A record 32% of all vehicles offered for trade-ins at U.S. dealerships are from folks upside down in their loan. U?

Boy, do these loans turn me upside down. Yeah, even inside out. I'd say it just goes round and round!

newer car guy wrote:

ElvisCash wrote:

Car payments are for losers and suckers. Haven't had a car payment in 15 years.

I paid $50k for a car this spring. A 60 month loan at .9%. I had $50k in cash to buy it. I'll probably pay for half the car just in interest on my $50k over the 5 years.

Who's the loser and sucker?

^This, while exaggerated, is true.

Anyone bragging about giving a car company 15-50K cash when OPM (other people's money) is available for use at 0-1% interest is a complete moron.

Auto loan terms have been creeping up beyond the traditonal 60 months to 72 and even 84.

This allows you to buy "more car" but leaves you more vulnerable for longer. It also increases the cost of vehicles as people buy on payment not price all too frequently.

It's leverage baby. And at some point too many people take on too much, hit a bump and then ka-boom.

Add auto, high yield, student, muni/state and increasingly mortgage and we start looking uncomfortably like 2007. This has been a long and weak recovery fueled in large part to decision-distorting policies of the federal reserve.

The powder keg is full, all we need is a spark. Pssh, but what could that even be? There's so much certainty with every thing these days...

Reel K5 wrote:

random guy on internet wrote:

I figured it was more like 50 or 60%. People live waaaaaaay beyond their means these days.

People means have been waaaaaay reduced over the past 35 years as the uber rich have taken more and more and more of the pie via the corruption of government.

I think if you look around you will find more people that have about 100,000 combined income trying to live like they have 150k income. If you have a home, 2 new cars, new tv's, computers, take trips, eat out all the time, etc. You will soon be in deep trouble.

Some of the people NEVER pay off a car loan and just continue to get more upside down. Their need to always have a car less than 4 years old is consistent with their overspending lifestyle in general.

Reel K5 wrote:

People means have been waaaaaay reduced over the past 35 years as the uber rich have taken more and more and more of the pie via the corruption of government.

Actually, not quite true:

Yes, the income disparity between the richest and poorest has widened, but household incomes have risen. When compared against incomes 35 years ago, the median household is living 15-20% better today. So in fact, "people means" (as you put it) have been "waaaaaay" improved over the past 35 years.

But, but, what about poverty? Well, that has improved as well. Here are some data sources.

So, what has changed over 35 years? Most likely, we have a larger percentage of people who do not make wise financial decisions, live beyond their means, and are worried about their materials status among peers.

What also has changed in 35 years? The technology, fuel efficiency, and safety available to auto owners for the price they pay.

For example, I drive small cars with high fuel efficiency ratings and manual transmissions as my work car. In 2000, I bought a new car for around $15K. It was a very reputable small car, but it only got 34 mpg. In 2014, I bought another small car for $17, but it gets 45 mpg. My newer car has technology and safety that far exceeds the old car, yet, I paid just a little more.

Nope.

Loan outstanding: $0

Car Worth: AT LEAST $50

Take THAT, suckers!

car I bought new 10years ago is long paid off, but it might technically be upside down when I fill up the tank and pay by credit card.

This has nothing to do with financial responsibility.... It probably has more to do with people getting tired of what they have less than 2 years after buying a car. If you walk into a dealership, put a small amount down, and decide to do a longer term loan you will end up being upside down for 1.5-2 years. This does not say anything about your ability to pay the loan, just that you bought a depreciable asset which plummeted in value as soon as you drove off the lot.

isn't that expected? wrote:

I've never really heard the "upside down" terminology used with respect to car loans. Don't you kind of expect to be upside down on a car loan? The value of a new car plummets as soon as you drive it off the lot, so you are necessarily going to be upside down from day one if your loan was for a substantial portion of the selling price.

Not exactly expected. The bigger risk/irresponsibility as posted in the title of this thread is trading in a car you are upside down on. In this case if you can’t pay off the difference the bank will roll the amount you still owe on a car now owned by the dealership into the next loan. This can have a snowballing effect and at the very least means you’re paying even higher payments than the new car is worth and paying higher interest than you reasonably should.

However, while a lot of people are upside down early in a car loan due to depreciation, there is still some risk in that. If your car gets totaled your insurance company pays out what the car is worth, not what you owe. So, you could end up owing money on a car that is wrecked. Not ideal if you weren’t careful from the start. There are several ways to combat this:

A.) Pay a large enough down payment so that you are never upside down on the loan – even from the start. You can still borrow some money to take advantage of low interest rates but avoid the “surprise” factor of a car crash ending up even more unfortunate for you financially.

B.) Have the difference between the loan amount and vehicle value saved in an emergency fund or somewhere else accessible in case the above happens. Like a reverse down payment. The advantage is you can have your money make you money, the disadvantage is it can sting more after a crash to spend that money than on the day you drive the car home.

C.) Only buy cars with shorter loan terms. That way you get right side up sooner or the upside down amount is smaller. Banks will offer 7 & 8 year loans on a car now. The amount of time your upside down increases, the amount of time between when you’re bored of a car or your needs have changed but it’s a financially poor decision to get rid of it can increase. Better to live within your means with less car than stretch the loan for what you want but can’t afford in the near term.

D.) Pay for gap insurance. This will add additional cost to your monthly payment for the same car, but covers the “gap” between what your car is worth and what you owe the bank in the event of an accident. Increasing your monthly payment without getting more car is functionally the same as a higher interest rate in my opinion, so it brings into question if you’re still “taking advantage of low interest rates”. Certainly not taking advantage of as low interest rates.

I chose A.) and C.) for my car. Bought last year, KBB says it’s worth $16,500 but I only owe $11,500 and it’ll be paid off in 18 months. So it’s highly unlikely I will ever be upsidedown on this loan, and wasn’t from the start. I also have B.) available in a general purpose emergency fund, but it’s not necessary for this purchase.

The biggest thing is just don't roll over old car payments into a new car loan, like apparently 32% of people are doing now. That gets dangerous, especially with really long loans.

In a low interest loan the best option you have there is B.).

You are keeping the cash in your bank and only need it if the car is totaled in the first year or two while keeping a higher regular cash flow for you.

Self insuring to avoid the waste of gap insurance.

X-Runner wrote:

In a low interest loan the best option you have there is B.).

You are keeping the cash in your bank and only need it if the car is totaled in the first year or two while keeping a higher regular cash flow for you.

Self insuring to avoid the waste of gap insurance.

That is correct. Some people are willing to pay for peace of mind though, and in my case I had the funds available. The money I could have made off that $5000 over a couple years wasn't really worth it for me to tag and keep track of it, but I can be a simpleton sometimes. I just wanted to lay out all the options because a couple people on this board seemed to think there was no risk or it was totally cool to be upside down. With proper planning, it's fine. Without planning, you could be in for a surprise.

One guy had the very mistaken assumption that if he can afford $500/mo for a car he should just sign up for that and trade in cars as he pleases. Without thinking about it that will end badly. If this is how you want to manage your car buying, you are a candidate for leasing, not buying and rolling over unpaid loans.

newer car guy wrote:

ElvisCash wrote:

Car payments are for losers and suckers. Haven't had a car payment in 15 years.

I paid $50k for a car this spring. A 60 month loan at .9%. I had $50k in cash to buy it. I'll probably pay for half the car just in interest on my $50k over the 5 years.

Who's the loser and sucker?

I think I already stated that? Can you not read?

You're playing silly math games and for me peace of mind is worth more than a few dollars of interest. I know that if a job loss, medical expense, medical condition, etc. come my way. I have a paid for car (and home btw.)

But you know what they say, "a fool and his money...."

ElvisCash wrote:

newer car guy wrote:

I paid $50k for a car this spring. A 60 month loan at .9%. I had $50k in cash to buy it. I'll probably pay for half the car just in interest on my $50k over the 5 years.

Who's the loser and sucker?

I think I already stated that? Can you not read?

You're playing silly math games and for me peace of mind is worth more than a few dollars of interest. I know that if a job loss, medical expense, medical condition, etc. come my way. I have a paid for car (and home btw.)

But you know what they say, "a fool and his money...."

You already stated that? Well, doesn't that make you special!

And if I can't read, what business is it of yours, sucker? You can take that peace of mind of yours and shove it.

newer car guy wrote:

I paid $50k for a car this spring. A 60 month loan at .9%. I had $50k in cash to buy it. I'll probably pay for half the car just in interest on my $50k over the 5 years.

Who's the loser and sucker?

Wouldn't you need to be earning interest at roughly 8% per year, compounded daily, to earn $25K in interest on a $50K balance in 5 years? What investment is this? Must be risky.

newer car guy wrote:

ElvisCash wrote:

I think I already stated that? Can you not read?

You're playing silly math games and for me peace of mind is worth more than a few dollars of interest. I know that if a job loss, medical expense, medical condition, etc. come my way. I have a paid for car (and home btw.)

But you know what they say, "a fool and his money...."

You already stated that? Well, doesn't that make you special!

And if I can't read, what business is it of yours, sucker? You can take that peace of mind of yours and shove it.

More hate from the right.

late 20s, don't own a car

[quote]krispy kremlin_._._ wrote:

Auto loan terms have been creeping up beyond the traditonal 60 months to 72 and even 84.

quote]

You must be on the younger side. When I was younger, tradition was 48 months.

newer car guy wrote:

I'll probably pay for half the car just in interest on my $50k over the 5 years.

Who's the loser and sucker?

Unless you are gambling, you had better check your math.

Decision's have consequences wrote:

newer car guy wrote:

You already stated that? Well, doesn't that make you special!

And if I can't read, what business is it of yours, sucker? You can take that peace of mind of yours and shove it.

More hate from the right.

I AM right, of course. But "from the right"? Hardly!

So if you are saying more hate from the left - then you would be right.

EXCEPT that I don't hate anybody. I LOVE everybody (except you, of course).