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Old 11-09-2019, 07:46 AM
 
Location: Colorado Springs
5,093 posts, read 5,223,776 times
Reputation: 18192

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Today, the WSJ has a story (free access) about negative equity car loans:

https://www.wsj.com/articles/a-45-00...d=hp_lead_pos1

"Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago, according to car-shopping site Edmunds. Those borrowers owed about $5,000 on average after they traded in their cars, before taking on new loans. Five years ago the average was about $4,000.

Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt. Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can last seven years or longer.

Borrowers are responsible for paying their remaining debt even after they get rid of the vehicle tied to it. When subsequently buying another car, they can roll this old debt into a new loan. The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.

Consumer lawyers say borrowers are typically trading in their vehicles because they have to—often because their needs change, or because the vehicles have problems."

I'll admit that I didn't know this was possible.
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Old 11-09-2019, 08:14 AM
 
2,862 posts, read 1,056,941 times
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Quote:
Originally Posted by Vision67 View Post
The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.
<snip>

I'll admit that I didn't know this was possible.
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.
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Old 11-09-2019, 08:35 AM
 
26,941 posts, read 33,869,614 times
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Quote:
Originally Posted by athena53 View Post
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.
I had to replace my car last month, and I took an entire day off from work to buy the (used) car because the dealer was such a idiot about it. They could not understand why, with my credit rating, that I put so many restrictions on my purchase - 4 yr loan and my own (relatively low) max for a loan amount. I had a set amount for a down payment, and I knew exactly how high I was willing to go on a payment. I hate hate hate car debt - so this is always important to me - I want it paid off as soon as possible. But they just couldn't understand 1) why I wanted such a low payment, and 2) why didn't I just go for a longer loan. They were like...but why not stretch it out and make it lower??? Oy vey.

Obviously they are trying to get as much as they can, but I found it interesting how really stumped they were about why I insisted on not going beyond 48 months. They just seemed bewildered.
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Old 11-09-2019, 08:36 AM
 
2,537 posts, read 2,161,473 times
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Watch out for electrical damage if your car and loan are underwater.
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Old 11-09-2019, 08:46 AM
 
2,862 posts, read 1,056,941 times
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Quote:
Originally Posted by ChessieMom View Post

Obviously they are trying to get as much as they can, but I found it interesting how really stumped they were about why I insisted on not going beyond 48 months. They just seemed bewildered.
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.
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Old 11-09-2019, 09:59 AM
 
339 posts, read 141,141 times
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I don't mind taking out a five year loan at zero interest. It doesn't take me five years to pay it back, but I'm happy to take 4 1/2 years. I always round my payment up to the nearest $50 because I like dealing with numbers that way.



Of course, I don't buy the car if I don't already have the money to do so.



It would scare me to take out a seven year loan and be upside down to boot. I just can't imaging that even though I know people are doing it.
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Old 11-09-2019, 10:14 AM
 
2,862 posts, read 1,056,941 times
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Quote:
Originally Posted by numsgal View Post
I don't mind taking out a five year loan at zero interest. It doesn't take me five years to pay it back, but I'm happy to take 4 1/2 years. I always round my payment up to the nearest $50 because I like dealing with numbers that way.
"Zero interest" has a cost somewhere, typically in the form of a smaller discount off the sticker price. They're not just doing it because they like you. I've resolved to keep trade-in, purchase and financing separate from now on. There's a local car broker I used when I sold the older of the two cars DH and I had after he died; I would use him again to get rid of current vehicle. I'll make my best deal on whatever car I buy and finance it with a separate entity. I'm a numbers person and actually understand compound interest but when the dealer is setting the purchase price of the car AND setting the trade-in value of the current car AND providing financing, everything gets muddled. They can inflate the trade-in value but give you less off the sticker price, offer great financing but offset it by charging more for the new car... too confusing. That's deliberate.
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Old 11-09-2019, 01:58 PM
 
11,544 posts, read 8,799,423 times
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What's a car loan?
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Old 11-09-2019, 06:10 PM
 
149 posts, read 13,901 times
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reminds me of leasing a car,the saying once you lease,you could lease forever.
Have you guys try to look for a good used car?
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Old 11-09-2019, 06:37 PM
 
Location: Florida
6,378 posts, read 2,980,843 times
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I have a cousin of mine asking me for advice who is upside down on his vehicle.
He owes $19k and Blue Book value is half that.
Car is 4 years old with 100k miles on it and he has terrible credit to boot hence a high interest rate and a large monthly payment.
Any suggestions?
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