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Upside Down Auto Loans driving sales of new cars?

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pipeguy
Senior Contributor

Upside Down Auto Loans driving sales of new cars?

A top U.S. executive at Honda Motor Co. said competitors are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers.

 

http://www.msn.com/en-us/money/credit/honda-warns-against-stupid-auto-loans-driving-us-sales/ar-AA8n...

Message 1 of 14
13 REPLIES 13
Anonymous
Not applicable

Re: Upside Down Auto Loans driving sales of new cars?


@pipeguy wrote:

A top U.S. executive at Honda Motor Co. said competitors are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers.

 

http://www.msn.com/en-us/money/credit/honda-warns-against-stupid-auto-loans-driving-us-sales/ar-AA8n...



Unfortunately, it takes two to tango!(buyer & seller) Seven year loan on a new car is a problem as you will have nothing when you are done, let alone any bargaining power if you want to get out early to get another vehicle as who wants the same vehicle for that length of time. Smiley Sad

 

And just driving a new car off the lot is as bad(loss wise) as having a 1k bill on a credit card at 15% interest and only making minimum payments. You never get that value back and it costs you in real dollars. A 25k vehicle will loose about 7k value in the first year alone and percentage wise a little less every year after. After 7 years it's maybe worth 3k if it's immaculate. Learned that when I was in my 20's and haven't bought a 'new' vehicle since, just slightly used so that I can have some equity when I'm done with it and have some wiggle room to get another without a big cash outlay.

Message 2 of 14
Imhotrodcrazy
Valued Contributor

Re: Upside Down Auto Loans driving sales of new cars?

This is why I still drive my 30 yr old truck that I keep in perfect condition.   I will never understand paying 40-50k for a new car with whopping monthly payments.

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Message 3 of 14
FicoNoobiski
Valued Member

Re: Upside Down Auto Loans driving sales of new cars?

$25K car worth only $3K after 7 years in immaculate condition? I see 10 year old used cars here for sale at $5+k. I guess depending on what vehicle you purchase and in what condition... lol which vehicle loses $22k after 7 years?
Message 4 of 14
Anonymous
Not applicable

Re: Upside Down Auto Loans driving sales of new cars?


@FicoNoobiski wrote:
$25K car worth only $3K after 7 years in immaculate condition? I see 10 year old used cars here for sale at $5+k. I guess depending on what vehicle you purchase and in what condition... lol which vehicle loses $22k after 7 years?

Again, it takes two to tango(buyer and seller) 

 

Are those vehicles you mention worth $5k+ ? or is that just a starting figure PFA(Plucked from Air) by the seller? 

 

Google 'car depreciation calculator' and use the 84 month loan from the OP's article and see what you come up with. I just now did it with a couple of different calculators and the 3k figure I quoted isn't too far off. Try this one, http://www.free-online-calculator-use.com/car-depreciation-calculator.html

 

$25k vehicle financed for 84 months. Does that mean someone won't pay more than the resale value? No. But in actual worth, a 7 year loan is bad for the buyer. Smiley Sad

 

Message 5 of 14
pipeguy
Senior Contributor

Re: Upside Down Auto Loans driving sales of new cars?


@FicoNoobiski wrote:
$25K car worth only $3K after 7 years in immaculate condition? I see 10 year old used cars here for sale at $5+k. I guess depending on what vehicle you purchase and in what condition... lol which vehicle loses $22k after 7 years?

Depends on the car, price, model etc. I just purchased a "used" 2013 fully loaded Chevy Impala LTZ with an orig MSRP of $34k for $16k out the door including tax,tags, etc. Why? Because Chevy redesigned the Impala in 2014 and this is the "old version".  Great car, leather, sunroof, 300HP v-6, 32k miles and someone else took the "new car" hit. We'll drive it for at least 100k miles. 

Message 6 of 14
Anonymous
Not applicable

Re: Upside Down Auto Loans driving sales of new cars?

Having sold cars for 4 years, I will say that everyone has a point.  However, even with the standard five year loan, buyers would come into the dealership after 2-3 years looking to trade the car, and being totally upside down.  I say that several key factors come into play:

 

1.  People do not put enough money down when purchasing.  

2.  Cost of vehicles are rising at an insane rate.  

 

I am actually looking to buy a car in the coming months and it is crazy what are the prices of cars today.  

Message 7 of 14
Revelate
Moderator Emeritus

Re: Upside Down Auto Loans driving sales of new cars?


@Anonymous wrote:

Having sold cars for 4 years, I will say that everyone has a point.  However, even with the standard five year loan, buyers would come into the dealership after 2-3 years looking to trade the car, and being totally upside down.  I say that several key factors come into play:

 

1.  People do not put enough money down when purchasing.  

2.  Cost of vehicles are rising at an insane rate.  

 

I am actually looking to buy a car in the coming months and it is crazy what are the prices of cars today.  


What have you seen lately as far as that?

 

What I recall was only my own experiences, in that I paid 30K cash back in 2000 for a car, and a similar one was on the order of 40K in 2011.  Haven't really been keeping track on it, but you're right, people make poor decisions regarding cars.




        
Message 8 of 14
Anonymous
Not applicable

Re: Upside Down Auto Loans driving sales of new cars?


@pipeguy wrote:

@FicoNoobiski wrote:
$25K car worth only $3K after 7 years in immaculate condition? I see 10 year old used cars here for sale at $5+k. I guess depending on what vehicle you purchase and in what condition... lol which vehicle loses $22k after 7 years?

Depends on the car, price, model etc. I just purchased a "used" 2013 fully loaded Chevy Impala LTZ with an orig MSRP of $34k for $16k out the door including tax,tags, etc. Why? Because Chevy redesigned the Impala in 2014 and this is the "old version".  Great car, leather, sunroof, 300HP v-6, 32k miles and someone else took the "new car" hit. We'll drive it for at least 100k miles. 


That sounds like a sweet ride and I had to google it. Very nice and you definately are getting what you are paying for.

 

Congrats

Message 9 of 14
Anonymous
Not applicable

Re: Upside Down Auto Loans driving sales of new cars?


@Anonymous wrote:

Having sold cars for 4 years, I will say that everyone has a point.  However, even with the standard five year loan, buyers would come into the dealership after 2-3 years looking to trade the car, and being totally upside down.  I say that several key factors come into play:

 

1.  People do not put enough money down when purchasing.  

2.  Cost of vehicles are rising at an insane rate.  

 

I am actually looking to buy a car in the coming months and it is crazy what are the prices of cars today.  


Agree on both counts. 0 downs are a big trap with autos and the only way to beat the price is to let someone else pay that initial depreciation.

 

I guess you are not in the car biz now? I sold for a year and a half. Learned a lot but realized it wasn't for me

Message 10 of 14
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