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There's a lot of defaults in the car loan business because of subprime loans. Even if the economy is great, a lot of folks over extend themselves and can't pay so they will lose their car. You see a lot of used car places advertise "everyone is approved" as long as you have a job. This means a very high interest rate installment loan.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I hope these people are buying gap insurance to cover the loan if the car gets totaled. On my last new purchase in 2017 my trade was paid off and I got $8,400 for it, almost 1/4 of the negotiated price, so it’s still worth more than I owe by $3,000, and the cash payoff is even less. Years ago when times were rough I traded down, and actually got a check from the eager for my trade that was worth more than what I was buying from them. Going under water is just not something I would ever consider doing.
I'm actually what would be considered an expert on this topic.
The issue is two-fold.
1) Lenders are loose, especially for new cars where they are trying to move product. The general cap is 150% of car value. ie) 20k car, 30k loan max.
2) Many people are financially irresponsible.
I know people (not judging, friends of mine) that have traded in cars for new for no other reason than that they'd abused those vehicles and couldn't afford repairs and sets of new tires.
With that said, if you are taking a loan out for more than the purchase price then strongly consider buying the GAP insurance.
If anyone wants to get more detailed in the guts of this, send me a PM or rep me and I'll come back and can show you how the sausage is made so to speak.
Yeah, I knew this was possible- never tried it myself and don't intend to. It's what happens when people buy based on monthly payment. You stretch out the loan long enough and the payment will be "affordable".
DS, who settles auto insurance claims, once had a claimant whose $75K SUV went up in flames after the place where it was being detailed caught fire. The guy was very upset that they could offer him less than what he owed on the car. The claimant had bragged several times that, "I am a Certified Financial Planner".
DS told me he'd never let a guy who was upside down on the loan for a $75K car manage HIS money.
Anytime a vehicle that has an underwater loan is totaled-out by an insurance company, the owner will suffer a big loss. Anytime a person has an underwater loan, they are in jeopardy. If someone smacks into a vehicle with an underwater loan in a parking lot and even if its owner is not there, the same loss would be suffered. If a tree falls on such a vehicle in a windstorm or if it's stolen, the same applies. The insurance payout will only be what it's actually worth, minus the deductible, but the full debt must be paid.
My current car is 7 years old and I dread the day I have to replace it, especially since I'm widowed and DH used to deal with all the BS of buying a car. Our last two cars were bought off-rental from Enterprise and we were very happy with them. I financed the last one through an HELOC (long since paid off) and will probably do that or withdraw from my investments when I need to. I'll probably return to Enterprise but I am very certain of two things: I will NOT buy new and I will NOT finance through the dealership.
Mine was 11 years old, and I had hoped to drive it another year. But the repair it needed was more than the car was worth, so I wasn’t doing that.
I went online to 2 credit unions and did a loan application, even got one of them ( that had the best rate) to agree to release proceeds after 5 ( the deal took all damn day and I could see I wasn’t going to finalize before 5) as they had someone in the office until 7.
But I didn’t need the credit union after all, turned out that they were one of the dealers finance partners and the dealer was able to match the rate I had gotten on my own. So that worked out nicely.
Buying the car was a PITA though. It was used, 17k mikes. Plenty of warranty left which was a requirement for me.
There's a lot of defaults in the car loan business because of subprime loans. Even if the economy is great, a lot of folks over extend themselves and can't pay so they will lose their car. You see a lot of used car places advertise "everyone is approved" as long as you have a job. This means a very high interest rate installment loan.
This is obviously very true and sad especially since the sales people use this to their advantage to profit.
It’s not about the price of the car, they start out by discussing what you want your car payment to be each month! This way they monopolize on their profit and commission.
I don’t play that game anymore, fortunately. I cut them short and ask for their best price since I’ll be paying by check. They really don’t like that at all since I have the ability to get the best possible deal without all of the smoke & mirrors!
Wife just bought a newer (although not "new") car. The finance manager at the dealership proved to be a real blowhard, as he wasted about 20 minutes of our time trying to upsell the loan -- here, you can buy this 'protection' and that 'protection' and add it into your monthly payment for just ____ dollars. Then when his time was up and we declined everything that was offered, he told us that he wasn't trying to sell us anything. Can't make it up. By the way, her loan was for 4 years, I refused to go out any further.
I don’t play that game anymore, fortunately. I cut them short and ask for their best price since I’ll be paying by check. They really don’t like that at all since I have the ability to get the best possible deal without all of the smoke & mirrors!
You are not necessarily getting "the best possible deal". We found that the dealers make money on arranging the loans and we could get a better deal with a loan versus paying cash. We worked our best deal without any mention of financing. When we went to pay cash, the dealer was able to throw in all weather mats and a roof rack if we took a loan. If you want you can typically pay off the loan immediately without penalty. We continue to pay since the loan rate is about 3% and we make much more on our investments.
Pride and the ability to pay cash and a dislike of debt can be costly.
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