ones I know about
        Maxima bought for 19,500 drove 2 years traded in for 18,000 Reason bought in the dead of a bad winter in vermont with summer tires on it traded to a chevy dealership at peak tax season for a ridgeline that had been sitting on the lot for 8 months paid 20,000 for the ridge drove the ride for a year sold it on Ebay for 21,000, then bought at IS for 19,500.

        • 0 avatar
          Scoutdude

          Yup the 204 year old car kept for a short time is the cheapest way to own a car. Buying a new car and driving it into the ground is not. One of the keys is finding the good deal.

    • 0 avatar

      In many states the sales/use tax on a lease is on the payment, not the full amount or “difference.” Yes, an acquisition fee is paid in a lease. Is that what you are referring to as “lease fees?” Another lease fee is the cost of the capital the leasing company puts up for the customer’s lease. That might be somewhat marked up depending an a variety of factors. If the lease is a factory subvention, it probably isn’t marked up at all. But after all, a lessee is making use of the lessor’s credit line rather than their own. There’s a charge for that.

  • avatar
    sproc

    This makes me so sad. Sure, there will always be a small but significant number of people for whom family or financial situations abruptly change necessitating the negative equity car swap. But this is so much more than that. That’s a huge number of people on the hamster wheel of debt who just can’t or won’t get off.

    • 0 avatar

      America’s national debt is $17.075 Trillion.
      That means, every single American has an implicit mortgage on their head of a little less than $70,000.
      Your entire job as an American is to take on as much debt as you can without capsizing.

      Your spending keeps the wheel rolling!

      “Poor People” in my opinion shouldn’t be leasing. They should be doing the long term financing on a vehicle and not switching up year-over-year. The bank is going to make more off of them on interest, but that’s their problem until they can improve their finances.

      • 0 avatar
        Ubermensch

        ” The bank is going to make more off of them on interest, but that’s their problem until they can improve their finances.”

        Why should the banks get to improve their finances on the backs of everyone else(bailouts etc…) but the poor have to make due on their own? Oh right, you are are just one of our resident apologists for state capitalism. Just more of that old privatized profits and socialized risks schtick.

        • 0 avatar
          pragmatist

          I don’t see how the banks are forcing people to make expensive (often but not always foolish) buying choices.

          People are (should be) entitled to make those choices for themselves. That’s a free market.

      • 0 avatar

        Yes, the bank will make money, but the money they loan isn’t free to them. AND they have expenses.

        On a new car, the dealer will average about $3k gross profit out of which he/she will pay most of that away in things like advertising, rent, utilities, staff, interest, taxes, and the usual expenses of business.

    • 0 avatar
      gtrslngr

      These in reality are people attempting to live well above their means … with banks etc once again willing to enable them … giving them the means to do so … But then unfortunately getting their due when the Piper comes ’round demanding payment . Period !

      Sad ? PO’d [ at both the customers and the financial institutions ] would be much more appropriate

      • 0 avatar

        Poor People, STUDENTS APPLYING FOR LOANS, and people in the middle class are always going to try to live above their means, but I feel at this point it’s the BANK’S FAULT for ALLOWING THEM TOO.
        And the American people’s fault for not setting harsh restrictions on banks (and congress) – simply because they’d prefer to vote for loose restrictions so they can continue to live above their means.

        • 0 avatar
          noxioux

          I would respectfully disagree. Holding an institution liable for poor individual choices is a bad idea. Although it’s a typical American response to further remove people from the consequences of their actions.

          That being said, the banks’ willingness to write 7 to 12 year notes on cars is beyond the pale. There’s going to be some hell to pay for this down the road.

        • 0 avatar
          djsyndrome

          “and people in the middle class are always going to try to live above their means”

          This is a blanket disingenuous statement that ignores the fact that some people do still save a good portion of their income, and don’t plan on working forever.

          Personal anecdote: for my last car loan I was approved for just a shade over 40k. I bought a Mazda 2 because, well, that’s all I *needed*.

        • 0 avatar
          koshchei

          This goes too far.

          You’re making gross blanket claims and supplying absolutely no evidence to back them up. Anecdotally, stories published on this site, and based on empirical data, don’t agree with you.

          Also: If you want to pretend to be some sort of vengeful avatar for capitalist refinement, that’s your prerogative. Just be aware that your vulgarisms and tedious Libertarian schtick give you away.

      • 0 avatar

        The auto industry has dealt with negative equity for decades. EVER lease begins with negative equity, and it stays that way until the end UNLESS there is a large cap reduction up front.

    • 0 avatar

      The best way to stay away from negative equity is to put down plenty when you buy. If you need to bail on a lease early it will cost you.

      • 0 avatar
        mypoint02

        I was always told to avoid cap reduction on a lease. Reason being, if the car ends up getting totaled during the lease period, your insurance company will pay off the balance on the lease but the money you spend on cap reduction is gone.

  • avatar
    319583076

    I thought deficit spending won the cold war? :S Small bad decisions make you a crook while huge bad decisions make you a hero. People are an enigma.

    • 0 avatar
      Joe McKinney

      Western Cold War era deficit spending was a strategy which ultimately bankrupted and defeated the Soviet Union. In hindsight this was a good investment.

      • 0 avatar
        Ubermensch

        A common misconception perpetuated by Reagan cultists. Perestroika is what did in the Soviets. Soviet military spending surpassed the U.S. in the 1970s and peaked in 1982, plateauing until 1988. Soviet military spending did not significantly increase during Reagan’s tenure. Reagan’s military spending was just a gift to the military industrial complex and a way to “starve the beast” to justify cutting social spending(which he increased anyway).

        • 0 avatar
          28-Cars-Later

          Gorbachev disagrees.

          “However, according to Gorbachev’s 1996 memoirs, it was the Chernobyl nuclear accident, rather than perestroika (or Ronald Reagan’s increased arms spending), which destroyed the Soviet Union.

          As Gorbachev wrote in 2006:

          The nuclear meltdown at Chernobyl 20 years ago this month, even more than my launch of perestroika, was perhaps the real cause of the collapse of the Soviet Union five years later. Indeed, the Chernobyl catastrophe was an historic turning point: there was the era before the disaster, and there is the very different era that has followed.

          ***

          The Chernobyl disaster, more than anything else, opened the possibility of much greater freedom of expression, to the point that the system as we knew it could no longer continue. It made absolutely clear how important it was to continue the policy of glasnost, and I must say that I started to think about time in terms of pre-Chernobyl and post-Chernobyl.

          The price of the Chernobyl catastrophe was overwhelming, not only in human terms, but also economically. Even today, the legacy of Chernobyl affects the economies of Russia, Ukraine, and Belarus.”

          http://www.zerohedge.com/contributed/2012-12-21/soviet-leader-chernobyl-nuclear-accident-caused-collapse-ussr

          • 0 avatar
            Ubermensch

            Wow, what a shock. The guy who invents a terrible economic policy denies it caused the downfall of his nation.

          • 0 avatar
            28-Cars-Later

            Quite disingenuous to dismiss someone as “terrible” without looking into the claim. Chernobyl was a unprecedented geopolitical and ecological disaster which required 600,000 workers for cleanup, and involved the quick evacuation of 115,000 people. This on the heels of a huge fall in oil prices in 1986, oil being one of the few major sources of income for the Soviet Union abroad in an economy already week from fifteen years of stagflation under the triumvirate of Brezhnev, Andropov, and Chernenko. Oh but yeah it was that Gorbachev he was just an idiot right, because he couldn’t right the ship of a failed system? Such a claim without facts or intelligent analysis is akin to me making similar comments about the President’s numerous shortcomings.

            “The world price of oil, which had peaked in 1980 at over US$35 per barrel ($100 per barrel today), fell in 1986 from $27 to below $10 ($58 to $22 today).”

            “The USSR had become a major oil producer before the glut. The drop of oil prices contributed to the nation’s final collapse”

            http://en.wikipedia.org/wiki/1980s_oil_glut

            http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/chernobyl-bg.html

          • 0 avatar
            Ubermensch

            I didn’t say that Gorby was terrible or an idiot, I said his policy of Perestroika was. Yeah, Chernobyl may have had a marginal effect but it didn’t cause hyperinflation, massive reductions in industrial output, declines in the birth rate, and the GDP in the mid-90’s to be half what it was in the mid-80’s. You can’t ascribe all of that to one nuclear accident.

          • 0 avatar
            Pch101

            The Soviet state would have collapsed eventually, as it was burdened by an unproductive economy that would have imploded at some point.

            It certainly didn’t help them to have their own version of Vietnam in Afghanistan. The US contributed to turning that into a quagmire, starting when Carter began sending covert aid to the opposition in 1979. Reagan escalated that policy, mostly to good effect (for us, anyway.)

          • 0 avatar
            28-Cars-Later

            I agree there were a variety of factors including those you named and the Reaganista ideal of “deficit spending won the Cold War”. The tipping point IMO was the oil glut combined with the Chernobyl disaster. Pch101 also points out the Afghanistan quagmire which Carter’s national security adviser Brzezinski was instrumental in bringing about, whether he takes credit or not.

            “Q: Despite this risk, you were an advocate of this covert action. But perhaps you yourself desired this Soviet entry into war and looked to provoke it?

            B: It isn’t quite that. We didn’t push the Russians to intervene, but we knowingly increased the probability that they would.

            Q: When the Soviets justified their intervention by asserting that they intended to fight against a secret involvement of the United States in Afghanistan, people didn’t believe them. However, there was a basis of truth. You don’t regret anything today?

            B: Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter. We now have the opportunity of giving to the USSR its Vietnam war. Indeed, for almost 10 years, Moscow had to carry on a war unsupportable by the government, a conflict that brought about the demoralization and finally the breakup of the Soviet empire. ”

            http://www.globalresearch.ca/articles/BRZ110A.html

            “Years later, in a 1997 CNN/National Security Archive interview, Brzezinski detailed the strategy taken by the Carter administration against the Soviets in 1979:

            We immediately launched a twofold process when we heard that the Soviets had entered Afghanistan. The first involved direct reactions and sanctions focused on the Soviet Union, and both the State Department and the National Security Council prepared long lists of sanctions to be adopted, of steps to be taken to increase the international costs to the Soviet Union of their actions. And the second course of action led to my going to Pakistan a month or so after the Soviet invasion of Afghanistan, for the purpose of coordinating with the Pakistanis a joint response, the purpose of which would be to make the Soviets bleed for as much and as long as is possible; and we engaged in that effort in a collaborative sense with the Saudis, the Egyptians, the British, the Chinese, and we started providing weapons to the Mujaheddin, from various sources again – for example, some Soviet arms from the Egyptians and the Chinese. We even got Soviet arms from the Czechoslovak communist government, since it was obviously susceptible to material incentives; and at some point we started buying arms for the Mujaheddin from the Soviet army in Afghanistan, because that army was increasingly corrupt.[36]”

            http://en.wikipedia.org/wiki/Zbigniew_Brzezinski

          • 0 avatar
            Joe McKinney

            Deficit Spending financed the Reagan era U.S. military buildup which contributed to the end of the Cold War.

            The Reagan buildup occured at a time when the Soviets could no longer afford to compete in an escalating arms race with the west. After decades of massive military spending the Soviets were broke. Their economy was in shambles and they could not feed their own people.

            In this context Reagan ups the arms race ante with stealth bombers, a 700 ship Navy, strategic missile defense, etc. This was the straw that broke the camels back. The Soviets could not afford to compete and this led to a thawing of relations with the West. Reagan and Gorbachev signed the INF Treaty in 1987 and began work on what became the START I Treaty signed by Gorbachev and George H.W. Bush in 1991.

            The Chernobyl disaster and Afghanistan quagmire occured in this same economic context.

    • 0 avatar
      pragmatist

      Deficit spending did NOT end the cold war. The vastly more efficient industrialization of the west ‘s business model (yes capitalism) left the Soviets constantly playing catch up. There is no substitute for productivity.

      If it were a spending race, we could have easily lost. As it was we came out badly damaged, never fully recovered.

  • avatar
    johnhowington

    in other news, 27% of new car buyers make bad financial decisions.

    • 0 avatar
      gtrslngr

      …. and the Stating the Obvious award of the day so far … goes to …

      Gee ! Care to comment on the fact that 75% of all Wall Street stock investments today are being accomplished with loans as well ?

      Golly … could it possibly be 1928 [ leading up to 1929 ] revisited … already ?

  • avatar
    gtrslngr

    So todays ( short and sweet Theme of the Day is : Stating the Obvious : Pt I

    Gee ! Ya mean all those sub-prime auto loans , excessively long term auto loans etc aint workin out so well ?

    Golly … I’m so surprised ….

  • avatar
    slow kills

    Being in the Murilee Martin “final owner” club, trade-in is an unknown concept to me. Drive it till it dies and this sort of first-world problem is avoided in toto.

    • 0 avatar
      jimbob457

      @slow kills
      I am with you with a few small modifications. Buy a good solid used car at a good price. Drive it until it is nearly worn out but still runs. Then sell it to a mechanic. Best to pay cash, but if you need to hock it then do so.

      • 0 avatar
        DC Bruce

        I have to disagree. If you’re going to be the “final owner” of the car, you don’t care about the rapid depreciation in the first couple of years. What you care about is how the car has been driven and maintained from day 1. Buying a used car, even a CPO’ed used car, you don’t know that.

        If you’re a low mileage driver, it might make sense to buy a 2-year old car; but if you drive 15-20K miles/year and you want to keep the car until it’s nothing but a parts car, I don’t think it does. The market isn’t stupid; there’s a reason a two-year old car costs less than the same car, new.

        FTR: my current car is 13 years old, and I have owned it 11 of those years. It replaced a car that I bought new and kept for 11 years.

        Neither of them were/are close to being “parts cars” but it was clear from my previous car that I was reaching the end of the designed life of some of the expensive components. For example, the plastic liner of the fuel tank was disintegrating into small bits, causing a fuel pump failure and replacement. Replacing the fuel tank as well would have been pretty expensive.

  • avatar
    Domestic Hearse

    Many of the readers here have purchased many cars, or work/have worked in the industry, or are in companies closely related to the industry. What many of the B&B fail to realize is the vast majority of the general public have No. Freakin. Idea how things work at a dealership, or how terrible their “deal” is while they’re sitting in F&I:

    Dealer: “We’ll pay off your loan on your present car, no matter how much you owe!”

    This is a good one. Of course the dealership will pay off the customer’s trade. What some customers assume is the dealer is paying off the car and that’s it. Done. Finished. The customer thinks: “The dealer wants my business so bad, he’s paying off my loan so he can sell me a new car.”

    There’s a significant number of upside down customers who sincerely, honestly believe that debt is forgiven, wiped clean. They have no idea the old debt is being piled onto the new debt.

    Dealer: “Sure, we can get you a lower payment!”

    This is also a golden closer line. All the customer is looking for is immediate relief, and he/she focuses only at the number at the bottom of the page. These aren’t car buyers, they’re payment buyers: “Whew, $75 less than I was paying for the old car, plus they’re paying off my loan! Where do I sign?”

    Rarely do these payment buyers read the fine print: 6, 7 even 8 year financing. Rolled over trade-in debt. All these customers see are cheaper payments, not realizing they’re still on the hook to pay off the old cars, and now, they’ll be doing it for the better part of a decade.

    It all goes back to the fact so many Americans have so little knowledge of money, financing or credit. Unless young people have parents who teach them, or they study finance/economics in college, chances are, most average consumers of modest means are not going to figure out the game on their own. We need to start educating consumers about market realities in public school — a required high school course. Perhaps there’d be a few less guppies for the sharks to prey upon.

    I understand that impulse buyers, ignorant credit consumers, and non-prime loans help drive the economy. But eventually, these chickens come home to roost and the rest of us suffer as bubbles go critical.

    • 0 avatar

      All the customer is looking for is immediate relief, and he/she focuses only at the number at the bottom of the page. These aren’t car buyers, they’re payment buyers: “Whew, $75 less than I was paying for the old car, plus they’re paying off my loan! Where do I sign?”

      —You’re exactly right.

      For people who aren’t well versed in buying, the bottom line for them is the car and equipment they are getting set against the monthly payment.

      More experienced buyers focus on interest rate and monthly payment.

      Very few people focus on the depreciation. It’s a number you probably can’t guess considering you have no idea whether or not you’ll be in an accident – and on new models – you have no idea what the rate of depreciation is.

    • 0 avatar
      Snowdog1967

      The last two cars I bought I walked in with letter of credit approval in hand. It completely changed the experience. I loved telling the F&I person that I was buying the car, and NOTHING ELSE. No gap insurance, etc. (and I had a good down payment)
      On one of them, they promptly beat the interest rate I had in hand by .5% on the same term. It kept some of the “back end” money in house rather than the zero they would have been getting.
      One day, I will walk into a dealership and write a check for a car. It’s a goal. It’s realistic and achievable and I’m going to do it!
      (laughing the entire time!)

    • 0 avatar
      Kyree S. Williams

      ‘What some customers assume is the dealer is paying off the car and that’s it. Done. Finished. The customer thinks: “The dealer wants my business so bad, he’s paying off my loan so he can sell me a new car.”’

      I’m sorry, but I simply can’t imagine a scenario in which someone literally doesn’t realize that the negative equity from his trade-in is being piled onto the new loan. Maybe that “We’ll pay off your loan!” schtick gets people through the doors, but surely these people realize what’s going on by the time they’re finished financing, and have simply consoled themselves with the fact that it’s no big deal, or that it’s worth it. Maybe they don’t realize the implications of that negative-equity rollover, but they know. There *can’t* be that many foolish people…can there?

      • 0 avatar
        Domestic Hearse

        Go to Walmart. Stand there for three hours and just watch the average American consumer go about his/her business.

        Once you’re finished, rethink your last sentence.

        The internet changed the car-buying game to some extent. The information is all right there for anyone willing to put in the time, effort, research, and can comprehend basic mathematical principals. But at the bottom third of the car buying market, yes, there are that many foolish people.

        At every dealership in America, the salespeople are rubbing their lucky charms at this very moment, hoping their next up is today’s big laydown. “Please, let this be an upside down payment buyer!”

      • 0 avatar
        sgeffe

        Car buying..elections..finances..it’s all there!

    • 0 avatar
      abhi

      This .. a million times this.

      I for some reason have become the goto car guy for a large group of friends family. I have walked some of them out of shady dealerships for this reason. The one’s that start out saying oh its only going to cost you X per month.. sure over what 60 mos with god knows what else hidden in the contract.

      Who’s to blame…. the consumer! This may be a very unpopular opinion, but buying a car shouldn’t be a off the cuff / rushed thing. (Although i’ve done that once in my life and got an unbelievable deal) It is your responsibility as the consumer to check out every part of the deal from the “doc fee” to any dealer prep etc. If you don’t like it walk.. go talk to your local credit union (mine was offering close to 2.9% on a variety of lengths!!). The onus is on you.. I really wished that people would get this through their heads.

      • 0 avatar
        Domestic Hearse

        Given my, ah, um, unique knowledge of the industry, I too have become the automotive advisor to friends, family and neighbors.

        Like Steven Lang, I stopped long ago telling people what car they should buy when they ask my opinion. They’re gonna get what they want, regardless of whatever insight I (or anyone else) might offer.

        What I do stress, and help them discover, is the buying process itself, and how not to get their heads ripped off. I’ve stopped being surprised at how many people, who should know better, believe the dealer lines that I know to be deceptive, and later glossed over at closing. I can only conclude that these consumers believe it because they want/need to believe.

        I had one person go ahead with a bad deal I advised against, still swearing, “The dealer paid off my loan. I told you he would!” But then, this individual refused to show me his walk-out paperwork. He didn’t want me to show him where the dealer gave him the ol’ one-two. He needed to believe he got a good deal, even in the face of facts.

        All you can do is shake your head.

        • 0 avatar
          ajla

          “But then, this individual refused to show me his walk-out paperwork. He didn’t want me to show him where the dealer gave him the ol’ one-two.”

          This sounds more like the guy was trying to save face than he really believed that the dealer “paid off” his old car.

        • 0 avatar
          sgeffe

          Or “face-palm” until your nose breaks!

  • avatar
    fredtal

    imho, people just can’t or don’t want to do the math. If they did I think more of them would come to the conclusion I have and that is to pay cash for your stuff.

    • 0 avatar
      highrpm

      @fredtal, +1
      Buy used, in the fall, and pay cash.
      Also, learn to fix your own car especially the easy stuff. The online car forums and Youtube have DYI for every issue.

      • 0 avatar
        djsyndrome

        Seconded. http://www.swedishbricks.net kept me going through the lean years. I went from knowing nothing about cars to replacing a fuel rail and transmission mount on my old 240.

    • 0 avatar
      krhodes1

      It doesn’t make sense to pay cash when your cash can be making more cash doing other things. If the interest rate is lower than what you can make in a conservative investment, and/or lower than the rate of inflation, take the loan! But put down a big enough down payment that you never have to think about being underwater.

      But as it has always been, the best time to borrow money is when you don’t actually need to.

      When it comes to cars, I have one iron-clad rule – payments or repairs, never both on the same car. In other words, I will only borrow money to buy a car with a warranty, and it will be paid off before that warranty ends.

      • 0 avatar
        highdesertcat

        I’m a “pay-cash” proponent but that is because it works for me and I don’t like to finance things. I’m not sure I would even qualify for a loan at a reasonable rate, at my age.

        To be honest, I have never tried getting a loan for anything since 1988. But I have heard stories from my poker-playing buddies who tell me that borrowing money is not all that it is cracked up to be, especially for old people.

        • 0 avatar
          Kyree S. Williams

          I agree. I don’t think *everyone’s* plan should be to take out a 0%-interest loan and put the cash into some kind of investment plan. I think the goal should be to figure out what works for you. If you’d rather pay cash for a cheap vehicle because you like to work on your own cars and you don’t like the newer machines, that’s fine. If you’d rather lease every three years because it gives you the security of a full warranty and you’re always driving a late-model car, that’s fine too.

          I think there’s this high-and-mighty attitude among some financially-stable commenters—though not necessarily krhodes—that non-investment-minded people are fools for not squeezing every bit of profit out of the situation, but that’s just not true.

          • 0 avatar
            highdesertcat

            Kyree, I, among many others, was, at one time, an investor. I have since moved on to “real” assets instead of paper ones.

            But when a person gets to be in his late sixties, and I have seen this among my friends, they tend to become a lot more realistic about the fact that money is a tool, a means to an end.

            And then the weighing and balancing begins, as in, do I use what little money I have to pay cash for something, or do I keep it to give to my heirs?

            My philosophy is that, in the case of cars, trucks, and real property, I can do both while still paying cash for things. In case of my demise, whatever I bought can be, and will be passed down to my heirs, without the encumbrance of debt on the estate.

            Earning interest or dividends to me is not a consideration since our money is worth so little these days.

            But I also say, to each his own.

          • 0 avatar
            krhodes1

            I completely agree that you have to do what works best for you, and obviously what works best for a single middle-aged guy is going to be different from what is best for a family man or a retiree.

      • 0 avatar
        DC Bruce

        You left out a key consideration: cash flow to service the debt. How much of a person’s cash flow is sucked up by debt service, and how stable is that cash flow?

        Many, many people get into financial trouble because something unexpected cuts their cash flow: maybe they lose their job; maybe they are injured so much that they are disabled, maybe they get hit with a serious and expensive illness.

        Let’s take a real-life example of a friend of mine, a highly paid lawyer at an A-list multinational firm. He got fungus in his eye from Bausch and Lomb contact lens fluid (lots of people did). It was mis-diagnosed and therefore, not treated, initially. Eventually it was sucessfully controlled with some very strong anti-fungal agents that left him with a severe case of tinnitus, so severe that it kept him awake. He also lost most of his eyesight in one eye, and found that he couldn’t read for more than a few minutes — a big problem for someone in that line of work. So, he had to “retire.” He’s doing fine financially, but if he had maxed out on the amount of debt his pre-injury cash flow would have serviced, then there would have been big problems after his income was substantially reduced as a result of his illness.

        People who are maxed out on their cash flow and then suffer some unexpected set back can no longer service their debt, which forces them to liquidate assets, either to generate cash or pay off the debt.

        For most “middle class” people, “liquidating assets” means selling their car or their house, or both.

        The “opportunity cost” of spending your own money rather than borrowing at zero interest for, say 5 years is pretty trivial in absolute dollars.

        Older people, in particular, who may have unexpected hits to their cash flow from major illness and who pretty much lack the ability to go back into the marketplace and get a job that pays much more than minimum wage, are well-served by avoiding debt. That makes them better able to withstand reductions in their cash flow from unanticipated events.

    • 0 avatar
      Domestic Hearse

      Fredtal,

      OPM, my friend. If the captive finance arm’s giving you 0% APR, take it. Always take it. Especially, and always, if you’ve already got the cash to pay for the item in your pocket.

      • 0 avatar
        highdesertcat

        0% APR just means that the financing cost of the sale have been folded into the transaction price and amortized over the length of the loan.

        You can do better by taking the discount up front, paying less for the vehicle, paying cash for the transaction and not have to worry about making any payments.

        Then again, it depends on the financial strength and well-being of the buyer.

        My son works for a Japanese bank and has used his annual bonus to buy a new car, among other things, over the years. Most recently a 2012 SRT8 Grand Cherokee. No financing, just putting that extra cash to good use at Present Value in the here and now.

        • 0 avatar
          krhodes1

          BMW is not going to give you a better discount for not taking the subsidized interest rate. Neither did FIAT. Ultimately, you need to negotiate the best deal. The cost of interest, if any, is all part of the cost of the car, as is the opportunity cost of paying cash. If either company had offered me a big rebate instead of the cheap financing I would have surely taken the rebate. Then financed with my Credit Union for .5% more than they were doing. Win-win.

          DC Bruce has a VERY good point about cash flow though. It all boils down to understanding what you can and can’t afford. And just because you can make the payment, doesn’t mean you can afford it.

          Bottom line is if you can’t afford it, you can’t afford it. Which is why for many years I paid cash for a long string of sub $5K cars. If I lost my job tomorrow I can promise you that the very first thing that would happen when I got home from the HR office is my two financed cars would be posted for sale. And since I am not in any way upside-down on them, it would not be a problem.

  • avatar
    raresleeper

    We’ve seen this problem coming from a mile away, so allow me to sprinkle a little bit of reality into the overfilling cup of opinions, here…

    people need to stop buying cars they can’t afford!!!!

    In general, your payment should be as LLLOOOWWW as possible. How low? The lower, to non-existent, the better.

    The main jist of this: IF you need more than 4 years to pay off a car loan, you certainly have a problem. Ask me how I know… I, too, have that same problem :) My passion for cars is indeed stronger than my thriftiness, I’m afraid. Much like the rest of us, I’m sure.

    So, hypothetically here- the car you’re still paying on- after 4 years of making payments- now has 120k miles on it and has a faulty transmission. Yet, you still owe 12k on it? Lol! The car’s worth 2k at best, yet good luck getting that from a dealer for trade in.

    Thus, the vicious cycle of getting screwed repeats all over again.

    In turn, you should have kept the loan at 4 years, son.

    Finance company makes a sh*tload. You’ve just lost a sh*tload.

    It’s Capitalism at its finest. We should all be so fortunate to be in the Finance Industry.

    • 0 avatar
      krhodes1

      And this is exactly the rationale behind my personal “payments or repairs, never both” philosophy. If you can’t afford to pay it off before the warranty is up, you can’t afford it. If it doesn’t have a warranty and you can’t pay cash for it, you can’t afford it.

      • 0 avatar
        fvfvsix

        @krhodes – it’s taken us a while to get there, but this is indeed the best strategy. By force of habit, I will usually take a 48-60 month loan term on car purchases (depending on interest rate subsidy), but I have a mandate to get the car paid off before it turns three. There really aren’t many better feelings than having an in-warranty vehicle paid off long enough to forget how much you paid for it.

      • 0 avatar
        seth1065

        Krohdes
        This simply does not work for everyone, when I bought my car new in 2010 it came with a three year 36,000 warranty , I had 36000 miles in less than a year and a 48 month loan. Using your view I could have paid cash like I had that cash sitting around. Or kept my paid off Volvo that was costing me about $500 a month in repairs the last year I drove it. I did not even want a new car but used cars were sky high so buying new with a lower interest rate worked for me at that time. My car know had almost 90k on it and 12 more payments but I keep it very well maintained and am saving about $200 a month on fuel compared to the Volvo . One way is not always the best way for everyone

  • avatar
    Richard

    You buy what appreciates and rent what depreciates. Nothing depreciates more than an automobile. I have over 6000 cars out on lease and my customers that have taken my advice and listened to a “Car Salesperson” are very happy, and I have a built in audience for future business. Believe me it’s a long term relationship, thanks to the quality and service relationship that we provide here at our Lexus dealership.

    • 0 avatar
      28-Cars-Later

      I agree with your basic logic but you give up too many ownership rights with a lease agreement. Additionally if you vehemently dislike the product direction of the industry, why stay on the treadmill instead of driving what you like.

    • 0 avatar
      krhodes1

      While I agree that if you are going to get a new car every 2-3 years anyway leasing is probably the way to go, you are still being a financial idiot by replacing cars that often.

      You pay a HUGE premium to buy a new car, and in return you get what should be the best, more reliable years of the cars life, YOUR choice in how the car is equipped, and all the other intangibles of new car ownership (no one elses farts in the seats even). But the only way to recover that premium is to keep the car long-term. Even German luxury cars are cheaper to fix than they cost to buy new, never mind the much-vaunted Japanese luxury cars.

    • 0 avatar
      VoGo

      The population of people who say “buy what appreciates and rent was depreciates” 100% corresponds with the population that leases cars for a living.

      You never hear economists advise that, and there is a reason. The car buyer is paying for the same amount for the first 3 years of depreciation in a 36 month lease or the first 3 years of a purchase. The only real difference is that the buyer can keep making payments on the same vehicle, which going forward will allow them to build equity.

      A car that leases for $300/month and nothing down will typically be paid for after 7 years, including the costs of repairs. At that point, the buyer can get off the car payment treadmill finally and start enjoying some financial security. For a small minority of Americans, that beats new car smell.

  • avatar
    Reino

    People are idiots, and I don’t feel one bit of sorrow for someone who buys a car based on ‘monthly payments’ and not on the out-the-door price of the car.

  • avatar
    CJinSD

    Isn’t this just a reflection of Fiatsler’s market share growth?

  • avatar
    sirwired

    Negative Equity on trade-ins… that’s some bad juju there. I have no problem with 60 or 72 mo loans, but not if the loan value’s getting inflated to pay off the last car.

    • 0 avatar
      PrincipalDan

      Yeah the length of the loan isn’t a problem if you actually keep the car for the entire loan. (I will say that anything beyond 72 months is ridiculous.)

      I’m 36 years old and I’ve owned only 4 cars in that time. Yes depending on your interest rate you will likely owe more than the vehicle is worth at some point during the loan but once it’s paid off, who cares? If you trade cars every few years then as other commentators have said, you might as well lease.

      • 0 avatar
        highdesertcat

        A lot of cars these days do seem to require a lot of TLC and repair right after the factory warranty runs out. It doesn’t matter about the brand since the transplants are no better and no worse than the domestic brands because they all use the same suppliers.

        If you take out that 72-month loan, or longer, it also necessitates having to buy an extended warranty at considerable expense, and then hoping that the issuer will honor it five, six, seven years down the road.

        • 0 avatar
          VoGo

          Yes, and let’s keep in mind that even reliable cars need repairs. After 4 years, most cars will need new tires, break pads and battery. That can run to $1,000 easily, and a lot more for SUVs.

          Someone struggling to pay a 6 year $400/month note is going to be challenged to pay that. So the easy way out is to trade it in, and get back on the payment treadmill, only a little bit further into debt.

          • 0 avatar
            PrincipalDan

            Again, be smart. I could likely afford $500 a month in payment by the banks metrics but I’m looking for a $300 or less payment for my next ride. But then most people will borrow the maximum of what the bank claims they can. Which is part of how we got into the last economic mess in the first place.

  • avatar
    tonycd

    There’s always been a big percentage of the population that’s bought cars stupidly. (Remember the era of the annual trade-in?)

    What’s changed is that people now make less money. This statistic is going in the same direction as a whole host of other economic indicators: foreclosures, credit card debt, homelessness, bankruptcy. It’s not a bit surprising. When you hear abstract-sounding euphemisms like “shift to a service economy” or “slow pace of the economic recovery” or “transfer of wealth to the 1%,” these numbers are what they mean.

    • 0 avatar
      highdesertcat

      Actually, tony, a lot of people make a lot more money these days, but it is just worth less and less as each year passes, ever since 2009.

      • 0 avatar
        VoGo

        Sorry, HDC, that may be how it may feels, but the facts say otherwise.

        The consumer price index in the US went up on average 2.6% annually from 1992 to 2000. It went up 2.4% annually from 2000 to 2008. Since then? 2.1%

        • 0 avatar
          CJinSD

          Yeah, the only things going up fast are the things people have to buy, like food, energy, and housing. It’s funny how shrinking what’s left for discretionary spending ‘feels’ like less purchasing power. How did commodities prices do over the last 6 years?

          • 0 avatar
            highdesertcat

            Since you bring up housing; on Jan 1, 2014, we jacked up the rents on all our properties 5-10% depending on size, condition and neighborhood. All in anticipation of the new, higher national minimum wage mandate that is bound to be passed soon.

            So the extra money is rolling in. But we recently had to put in a new 50-gal water heater in one of the properties and buying the damn water heater set ME back $525!!!

            Hey, last year the same thing was $375-$425. And have you guys looked at the cost of BEEF lately!? Hell, hamburger goes for almost $8 a pound!

            Those of you who say our money is not worth less must overlook the fact that our money just buys less these days because everyone is raising their prices.

            From what I see, the biggest losers are the fast food places, restaurants, snack bars, coffee shops, donut places, and the like. Golden Corral died in my area, along with a couple of pizza places, a couple of coffee houses, a Chinese restaurant, and on and on.

      • 0 avatar
        krhodes1

        Inflation is a given. Money has always been worth less than it once was, and always will be. This is another reason why borrowing at the right interest rate makes a lot of sense. Inflation offsets the interest cost. Completely negates it in many cases at current interest rates. I have two car loans at <2% – my interest cost is effectively less than zero compared to having paid cash for those two cars.

        The issue we have at the moment is that for an awful lot of people, their wages are NOT keeping pace with inflation. Inflation is currently very low by historical standards, but wage growth for the middle class is lower still. The top 10%-20% of earners are doing just fine though, and those are the folks supporting the new car industry to a large extent. But that is a whole different issue, and even if your wages stay the same, you are still better off borrowing if inflation is greater than the interest rate. At least from a mathematical standpoint.

  • avatar
    DC Bruce

    It would be nice — although I’ve never seen it done — if someone could plot the curve of depreciated value of their car against the curve of their loan balance. Where the curves cross is where the loan stops being “underwater.” The people would understand how long they would have to keep that car before they could sell it without having to write a check.

    • 0 avatar
      fvfvsix

      Actually, doing plots like this helped me get off of the underwater car “death spiral”. It also taught me that I couldn’t afford to buy a rapidly depreciating car given my (then) economic situation.

    • 0 avatar
      krhodes1

      I always keep track of this with my cars. Idle curiosity more than anything. I KNOW I am never going to be upside-down, because I believe in significant down payments, but I like to know how much equity I have in the cars too. Currently I have about $10K in equity in the BMW and $8K in the FIAT. I had about $10K down on the BMW and $7500 down on the FIAT. BMW will be paid off in about a year, FIAT very shortly thereafter as once the BMW is paid off it will be triple+ payments on the FIAT until it is paid for too.

  • avatar

    RE: “The Soviet state would have collapsed eventually, as it was burdened by an unproductive economy that would have imploded at some point.”

    Yes, that’s the bottom line. Reagan’s gift to military contractors was part of his stimulus package, financed with debt, as well as tax cuts also financed with debt. Our recent stimulus package were 38% tax cuts and the rest for infrastructure and other recession fighting measures, also financed with debt. Even IKE had his own stimulus package. Where the RWers from his party came to him to reduce the taxation on the wealthiest, 92% on the top tax bracket at the time, he decided to do a stimulus package instead. He called it the Interstate Highway System. He cleverly posed it in terms of national security.

    IKE should be on Mt. Rushmore, IMHO.

  • avatar
    Big Al from Oz

    As more and more of these type of articles on finance and economics are released, it appears more and more Americans’ (and other OECD economies) are having difficulty coming to terms with their position in the ‘new’ globalised world.

    If the US spent as much effort in other industries as it does trying to invent new instruments to create new debt the US would be much better off.

  • avatar
    raresleeper

    Let’s break it down: too many asses in too many seats not being able to differentiate between the following:

    a.) I can manage that much per month on x amount/payment

    b.) I should NOT have any payment at all due to my economic situation

    Paying x amount per month is completely different than meaning whether or not you can afford something.

    But wait!! There’s more…

    People buying said car with ridiculous loan lengths with their eyes.

    Yeah, yeah- great. Let’s buy that notoriously problematic/unreliable vehicle and get 7 year financing, “‘cuz it’s purrrdy”. Super!!

    Where do I sign?

  • avatar
    thunderjet

    In January of 2011 I bought a brand new Focus SE (2011 model) with 0% for 60 months. I put $2k down and after taxes the total came to $250 a month for the life of the loan. I traded in a paid off car for the Focus and I plan to keep the thing for 5-10 years after the loan is up. Heck in three years I just cracked 30K miles. The problem is most people don’t do this. The instant a car needs tires, brakes, or some other non warranty repair they dump it for a new car. Fixing the issue is cheaper in the long run than buying a new car. The problem is most people don’t look at it that way. My soon to be brother in law has had three new cars in the time I’ve had my Focus. None of them have been paid off. I hate to see what his car payments look like…..

  • avatar
    johnny ringo

    I never finance a car for a longer time period than three years, I always finance through the credit union I belong to and drive the vehicle for as long as I can -usually between six and eight years. So far this has worked quite well for me.

  • avatar
    CapVandal

    The economy of the United States is the world’s largest single national economy. The United States’ nominal GDP was estimated to be $17.4 trillion in January 2014,[1] approximately a quarter of nominal global GDP.[2] Its GDP at purchasing power parity is also the largest of any single country in the world, approximately a fifth of the global total.[2] The United States has a mixed economy[22][23] and has maintained a stable overall GDP growth rate, a moderate unemployment rate, and high levels of research and capital investment. Its five largest trading partners are Canada, China, Mexico, Japan, and Germany.

    The US has abundant natural resources, a well-developed infrastructure, and high productivity.[24] It has the world’s seventh-highest per capita GDP (PPP).[2] The U.S. is the world’s third-largest producer of oil and largest producer of natural gas. It is the second-largest trading nation in the world behind China.[25] It has been the world’s largest national economy (not including colonial empires) since at least the 1890s.[26] As of 2010, the country remains the world’s largest manufacturer, representing a fifth of the global manufacturing output.[27] Of the world’s 500 largest companies, 132 are headquartered in the US, twice that of any other country.[28] The country has one of the world’s largest and most influential financial markets. The New York Stock Exchange is by far the world’s largest stock exchange by market capitalization.[29] Foreign investments made in the US total almost $2.4 trillion,[30] while American investments in foreign countries total over $3.3 trillion.

    Most countries WISH they had the problems the US has.

    And yes, it is from Wikipedia, so any of the facts could be wrong, but not most of them.

    A long thread about people that are upside down on their cars … I suppose it biases the discussion toward focusing in the negative.

    As far as loan defaults — loans made after 2008 have had extremely low default rates.

  • avatar
    rpn453

    My buddy just got a 25-year loan for a 2014 Dodge Ram Sport. It sounds strange, but when your bank offers such a thing at a lower rate than your mortgage, how can you say no?

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