By on June 12, 2017

Car dealership, Image: VadimGuzhva/Bigstock.com

Years back, after the desire to purchase one particularly fetching model became too great, you walked into the dealership, marched right over to the salesman’s cubbyhole, and signed over several years’ worth of payments on your ride du jour. Bliss ensued.

Unfortunately, come trade-in time, your once-desirable ride isn’t even worth the amount left owing. You’re in negative equity, pardner. Still, buyers faced with this situation have a number of options at their disposal.

Thanks to a recent study of new car buyers, we now know exactly how owners of low-value trade-ins chose to deal with their unexpected debt.

Not surprisingly, the largest subset of buyers with negative equity simply roll it over into their next vehicle. Life goes on, with payments a little higher than anticipated. However, Automotive News‘ study, conducted by DealerRater in May, found that negative equity alters plans in different ways depending on segment and desired brand.

Of the 88,874 respondents (individuals visiting a dealer for servicing or to purchase) 46,700 had purchased a new vehicle and traded in their previous car or truck. Among the trade-in group, 37 percent had negative equity. That’s close to the 33 percent discovered in the first quarter of 2017 by Edmunds.

How did the DealerRater buyers handle their negative equity? 54 percent choose to roll it over into their new vehicle’s payments, while 19 percent decided to jack up their down payment. Of the respondents, 21 percent chose an alternate course of action, and only 6 percent of buyers or lessees ended up selecting a different vehicle to offset the amount still owing.

The story proved ever so slightly different for luxury buyers. Of the premium crowd, 30 percent had negative equity when it came time to trade in that vehicle for a new one. 49 percent of those buyers rolled over the debt, 20 percent hiked their down payment, while 25 percent chose to do something else. As with the overall tally of respondents, just 6 percent decided to buy or lease a different car.

What brands were most associated with negative equity at trade-in time? Not surprisingly, value-conscious brands led the pack, with Nissan buyers out in front at 47 percent. Kia buyers were a close second, at 46 percent, followed by Hyundai and Fiat Chrysler Automobiles brands at 42 percent. Subaru buyers had the lowest rate of negative equity – 27 percent – while 33 percent of Honda and GMC-Buick buyers were saddled with a problem trade-in. Ford and Toyota buyers also fell below the average.

When faced with negative equity, Volkswagen and GMC-Buick buyers and lessees proved most likely to roll over the debt into their new payments – 62 percent chose the option. Subaru buyers, however, were most likely to hike their down payment, with 26 percent going that route. Volkswagen shoppers, at 13 percent, were the least likely to increase a down payment.

While choosing a different vehicle was the least common response to negative equity, a range does exist. At the bottom, with 4 percent, sits Subaru. Toyota shoppers, perhaps the most fiscally conservative of the group, showed the highest likelihood of choosing something else – 8 percent. That number could have a couple of factors behind it. Either Toyota shoppers are more likely to play it safe and temper their hopes, or the brand’s dealer staff are more forthright with customers.

[Image: VadimGuzhva/Bigstock.com]

Get the latest TTAC e-Newsletter!

149 Comments on “Uh Oh, Your Car’s Worth Less Than You Owe – What Comes Next?...”


  • avatar
    Corey Lewis

    Depreciation is why you don’t purchase a new high-end BMW, you hipsters.

    • 0 avatar
      Jean-Pierre Sarti

      it’s too easy to blame it just on hipsters/millennials , let’s face it, they learned these bad financial habits from somewhere…i’m looking at you parents!

      • 0 avatar
        SaulTigh

        I’m beginning to think that most people are idiots, regardless of generation.

        Read a WSJ article yesterday about a 38 year old college professor with a PHD in “American studies.” $223,000 in student loan debt which he’s defaulted on, $46,000 in credit card debt which a financial advisor told him to stop paying on, and a $10,000 outstanding auto loan.

        Highly educated, but clearly dumb as a post. A real whiner too.

        Somebody at Santander should call him up and get him a loan on a new Chrysler 300. Very professorial.

        • 0 avatar
          kurkosdr

          Since when does a degree in “American Studies” count as “highly educated”? It a “Studies” degree for eff’s sake! Does a “Gender Studies” degree count as “highly educated” too?

          And of course, people with real degrees in computer science, medicine, chemistry and the like will have to pick up this guy’s red loans sooner or later, quarter-million-plus in total, either directly via bail-ins or indirectly via inflationary bailouts.

          And this is why I think abolishing the Glass-Steagall Act was a crime.

        • 0 avatar
          Dan

          So that snowflake spent $300,000 of other people’s money on a decade long vacation of drugs and coeds, he’s not paying us back, he’s still living in a warm house with a car in the driveway, and he’s the dumb one?

          • 0 avatar
            kurkosdr

            He is not dumb. I do not think that taking advantage of the immense benefits the current financial statement offers to people in debt, particularly ones with no stuff to be repossessed, is dumb.

            Being a bum in today’s​ Western World pays because the rest of us pick up their tab, while they vote more of our income in their entitlements too.

            Still not “educated” though.

      • 0 avatar
        Sgt Beavis

        I’m a GenXer and I learned that the hard way after buying a Porsche Cayenne. Frankly I don’t think I could hang it on my parents because my parents were dead broke when I was growing up.

        But all that said, I make a crap ton more money than my parents ever did. I simply ate the negative equity. Lesson learned. I still want another Porsche but the next one will be used.

      • 0 avatar
        bumpy ii

        “Rolling over negative equity? What is this, huh? Who taught you how to do this?”

        “You, alright! I learned it by watching you!”

    • 0 avatar
      krhodes1

      Or you could make a down payment, and have a loan term such that you are never under water. I had plenty of equity in my M235i when I traded it. Strong residuals vs. what I actually paid for it plus the Dieselgate discount made for a very nice deal on my GTI. The M235i was expensive to drive for 18mo, but you know what? You can’t take it with you. I have zero regrets. Though a sparsely optioned M235i is far from “high-end”.

    • 0 avatar
      DeadWeight

      Americans are f’ing retards when it comes to financial decisions, which is close to 62% of Americans now die having substantial debt, versus past generations where they had actual positive net worth when they croaked.*

      And Millennials are now basically saying “screw it, I can’t keep up with the lifestyle I demand without going into huge debt for vehicles, housing, schooling, clothing and eating out/drinking out 5x per week, and going on ‘experiential vacations,’ so let the debt pile accumulate like a tower of boulders around me and maybe one day there sill be some form of debt-junkies wiping he slate clean.”

      Boomers’ lifestyles led to the debt-soaked households, corporations and government balance sheets we see today, where there’s never been higher debt-to-income or debt-to-GDP ratios in history excepting for historical anomaly periods such as the peak of WWII, etc.

      Vehicles, with few exceptions, are horrifically expensive and massively depreciation assets of the financially destructive kind, but keep buying those pricier, ridiculously-equipped status signalling vehicles and put on that eminence front, Americans, for there will be no debt collector calls when you’re 6 feet under.

      *Australians, Canadians, et al are just as bad as Americans in these regards, if not even worse (they just accept higher real prices, lower real incomes, much higher real debt levels in a pussified, beta way, which just adds to cost-push inflation further FOR EVERYONE (even the sensible and restrained spenders), as long as credit is available – CREDIT IS DOPE, YO!).

      • 0 avatar
        kurkosdr

        I think most people aren’t afraid of the debt collector. They think that no matter how bad their credit score is, someone will be willing to loan them money, again. So far this “strategy” is working and responsible people are picking up the tab in the form of bail-ins and inflationary bailouts.

        The scary thing is that when those free loans run out, there will be social unrest and politicians from the edge of the spectrum (far-left or far-right) rising to power.

        Let me say it again, abolishing the Glass-Steagall Act was a crime.

      • 0 avatar
        stuki

        As long as there are idiots out there; either dumb enough to support bailing them out due to fear of (always imaginary) hobgoblins like “the system is going to collapse”, “tanks in the streets”, “people dying in the streets” blah, blah; or cowardly enough to not meaningfully fight back when the former come to rob them to fund the bailouts; racking up debt that others end up paying for, will always remain the rational choice.

      • 0 avatar
        Big Al from Oz

        DW,
        I don’t know about your Canadian-Australian analogy.

        I do know in Australia a person who goes bankrupt is in a far worse position than the US.

        Also we have harsher lending rules.

        Australians do have a very high debt ratio that realestate is driving.

        Australia does have one of the highest levels of median wealth, 6 times that of the US.

        I think the trend of “I want here and now’ is the problem. Unfortunately controls (regulations) need to be in place to protect stable borrowers of money.

        Someone must pay for the bad debts. In the end customers, taxpayers or country pays for poor lending practices.

      • 0 avatar
        DeadWeight

        “…which is close to 62% of Americans now die having substantial debt, versus past generations where they had actual positive net worth when they croaked.*

        Should read as “…which is why close to 64% of Americans now die having substantial debt (i.e. they owe more money to creditors than they have – they have no or large NEGATIVE “nest eggs”) versus past generations, where the norm was that they people actually had positive net worth when they croaked.* (they even did things like leave hard assets, cash, real estate, etc. to their spouses, children, siblings, etc.).

        And I should have added the U.K., Japan,Italy, Spain, France, New Zealand and many other nations to the the original list of the U.S., Canada and Australia as “developed” nations that now are literally sitting on massive, impossible to deal with DEBT MOUNTAINS outside of debt-jubilee or hyperinflation type “olutions” (that throw societies/countries into civil war and anarchy).

        The amount of absolute debt now floated relative to global GDP is at crisis levels as the marketers of shiny, new baubles required to “keep up with the Jones\'” are geniuses at their game, and as politicians are the absolute worst at crafting sensible policies to regulate the excesses of the financialization of the economy and growth the rentier-Oligopolists (who ply those same politicians with money, assets, a d family jobs).

  • avatar
    PrincipalDan

    Ohhhhhhhhhh!

    A new couple for us to make fun of.

    B&B GO!

  • avatar
    hamish42

    There must be huge numbers of such cars here in Southern Ontario. They were offering stuff such as Kia Rio’s on 84 month payment plans. And it was like that right across the board, all manufacturers. There have to be countless thousands stuck with cars they over-financed and can’t afford to get rid of except at huge loss to the sharks on e-bay. I hate intrusive government regulation, but somebody has to step in an stop this 7-year payment of a $16K car nonsense. People must be getting hurt.

    • 0 avatar
      Arthur Dailey

      Except the average Canadian keeps their car for more than 7 years.
      And I would guess that the average Kia driver would not be flipping their car regularly like the stereotypical leasor of a German car.

      Payments for 7 years with your example would be just over $226 per month or $2,715 per year. So after 6 years they would probably break even on a trade-in and make money if they sold privately.

      After that, positive equity. And based on current stats that car should last as a ‘runner’ for at least 11 years.

      Loans of 7 years reflect that cars last longer than they did in the heyday of 3 year car loans. And they take advantage of historically low interest rates.

      Therefore no need to fuss, fret or invoke government regulation.

      • 0 avatar
        Gardiner Westbound

        Solid observation!

        Nonetheless, I believe it is imprudent to finance a new car for longer than the lesser of the comprehensive warranty period or five years. Used car financing should mature before the car is five years old. Pay cash for one more than five years old.

        Things can get very ugly for a car owner who exposes himself to loan payments AND major repairs. If you’re no longer paying $300 or more a month you should be able to afford the repairs that may occur at that age.

      • 0 avatar
        Rick T.

        I financed the recent purchase of our VW Sportwagen for 5 years at zero percent because…. zero percent. I’ll keep it 10 to 15 years if I live that long.

    • 0 avatar
      quaquaqua

      Uh, people “got hurt” by monstrous big banking practices that led to the housing crisis almost 10 years ago. They’re not being hurt by a 7 year loan at a rock-bottom interest rate on a car unless they try to trade it in.

      • 0 avatar
        djsyndrome

        “They’re not being hurt by a 7 year loan at a rock-bottom interest rate on a car unless they try to trade it in.”

        Unless the car gets totaled while way upside down and without gap insurance.

  • avatar
    SoCalMikester

    how hard is it to do some research and find something that you know will suit your needs? if you wanna treat a vehicle like a fashion accessory, then just lease for 3 yrs. THIS is one reason among many people cant afford to buy a dwelling. not avocado toast.

    • 0 avatar
      TwoBelugas

      the Avocado toast crowd are blowing 3k a month on a studio in a fashionable neighborhood of wherever. They typically don’t own cars because the awesome neighborhood of wherever has no parking spots on the street outside their rentals.

      • 0 avatar
        PrincipalDan

        I highly recommend mashed avocado on toasted sourdough with an over easy egg on top.

        Just sayin’…

      • 0 avatar
        Arthur Dailey

        My eldest graduated just a few years ago. Has a very good job and zero debt.
        Pays $1,500 for a small apartment in a trendy area.

        Has no car. She pays $134 per month for public transit. Gets half back as a benefit/subsidy by her employer. In nice weather she can actually walk to or back from work. Has a car sharing membership with 6 vehicles in the parking lot beside her building. 12 more within walking distance.

        If she owned a vehicle, a parking space in her building sells for $50k or if you can find monthly parking in the area it costs over $400 per month. Insurance a minimum of $3,500 per year. Plus car payments, fuel and maintenance.

        So the cost of owning a vehicle would be more than 60% of her rent costs. Instead of owning a vehicle, she saves that money for a down payment on her own place.

        And if she needs a vehicle for $11 per hour she has access to her choice of relatively new models, with gas, insurance, maintenance and 200 kms included in the fee.

    • 0 avatar
      PrincipalDan

      Yeah it may take me forever to finally figure out what I want (and I’m as guilty as anybody of “analysis paralysis”) but once I’ve chosen I’ll stick with it until the payments are done.

  • avatar
    bunkie

    How hard is it to keep the car you have until you are on the right side of the depreciation and remaining balance curves?

    • 0 avatar
      YaMoBeThere

      I think the problem arises like this:

      Oops I bought a two-door, sporty fun car and now I am popping out a baby and my family decided i need a seven-door, 12 passenger crossover… or something to that effect.

      • 0 avatar
        SaulTigh

        Every time I see a Dodge Challenger with 7,000 miles on some dealer’s used car lot, and ask why it was traded in, that’s the answer I get!

        • 0 avatar
          Vulpine

          I’d be worried that the thing had been driven hard and was starting to need unexpected (and out of warranty) repairs. As for wanting one, both my wife and I like the looks of the Challenger and people we know love theirs… even works for us as we have a compact SUV if we need to carry something moderately bulky that wouldn’t fit in a coupe.

          On the other hand, I like my compact pickup truck too much, even if it is underpowered. I’ll be waiting for a new, truly compact truck before I trade… or maybe get a slightly larger version of the compact SUV if it proves there’s no compact pickup on the horizon. There’s still a slight threat of the Hyundai Santa Cruz and a vague shot at the Fiat Strada/Ram 700 out there.

      • 0 avatar
        bikegoesbaa

        I’d deal with a car seat in a Challenger for a few years before I turned it in at a loss.

        • 0 avatar
          danio3834

          I took both my toddlers to daycare every day in a Challenger for a year. We used it as our regular family vehicle. The back seat is pretty big, and kids are usually small. It worked out.

          I find that low mile Challengers are most often traded in because a new color came out the next year.

      • 0 avatar
        brn

        I’m not sure the sporty car analogy is typical. Nissan and Kia were #1 and #2 on the list. Neither is selling sports cars (anymore). These are budget cars to begin with. Budget cars are purchased by people who have money problems to begin with.

    • 0 avatar
      ajla

      If you finance a used car (the linked AN article doesn’t seem to be only surveying brand new buyers), can’t afford repairs, and something expensive breaks during the loan term you end up in Negative Equity Rollover City.

  • avatar
    deanst

    “But honey, I need a car with vents across the entire dash board – how else to keep the hair out of my eyes?”

  • avatar

    1) Roll over negative equity into new loan
    2) Obtain GAP coverage
    3) Find boat ramp
    4) Repeat as necessary

  • avatar
    dchturbo

    I rolled over 500 dollars going from my Mazda6 to my F150. One month’s payments didn’t effect me much.

    I did, however, roll over some of my Passat onto my 6. I was so desperate to get rid of that thing because it never used any urea. I assumed something was wrong with the emissions system. Little did I know…I wish had kept that, only because of the buyout. But then again, maybe my fuel pump would have died in the interim and I would have been out even more money.

  • avatar
    ajla

    The Kia dealer said they’d pay off my trade-in​ Dodge Nitro so I’m good.

  • avatar
    28-Cars-Later

    I am in no way surprised but those figures are staggering. You’re doing something wrong when your resale is below payments for nearly 50% of customers.

    Have fun with your gerbils Kia customers.

    Caveat Emptor

  • avatar
    threeer

    What comes next?? You keep the car you currently have until you’re not upside down in it.

  • avatar
    bikegoesbaa

    By my math 46,700/88,874 is 52.5%

    Multiply that by 37% and then by 54% and it turns out that 10.5% of new car buyers are rolling negative equity into their new purchase.

    I am happy to have data to confirm my expectation that this is “bottom 10%” behavior, and will use that fact to dissuade people from doing it in the future.

    Surely there is a very small subset of folks who wind up in that situation through some circumstance beyond their control, but I am struggling to think of an example where the best option is to dump a financed car at a loss and then finance another one *right now*.

  • avatar
    Vulpine

    If you’re going to commit to long-term payments, then you’d better commit to long-term ownership; with very limited exceptions you will be upside down for most of the life of the car.

    Leasing is a similar risk, if you actually bother to read the paperwork; you have to pay the difference between the value of the car and whatever you’ve already paid when you turn it in. It’s one reason I refuse to lease, even if the monthly payments are lower than straight financing.

    • 0 avatar
      Scoutdude

      I agree that if you are going to sign up for the long-term payments then you should be prepared to see it through.

      You are incorrect in that leasing carries the same risk, at least with the common leases of today. You do not have to pay the difference between the value of the vehicle at turn it and the residual. The automaker or bank is on the hook for that, they are also able to benefit if the value is greater than the residual. With high used car values the mfg/bank had been coming out ahead on the deal, at least on the back end, with auction values being greater than residuals for trucks, SUVs and CUVs. On the other hand they were on the losing end for many cars.

      However if you drive the car more than the allowance, turn it in with more than “average” wear and tear, or with un-repaired accident damage then yes you’ll be looking at a bill to turn in the car.

      • 0 avatar
        S2k Chris

        “they are also able to benefit if the value is greater than the residual.”

        In theory. In reality, anyone with 2 brain cells to rub together will buy it out at the pre-determined lower value and then turn around and trade or sell at the higher market value and capture that equity. Leasing really puts (basically) ALL of the risk on the shoulders of the carmaker/bank, and none on the consumer.

        • 0 avatar
          Scoutdude

          A lot of people can’t be bothered. A while back in response to one of Bark’s works of fiction I looked up a report that showed that Ford was making ~3% on their leases overall. More than that on things like pickups and SUVs and often coming up with a loss on cars like the Focus and Fiesta. IIRC those numbers were for 2015. Of course it has probably changed by now as used car prices have started to drop.

          Regarding the mileage that is where they make out or at least hook you. It is not uncommon to read the fine print and see less than 1k mi/month. The BMW lease I just looked up is 30k/36months with $0.25 for excess miles. Be crazy and drive 15k per year and you will be facing a $3750 bill on turn in.

          You can negotiate the right number of miles up front, and you’ll usually pay less per mile that way. Of course your payment won’t be that low low advertised one either.

      • 0 avatar
        Vulpine

        Then that’s changed from the time when I considered a lease. I’m absolutely not a fan of lump-sum payments up front and at turn-in. I do believe they still require a certain per-mile rate over the contracted mileage and turn-in reading, however.

        • 0 avatar
          S2k Chris

          Correct, you are subject to A) mileage restrictions and B) damage charges, but even those are negotiable if you re-lease with the same manufacturer, or if your lease is “in the money” even with the overages/damage, you can buy it out and flip it for profit.

    • 0 avatar
      FreedMike

      @Vulpine – you’re off base. You state: “Leasing is a similar risk, if you actually bother to read the paperwork; you ***have to pay the difference between the value of the car and whatever you’ve already paid when you turn it in.***”

      That’s correct – if you do a open ended lease. If, however, the lease is closed-ended, then the residual value at the end of the lease is set. If the car’s worth less than that at the time you turn it in, then assuming you’re not over-mileage, and the car’s been maintained, you toss the dealer the keys, and walk away.

      This is why you have to be a dunce to do an open ended lease. That, or you’re leasing a Dodge Demon or Ford GT, and figure the car will be worth more than the residual at the end of the lease. But if you a) want a new car, and b) want a new car every few years, and c) want to invest as little as possible in said endeavor, leasing is the ***only*** way to go.

    • 0 avatar
      Big Al from Oz

      Vulpine,
      The leasing issue is easily resolved.

      I recall back in the 80s when I was leasing trucks for my business, at the end of the 4 year lease my residual had to be no higher than 25%.

      Back then also in Australia a new vehicle loan could not exceed 4 years and a used car (up to 3 years?? not 100% sure) was 3 years.

      There are some very simple instruments out there to use.

  • avatar
    newenthusiast

    I guess I’m having trouble understanding here. A car will pretty much always be worth less than what you paid for it, unless you have some rare model with low mileage or a museum/collector’s quality vehicle. But those are assumed exceptions to this.

    A daily driver, even a lightly used one, won’t sell for what you paid for it, adjusted for inflation.

    I am not an expert on the trickery that is auto financing and leasing, but I think I generally have three options:

    1) Finance, pay off the loan according to terms, enjoy vehicle with no payments for several more years(decades?) until you absolutely need to start over.

    2) Pay cash, enjoy vehicle with no payments for several more years(decades?) until you absolutely need to start over.

    3) Lease (I have nothing here,I have never leased a car and don’t know how trade in values and payoffs work here).

    In any of these situations, will you actually have a car worth more than you paid for it? Is it even possible to break even?

    • 0 avatar
      Arthur Dailey

      I have bought new, bought used, bought ‘clunkers’ and fixed them up, leased and taken over leases.

      With nearly 100 vehicle transactions over 4+ decades, I have only made money on (slight edit 4) of them.

      Vehicles for the vast majority of consumers, are an expense, like a washer, dryer, refrigerator, television or ‘any other appliance’. Hence Toyota’s prominence in the market.

      Now I am going to put on my asbestos underwear.

    • 0 avatar
      30-mile fetch

      That’s not the issue here. All cars depreciate. The issue is having the vehicle be worth less than you owe on the loan at any given point in time, i.e. it is depreciating more quickly than you are paying it off. This is more likely if you take out a long term loan with little down or buy a vehicle new that depreciates rapidly. Combine those two and you’d better hope you don’t need to suddenly get out of that vehicle from a job loss or other life situation change. If you owe $15000 on a car that is only worth $11000, you don’t get to walk away from that $4000–you still have to pay it.

    • 0 avatar
      bikegoesbaa

      The issue isn’t the car being worth less than you paid for it, it’s the car being worth less than you currently *owe* on it.

      Especially if you want or “need” to get a different one.

      You take a financial loss on most any car, but ideally the value it provides in transportartion/fun/whatever makes up for it.

      The loss isn’t the problem, unless it’s a loss you don’t have the resources to pay for.

      • 0 avatar
        Scoutdude

        The problem is that more and more people don’t have the extra money to cover it. The average person isn’t putting down a lot of cash up front and is getting the longest term possible. The reason they didn’t put down a good chunk of money is often because they have a problem accumulating a good chunk of cash and not blowing it. So then they roll it over and dig themselves deeper in the hole.

        Put down enough money and/or short enough loan and you’ll never be up side down or at least you’ll gain equity before year 4 or 5.

    • 0 avatar
      S2k Chris

      “In any of these situations, will you actually have a car worth more than you paid for it? Is it even possible to break even?”

      Not worth more than you paid, more than you OWE.

      IOW, you buy a car for $20k financed for 60 months. 3 years later, the car is worth $8k but you’ve still got $10k of payments remaining. If you sell the car you owe a check to the bank for $2k.

      Conversely, same scenario, but you put down $5k at time of sale, so 3 years later car is still worth $8k but you only owe $5k. You can trade the car for $8k, and put the $5k of equity towards your new fancy whip.

      • 0 avatar
        newenthusiast

        I see now. I was unaware that people finance for longer terms than they actually intend to keep the car, outside of emergency situations (i.e. sudden health issues, income loss, or a job transfer overseas like in the military or something where you can no longer keep the car), which is the only time that this seems to apply. I misunderstood the concept…since cars are liabilities, not appreciating assets, I was wondering who on earth thought they could put equity into it like a home (which what I associated the term ‘equity’ with). My mistake.

        • 0 avatar
          S2k Chris

          I have about $20-25k of ‘equity’ in my two cars, given they’re both worth $10-12k and are paid off. They weren’t a good investment, but on the other hand, almost everything else that isn’t a house or a stock is worth effectively zero after I but it so having that money available if I absolutely had to is nice. What it really means is that one of them will make a healthy down payment on the next car when the time comes.

          • 0 avatar
            sjd

            As most of the commenters here I usually keep a car until I’m not upside down before getting a new one and never finance for longer than I plan to keep it for.

            2 years ago I had to get out of my Toyota Tacoma after just 2 years as I had to get into a smaller more fuel efficient car. Luckily, being a Tacoma I sold it privately in 3 days for $1500 more than I owed on it so the right vehicle makes a difference.

          • 0 avatar
            krhodes1

            Cars are only a “bad investment” if you don’t get anything out of them. The return is NOT what they are worth at any given time, it is the value of the transportation they provide.

            Though I agree with you 100%. I have two goals with any car I buy be it new or used. I won’t be on the hook for payments and repairs on the same vehicle, and I always want to be able to walk away without writing a check. So I won’t finance used cars, and I put substantial down payments and plan the note payments to never have to even think about being upside-down on new cars. There is no point in paying cash for a new car at today’s interest rates, and I won’t buy used cars that cost more than I would put down on a new car anyway.

            I am quite happy with the current state of my 328i wagon. It is long paid off, reliable as sunrise so far, depreciating very slowly due to being unicorn spec 6spd/RWD/wagon, and I only put a few thousand miles a year on it. Cost about nothing to insure and maintain too at this rate. If you keep them long enough, cars DO appreciate. My Spitfire is worth 3X what it cost new and climbing every year – you S2k must be on the upswing too, I would think. Also pretty cheap to keep, though it has marred it’s record this year by deciding to split a radiator seam. Can’t complain, radiator is 40yo after all. I could also sell my Land Rover for more than I have in it, in all likelihood. Not so much the BMW, Saab, and VW, but they pay back in smiles per mile.

    • 0 avatar
      Reino

      There is also option 4.) finance for no more than four years. No matter where you are in that timeline, your loan amount and car value will typically be on par with each other.

      • 0 avatar
        Kyree S. Williams

        I have a 48-month loan on the MKS, which I got for around $20K earlier this year, and offered up a $4K down payment. So I shouldn’t have to worry about that.

  • avatar
    Fred

    If you pay cash for your cars then you won’t have to worry about this kind of stuff. I’m just saying.

    • 0 avatar
      Arthur Dailey

      Because we all have $33k just sitting around.

      https://www.usatoday.com/story/money/cars/2015/05/04/new-car-transaction-price-3-kbb-kelley-blue-book/26690191/

      • 0 avatar
        Fred

        Of course it’s not just laying around, but if you really wanted to you could.

        • 0 avatar
          TMA1

          Yes, poverty is just a “state of mind.” – Future president Ben Carson.

          • 0 avatar
            dwford

            Ben Carson is right. There is just a segment of the population that isn’t good with money. The convenience store shopping/lottery playing/buy breakfast and lunch every day/overdraft fee paying crowd. They are the ones who say “Oh, it’s only a few dollars, who cares” and the ones who are too good to pick up change off the street.

            When I tour foreclosed homes looking for my next flip house, I invariably find loose change on the floors, in drawers, in the yard etc. I grab all I can get my hands on while I walk. I can promise you you won’t find so much as one penny loose anywhere on my property.

          • 0 avatar
            S2k Chris

            “I can promise you you won’t find so much as one penny loose anywhere on my property.”

            Wow, congrats. Scraping your way to the top one nickle at a time (roll eyes).

            People are bad with money, but it isn’t because they left $1.38 in change behind when they vacated their house.

          • 0 avatar
            ajla

            Depends on the context. I think that there is a gulf of difference between telling an impoverished person to bootstrap it and telling someone itching to trade their Camaro LT for a 440i that they should save up some cash for the transaction.

            I do think that Fred’s advice is good for people trading and buying out of whimsy (rather than necessity).

        • 0 avatar
          Arthur Dailey

          However if the manufacturer is going to lend me $20k+ for 7 years at 0% and I am going to keep that vehicle for at least 6 years, then why pay up front, when I can use that money for other things and pay in depreciated dollars (taking into account inflation)?

          And at $300 per month it is going to take me 5 1/2 years to save up that $20k. And what do I drive during that period?

          Or if you lived in Ontario you could have taken advantage of the real estate boom, used that $20k as a deposit on a new build home or condo and then sold it prior to taking possession for a profit of at least $100k. Or just move in and have an appreciating asset and a roof over your head rather than a paid for car that is rapidly depreciating.

          • 0 avatar
            Fred

            I’d bet that any car you buy with 0% you don’t get much of a deal on and only those with outstanding credit get those loans. Some dealers don’t usually like cash deals either, because they make a lot of money on the loans, but that’s why you negotiate. Best part is there is nothing to worry about afterwards.

          • 0 avatar
            krhodes1

            If you have remotely decent credit you should be well under 3% these days, and really you should be well under 2%. If you don’t have decent credit you should probably be re-thinking your choices anyway.

            Paying cash for a car that costs more than beer money is stupid. It simply isn’t hard to get a better return. If nothing else, pay down your mortgage or max out your tax deferred retirement savings. Of course, entirely different thing if auto loan interest rates go back up to the historical norm of 8-12%.

            If you have the cash in the bank (or other assets) to pay off the note any time you want, what is there to worry about?

          • 0 avatar
            ajla

            “If you have the cash in the bank (or other assets) to pay off the note any time you want, what is there to worry about?”

            I have doubts many people have that situation though.

            Paying cash for a car might be a bad move but *saving* for a car is not.

  • avatar
    deanst

    Doesn’t really tell you much unless you know the size of the negative equity – a few hundred bucks or a few thousand. Pure math dictates that you are in a negative equity situation for a longer time with a low interest rate, longer term loan. Nonetheless, look for people being forced to keep their car for longer – especially as used car prices continue to fall.

  • avatar
    SaulTigh

    I knew a woman when I lived in another state 15 years or so ago that flat refused to drive a car that was out of warranty. Huge psychological hang up. Every three years she’d go pick out a new Ford and tell them she’d sign any deal that was for the same monthly payment as she was then making. She had no idea what she actually owed, just scratched out the check every month.

    I’ve lost touch with her (she turned out to be just a little bit crazy), but I wonder if the music ever stopped in her game of musical chairs?

    • 0 avatar
      TwoBelugas

      “Every three years she’d go pick out a new Ford and tell them she’d sign any deal that was for the same monthly payment as she was then making.”

      I don’t….I just don’t…..what?

    • 0 avatar
      S2k Chris

      And that’s a perfectly fine approach, and it’s what leases were invented for. It’s not the most financially saavy move, but you aren’t going to lose your shirt doing it, your exposure is limited.

    • 0 avatar
      Vulpine

      To play with an old cliché, “A long, long time ago in a Galaxy far, far away…” (in this case, Ford Galaxy…) my family was friends with another who had just become ’empty nesters’. Every three years, like clockwork, they’d buy a new Ford or Mercury product and did so far as long as they lived in the area–over 20 years that I recall before they moved to live closer to their daughter. They, like the woman you mention, would trade as soon as the 36 months expired (which coincided with their final payment.)

      Me, I don’t go for the super-extended financing some are now, though I can see why many do. I continue to own my cars for a minimum of 8 years if I can at all manage it and have kept most for ten (unless they flat-out died first.) As such, I’d rather finance for five and keep the car until I simply no longer trust it.

  • avatar
    Scoutdude

    The other side of the argument is that you always want to be underwater in your loan. Better to pay up the difference in future, less valuable $ and keep that money working for you elsewhere. Of course this assumes that you have the discipline to keep that money and keep it working for you. As long as you have that discipline and the funds up front you’ll be fine.

    • 0 avatar
      krhodes1

      The accountant in me actually agrees with you. But I can’t do it. I need the psychological safety blanket of being able to walk away no matter what.

      Really, it is the same thing with tax refunds. If you are getting a refund, you screwed up. If you owe the maximum amount you can owe without getting a penalty from Uncle Sam, you WIN! Because you just got an interest free loan from the government for a year. But I can’t do it, I adjust my withholding such that I don’t have to worry about ever having to write a check in April. And I still got stung by a change in state tax laws for 2016 that caused me to owe a few hundred when I was expecting a grand or so back. Luckily, FL residency means no more of that!

  • avatar
    Sky_Render

    Or, you know, you could just keep your current vehicle and keep making payments on it until you’re no longer upside down. Or until *gasp* you pay it off and don’t have car payments.

    What a concept…

  • avatar
    dwford

    There’s one option that a select few buyers can do (or can get talked into): The buy a new car WITHOUT trading in the old car, then let the old car go in a voluntary repossession. I saw it done several times in my car selling days.

    • 0 avatar
      Kyree S. Williams

      I would be curious as to how they get away with that, but I’ve seen that a lot of lenders don’t mind financing someone who already has an existing auto loan obligation that isn’t going away, as long as they look reasonably capable of paying both notes.

  • avatar

    Over the years, I’ve had a few clients who were clearly “car poor”.

    Yesterday, outside one of my Courts, I saw a new-is E Class. It had the space saver spare on the back. That tire had been there for a while….on a new-is E Class. You can afford the car but not a tire ? Clearly not.

    I’ve seen junk tires many times on nice cars. Ling Long on BMW ? Clearly a badge buyer.

    I guess some folks require a new car for ego needs; I don’t get the concept of “negative equity” and rolling it over, unless it was a worst case sort of calamity..not a normal practice !

    • 0 avatar
      stingray65

      If you had a middle-upper class upbringing and were taught concepts such as savings, patience, budgeting, etc. the behavior of much of the buying public seems very strange. But contrary to much of the leftist beliefs, there are always ways to save money even if you are poor. Skimp on your mobile plan and keep the same phone until it breaks. Brown-bag your lunch and eat at home for breakfast and dinner instead of eating at restaurants. Split the rent with room-mates and live in a less “cool” area. Get an extra job. Choose an education that gives you a marketable skill (skip the transgenderracial studies major). Don’t buy lottery tickets. Don’t do drugs. Don’t buy $200 sneakers and $150 jeans. Find cheap entertainments (lots of good books at the library). Pay your credit card balance every month. Keep your pants zipped until you can afford to support a kid. Buy a car you can actually afford to own, or don’t buy one at all. I lived for years on minimum wages but actually was able to save money because I was willing to live within my means – unfortunately a very large portion of the population is not smart enough or disciplined enough to do it.

    • 0 avatar
      jalop1991

      GAP?

      GAAP means generally accepted accounting principles.

      And then there’s insurance to cover the gap between what it’s worth and what you owe–it’s called gap insurance.

      But what is this GAP insurance of which you speak?

    • 0 avatar
      jalop1991

      “Over the years, I’ve had a few clients who were clearly “car poor”. ”

      You mean car rich. They were cash poor.

      They were rich with cars, but they had no cash. Car rich–meaning they had no money.

      Same thing with houses. Put all your cash into a house, you’re house rich–but cash poor.

      • 0 avatar
        tooloud10

        Er, no, “house poor” or “car poor” refers to people that spend an inordinate amount of their income on the house or the car and doesn’t have enough money left for the basics.

  • avatar
    stingray65

    Part of the problem is that low end consumers want all the bells and whistles that were formerly associated only with luxury cars. Prices and loan lengths would be lower if consumers were willing to buy a car without dual zone climate control A/C, power steering, brakes, seats, windows, locks, mirrors, 8 speed automatic transmission, 18 speaker 700w stereo, alloy wheels, etc.(as they were 40-50 years ago), but the few bare-bone cars that are available today don’t sell at all. Add in a few thousand dollars extra for mandated safety and emission equipment, and all of a sudden the formerly affordable car requires a 7 year loan to have a reasonable monthly payment. Of course automakers and dealers love it as well since all those options have higher margins than the base car, and money can be made on financing the higher sticker. But heaven forbid if interest rates rise substantially or there is a moderate to severe economic downturn, because all that upside down debt will really get painful then.

    • 0 avatar
      FreedMike

      You’re somewhat correct, stingray…but even stripped down cars cost a bunch of money nowadays. Consider this: a manual Nissan Versa with nothing but air and a stereo runs $11,000 or so. And if you finance that for four years (assuming zero percent interest), that’s $229/mo. The payment’s attractive, but you’d have to pay *me* $229 a month to drive that piece of junk.

    • 0 avatar
      TMA1

      There’s a reason Nissan just stopped production of the third-generation Sentra for the Mexican market this year. In America, they’re selling the 7th-generation car. It’s been 23 years since the Mexican Sentra (Tsuru) was sold in the US. Even that car cost over $7,000 USD. Worth it, for such an ancient vehicle?

    • 0 avatar
      Kyree S. Williams

      Um…I’m not buying any car that lacks power steering unless it’s something extremely lightweight and possibly mid or rear-engined.

      • 0 avatar
        stingray65

        Kyree – your need for power steering illustrates my point. The BMW 3 series wasn’t even available with power steering until the e-30 generation. No Porsche has power steering until the 928 and the 911 didn’t get it until about 1989. Most Pickups weren’t ordered with power steering until the mid-70s, and compacts and subcompacts didn’t typically have it until the 1980s. Now even the tiny rear-engined skinny tired Smart has power steering, and if anyone that can’t steer a Smart without power steering shouldn’t be driving.

        • 0 avatar
          Kyree S. Williams

          Bumpy has a point. Those cars were far lighter. Plus, that’s just where I draw the line. And, actually, I draw the line at power windows and keyless entry too, because it’s 2016. But virtually everything on the market has those features.

          • 0 avatar
            newenthusiast

            I don’t care about keyless entry. I don’t see the value in it, but since seemingly every car has it, so be it.

            But to suggest no power steering? I’m with Kyree. No way.

            My 1975 Nova had power steering, and I can’t think of a single mainstream car in the 80’s that didn’t at least offer it or have it standard.

            I drove my uncle’s beater 1972 Chevy truck (Silverado?) over Christmas, to help him out with hauling some stuff off of his property (he drove his newer truck). No power steering. It was awful. Maybe I’m too young or just spoiled, but that is not only a hard line, you’d have to have it be your only vehicle and be intimately familiar with how to drive a care WITHOUT it these days. Otherwise you’d be a danger to yourself and others.

          • 0 avatar
            healthy skeptic

            Kyree, have you ever considered an Ariel Atom?

      • 0 avatar
        bumpy ii

        IMO a good limit for power steering is around 2600 pounds, maybe bumping up to 2800 or so for cars near 50/50 weight distribution.

      • 0 avatar
        pragmatic

        If you learned on vehicle with manual steering (a 1977 Ford Van, 300CID, three-on-the-tree, manual steering in my case) you would adjust your driving style. Never steering unless you are moving, even if only creeping. I learned on this in NYC and frequently had to back park in the LES. Never really minded. I would get a vehicle without PS but would not compromise on AC.

    • 0 avatar
      tooloud10

      Cars really aren’t more expensive than they were in the ’90s. Consider that a current Honda Civic is about the size of a ’94 Honda Accord, has way more features and power, and gets better mileage but actually costs the same as the Accord cost back then.

  • avatar
    GTL

    Was keeping the car not an option?

    • 0 avatar
      TDIGuy

      I think that’s where there are so few Subaru buyers in the pool of that test.

      In reality, most buyers in this position probably just wanted what they couldn’t afford. So financed out to infinity only to regret it later.

      • 0 avatar
        brettc

        I kind of did that. I always wanted a VW wagon so in August of 2012 I bought a TDI Sportwagen. Ended up paying $29974 for it OTD (I bought an extended warranty in the F&I office) and put $5000 down.

        Financed the $24474 over 66 months at 1.9%. I haven’t enjoyed the close to $400 car payment. I’ve been able to pay it fine, but the mental toll of seeing that $400 go away every month is high.

        As of today, I owe just over $3K on it and it will be paid off in February of next year. That’s why I’m holding on to it until late 2018 before I let VW buy it back.

        I’m never getting another car with a $400 payment, it’s just too much for me to handle mentally. With the money VW is giving me, I’m buying a car in cash and not having to deal with an insane payment again.

  • avatar
    Wheatridger

    Sounds like the was, paraphrasing of an old Country hit, “Born to Lease.”

    • 0 avatar
      indi500fan

      Despite pledges otherwise back in the 2009/2010 era, most manufacturers are still rolling out screaming lease deals to support volume. I think that’s the path most folks should take, although you have to be savvy and negotiate ruthlessly.

      I leased a 29k sticker GM for $250 a month, nothing down, and they ate the last 5 payments on my previous lease. So I’ve got 9 grand in the deal after 3 years, and the car will be depreciated by roughly 16 grand.

  • avatar
    Reino

    Never take on more than a 48-month loan and you’ll never have this problem.

    • 0 avatar
      FreedMike

      That’s great, as long as you don’t mind a) a $520/mo payment on a $25,000 car (assuming you can get zero percent financing), and b) plunking down thousands of dollars of your (after-tax, investment-ready) liquid funds on a car that’s going to depreciate like a stone the second you sign the down payment check…or c) you are OK with $375/mo to flagellate yourself with something like a Versa.

  • avatar
    FreedMike

    Anyone still wondering why leasing is so popular? If you do a closed end lease, then the residual value of the car is set in stone at inception. If the actual value is less at termination, you toss the dealer the keys and walk away.

    Unless you plan on keeping your new car for the entire term of the loan, then you lease. Otherwise, unless you’re buying a Dodge Demon or some kind of resale unicorn, you’re gonna be upside down…guaranteed.

    • 0 avatar
      S2k Chris

      Depends on the down payment you put down. I’ve put anywhere from $0 (0.9% interest) to $11k (mostly due to an insurance payout on a totaled car). On the car we put $11k down, I looked the other day, we owe ~$17k and it’s worth ~$22-24k even with relatively high miles (~17k/yr.) It’s not going anywhere any time soon, but it’s nice to know if something happened we’re still well in the money.

    • 0 avatar
      SCE to AUX

      My only lease experience thus far was a 2012 Leaf. I had doubts about battery longevity before I got the car.

      Original end-of-lease buyout price: $18k
      Nissan $5k-reduced buyout price to induce me to stay: $13k

      Actual value at end-of-lease: $7k – $9k

      It was easy to walk away at the end.

      FWIW, these kinds of numbers are why most people have leased Leafs instead of buying them, and it’s also poisoned the EV market by limiting new EV sales since people don’t want to lose 3 to 4% of their car’s value every month. Hopefully, long-range EVs will do better.

  • avatar
    EspritdeFacelVega

    I have known about people rolling old car loans into new ones but had no idea it was so widespread. I don’t consider myself any kind of financial wizard but have always thought keeping cars for 3-5 years after they are paid off is the only way to justify financing, much less leasing. Accidents aside, my cars have always been bought for cash (my beater-ville youth, worthy of Sajeev), short-term financed or, for the last two, financed for 4 or 5 years but kept for 10+ years.

    I leased one new car, a Jag S-Type, back in 2003 when my 5 year old C-Class was totalled and I had to buy a car quickly. After 2 years the residual was lower than the resale value by about $4k so I bought the car (financed over 34 years) and kept it until 2013. Still not the best way to do these things and I wouldn’t do it again, but I do feel I got what I paid for over time.

    My Greatest Generation accountant Dad always bought cars for cash, saving until he could buy a “new” 3-5 year old car outright. I have not been nearly as good, partly because as a car guy I can be seduced into folly, but seeing the money people waste on mundane cars is horrifying.

    • 0 avatar
      danio3834

      In the ultra competitive world of new car sales, dealers are pounding their customer lists harder than ever and regularly rolling customers with younger and younger vehicles into new ones. With the variety of extended loan terms now available, it’s fairly easy to show a customer “the same payment” on a new vehicle as the old one they’re already paying on. To a payment shopper, it’s a no brainer. All the negative equity rolled into a longer term. Rinse, repeat 3 or 4 more times until the banks won’t buy them anymore.

      Many banks are wising up to the dramatic over-financing of some vehicles and are now demanding negative equity be broken out on an application. Previously, finance mangers would simply state that the sales price of that base Altima was $45,000 and it would get bought if the rest of the customer’s profile could support it.

  • avatar
    SCE to AUX

    I appreciate all the high-minded comments here regarding this topic, but there was one time I voluntarily paid *more* for a used car than the dealer was asking.

    My lemon 05 Odyssey was 20 months into a 60-month loan. After the lemon suit settled with a small check in my hands, I desperately wanted to get rid of the car ASAP. In addition, I couldn’t really afford the $525/mo payments at the time.

    So in 2007 I worked on a trade for a 98 Grand Caravan. They were asking $4000, but he couldn’t give me the full $19.5k I still owed on the Odyssey. So I offered to make up the $500 difference by paying $4500 for the used car, and drove away extremely happy.

    So I pushed that used car for another 3 years without a car payment.

  • avatar
    Sigivald

    “When faced with negative equity, Volkswagen and GMC-Buick buyers and lessees proved most likely to roll over the debt into their new payments – 62 percent chose the option”

    So, Stockholm Syndrome?

  • avatar
    JuniperBug

    I’m nearly in negative equity on my 2004 Concorde; I got the car for free. This is the kind of math I like.

    Last week I met up with a couple of cute 23-25 year-old blondes – one Romanian, one French-Canadian – for a university group project. The one saw my (admittedly clean) ’99 Miata and figured I must be balling to have a car like that. She has a ’16 Civic worth nearly three times my two cars combined. Not sure sometimes if my life is a joke or awesome. Then I go to work with flight attendants flocking around me. This doesn’t provide any clarity. Got home from London earlier this evening. 26 year-old girlfriend is out with work colleagues this evening; she pays half my rent, and is all around a great person with a masters degree and fills out a sundress in the best kind of way.

    Why should I put less than 40% of my mediocre earnings into savings, again? It seems like it’s more profitable to just be moderately good-looking and arrogant instead of spending your money getting upside-down on a 72 month Audi loan.

  • avatar
    danio3834

    We call you negative equity people “normies”.

    I might get stuck on a risky gamble one day, the day Hellcat values suddenly crash.

  • avatar
    SortedCorty.com

    The problem I have with this all is that there are no affordable options for a large family car anymore. Chevy Impala, Ford Taurus, Chrysler 300 have too much content that a budget-minded family doesn’t need – but there is no choice. I’m not talking about power steering here – it’s all that other crap. There should be a choice to delete all that expensive crap.

    People just care about the monthly payment and the MSRPs keep going up and up. Someday it will have to end – but how I have no clue.

    Chevrolet used to be about value – the Impala is a luxury car in my opinion. Buick next level, Cadillac next level, then BMW/Benz. Even the “cheap” Kia is still out of reach.

    People think “payment” manufacturers think “transaction price”.

    • 0 avatar
      krhodes1

      You know that adjusted for inflation cars are cheaper than ever? Adjusted for content they might as well be free.

      The various “options” that aren’t options anymore are standard because it is cheaper to just build all the cars with them than to make some with and some without. To a point, I really don’t understand the hair shirt philosophy. Most people spend a decent chunk of their life in their car – why not make it comfortable and a nice place to be?

      If you are on a budget, buy a 5yo used car. It will still be a better car than a brand new one from 20 years ago.

    • 0 avatar
      pdieten

      Large cars aren’t a good value for anyone. You can get all the usable space a large car provides in a midsize like a Sonata for far less money (new Sonata SEs are out there for under $18K) and if you really need more room than that, you’re looking at a much more expensive minivan or crossover anyway.

      I keep all these kinds of problems under control by buying nice used cars. I bought a CPO ’14 Sonata for $12K a few months ago. Payments are very, very affordable without a reasonable loan term. Not that it matters, because unless something unfortunate happens to it, it will still be here after the loan is paid off.

    • 0 avatar
      Chan

      There are no “large cheap cars” anymore because the market has spoken. People don’t need the space–those can afford it will pay the premium.

      You can’t get a bare-bones Accord with hand-crank windows and AM/FM/tape players because Honda does not find it worthwhile to produce one.

  • avatar
    Big Al from Oz

    This article does highlight the true need for vehicle ownership.

    A vehicle’s first and foremost requirement is to get to and from work. So a motor vehicle is no different than a fridge which is uuseful in preserving food a little longer or a stove to cook on.

    Taking the kids to soccer or as all pickup truck fans would have you believe towing that mythical 30 000lb trailer is not the primary need for owning a vehicle, they are tertiary. Collecting food is secondary.

    What you owe is not relevant as to can you afford it.

    A vehicle can also be measired as a positive asset. So many are hung up on cost, when the true value of a motor vehicle is to earn you an income.

    Arguments become clouded when people try and justify what they drive. So if you buy an appliance that is costly, you will pay the price.

    • 0 avatar
      krhodes1

      I don’t agree – that depends on your life/lifestyle. I don’t need a vehicle to earn a living. I work from home, or I fly somewhere to work. I don’t need a vehicle at all to work from home. I can, and do, Uber to and from the airport, then rent a car when I land. I could Uber to do the shopping too, and it would be cheaper than owning cars. I don’t care, I like cars.

      I do agree that whether you borrow or pay cash is largely meaningless. If you can afford to pay cash you are probably in a position to get a stupid cheap interest rate for the car and use your cash for other more productive things. A car that is worth more than you owe certainly is an asset. It can even be an appreciating one with a little luck and careful selection.

  • avatar
    Compaq Deskpro

    Is this really much of a problem? Most cars are reliable or at least have a warranty available for the duration of the loan period. If you bought a loaded BMW 3-series with a 7 year loan and didn’t extend the warranty you deserve what you get.

    • 0 avatar
      JuniperBug

      The same could be said of a fridge, a TV, or any number of other items we need or want for our every day lives. That doesn’t mean it makes any sense to be perpetually having to make payments on these things when more affordable, equally reliable choices are available.

      You don’t need to spring for a top-spec fridge to keep your milk cold, and you don’t need a BMW to drive to work. I’d rather have a measure of freedom and security in my life than a built-in ice maker and nicer seats in which to sit during rush hour.

  • avatar
    mchan1

    How do car companies expect to sell vehicles today or in the future when wages are relatively stagnant?

    It makes sense to own the vehicle for at least 10 years which many people do. Many people have 5-6 year loans nowadays which appears to be the norm but at long as you keep the vehicle for longer than that and maintain it well, it shouldn’t be a problem.

    Otherwise, you lose money if you flip vehicles every few years esp. IF you buy and own them, though it’s good for those who buy pre-owned vehicles.
    The bad thing about pre-owned vehicles is that one has to obviously be Very weary about that pre-owned vehicle in how the previous owner treated it which you pray s/he did a good job in maintaining and NO ‘unnecessary repairs’!

    There’s nothing wrong with leasing if a) you’re a business, b) you have money to spend or c) you don’t care about finances but want a new vehicle every 2-3 years.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • ABC-2000: Just got 2021 CX-5 GT, it came with connected service complimentary for 3 years and cellular data for 3...
  • dwford: Here’s a connected car question: My car has Onstar. I don’t pay for the service, but since I did...
  • Old_WRX: I’ll second that “Amen brother!” I know it shifts faster than I ever could, but getting...
  • slavuta: 55 you may need this then https://www.bestbuy.com/site/i simple-bluetooth-hands-free...
  • Dynasty: I doubt very few people will be paying for subscriptions.

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber