topic Re: Avoid being Upside down on auto loans in Auto Loans

Avoid being Upside down on auto loans

sarge12 — Mon, 22 Aug 2016 01:30:30 GMT

Time and again I read how someone is upside down on auto financing and I thought I would offer advice. Unless you have substantial savings elsewhere you should always make sure that if your situation changes in 6 months you could at least sell the car for enough to pay off the loan. How, you may ask? I know a new car will depreciate the day you drive it off the lot, and it is often years before you owe less than it is worth. In the past people made a substantial down payment and set up financing for a few enough years to where the car was always worth more than they owed. That is the way to never be upside down on a car. If you find it is impossible to do this, you should seriously question whether you can really afford that car. Maybe you need to look for a used car that someone else has already took a massive depreciation loss on or wait and save some more toward down payment. Stuff happens, job loss, medical problems etc. and it is just not a good idea to buy a car that you will be upside down on, if at any time you are unable to meet the payments. If you have to, buy a clunker until you can save enough. This is just my opinion! End Rant!!!

Re: Avoid being Upside down on auto loans

SnackTrader — Mon, 22 Aug 2016 02:05:09 GMT

Thanks so much for your post, sarge! I am considering buying a car and this post is bringing me back to my senses about how I need to approach the purchase. It is always very easy to be distracted by the shiny paint and clean interior. But at the end of the day, it is a machine with a purpose and requires a strategic purchase.

Re: Avoid being Upside down on auto loans

sarge12 — Mon, 22 Aug 2016 02:50:08 GMT

@SnackTrader wrote:
Thanks so much for your post, sarge! I am considering buying a car and this post is bringing me back to my senses about how I need to approach the purchase. It is always very easy to be distracted by the shiny paint and clean interior. But at the end of the day, it is a machine with a purpose and requires a strategic purchase.

You are welcome, I see the upside down auto loans really causing a financial mess for too many people including family members. Banks used to require a down payment and shorter term loans to guarantee the asset would always stand good for the loan. Then the banks started 0% financing and stretching the payments out to 7 years which makes people be able to buy cars that used to be unaffordable. Truth is, it is convincing people to take too much risk because people need to be prepared for job losses and such. If the only recourse you have when stuff happens and you can no longer meet the payment is BK or reposession the damage can be devestating. You may wind up paying hundreds extra on a house mortgage for 30 years because of a lower credit score=higher interest. Unlike most houses, 90% of people are upside down on their cars the day they drive off the lot. The housing market collapsed because people were upside down, and now everyone is upside down on an asset that always depreciates.

Re: Avoid being Upside down on auto loans

sarge12 — Mon, 22 Aug 2016 03:20:06 GMT

I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.

Re: Avoid being Upside down on auto loans

sccredit — Tue, 23 Aug 2016 14:13:30 GMT

@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.

To each their own

Re: Avoid being Upside down on auto loans

Anonymous — Tue, 23 Aug 2016 14:15:21 GMT

@sccredit wrote:
@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.
To each their own

@I have to agree with @sccredit here. What works for you might not work for someone else.

Re: Avoid being Upside down on auto loans

Anonymous — Tue, 23 Aug 2016 16:27:17 GMT

@Anonymous wrote:
@sccredit wrote:
@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.
To each their own
@I have to agree with @sccredit here. What works for you might not work for someone else.

Exactly. You make a habit of buying $2200 cars don't expect for them to last and to incur hefty repair bills. I personally would rather drive a new car u dear maintenance and warranty agreements. In the end I think (well I actually know) that you don't spend anymore than the person buying junker cars). Luis you get the latest technology and safety features.

Re: Avoid being Upside down on auto loans

sccredit — Tue, 23 Aug 2016 17:13:01 GMT

@Anonymous wrote:
@Anonymous wrote:
@sccredit wrote:
@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.
To each their own
@I have to agree with @sccredit here. What works for you might not work for someone else.
Exactly. You make a habit of buying $2200 cars don't expect for them to last and to incur hefty repair bills. I personally would rather drive a new car u dear maintenance and warranty agreements. In the end I think (well I actually know) that you don't spend anymore than the person buying junker cars). Luis you get the latest technology and safety features.

This is my experience as well.

On top of that - I drive A LOT (as in 40k+ miles per year). Buying a junker doesn't work for me. If i decide I want to buy a $40k car as my transportation for 4 hours a day and my income can support it then that is my decision.

Re: Avoid being Upside down on auto loans

sarge12 — Tue, 23 Aug 2016 20:36:02 GMT

@sccredit wrote:
@Anonymous wrote:
@Anonymous wrote:
@sccredit wrote:
@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.
To each their own
@I have to agree with @sccredit here. What works for you might not work for someone else.
Exactly. You make a habit of buying $2200 cars don't expect for them to last and to incur hefty repair bills. I personally would rather drive a new car u dear maintenance and warranty agreements. In the end I think (well I actually know) that you don't spend anymore than the person buying junker cars). Luis you get the latest technology and safety features.
This is my experience as well.

On top of that - I drive A LOT (as in 40k+ miles per year). Buying a junker doesn't work for me. If i decide I want to buy a $40k car as my transportation for 4 hours a day and my income can support it then that is my decision.

The Impala is definately not a clunker...that engine and transmission combo is 3.8l, and people routinely get 200000 miles on them without overhaul. I only mention that as an option to save enough for a down payment to prevent being upside down and in big trouble. Forty years ago lenders would not even lend people more money on a car than it would be worth, had to have 20% down. Now they finance 100%, then when someone loses their job they owe 40000 dollars on a car they can only sell for 30000.

Re: Avoid being Upside down on auto loans

sarge12 — Tue, 23 Aug 2016 20:49:37 GMT

@Anonymous wrote:
@sccredit wrote:
@sarge12 wrote:
I want to add that I could buy any new car I want and pay cash for it. What did I buy last year, a 2003 Chevrolet Impala with 126000 miles on it. It has full power, leather seats,am/fm/cd, cruise, tilt steering, antilock brakes. I had a mechanic check it out...me! I payed 2200 cash for it, and it has transported me everywhere I needed to go comfortably. It was never wrecked. Is it sexy...no! It is reliable transportation that I would trust to drive anywhere. I've had it a year and if it blows up, which I doubt cause it runs perfect, I'll sell it for scrap and find me another 126000 mile dream car. No way, no how, even if I had 10 million dollars, would I ever spend 60000 dollars on an automobile! Not when I can get a reliable car for the cost of 2 monthly payments. I could hire a cab to take me everywhere for less.
To each their own
@I have to agree with @sccredit here. What works for you might not work for someone else.

This was what I added to earlier post...I just stated what I choose to do. I have survived for the last 30 years, and the most I've spent on my everyday car or truck is 8000 dollars. In all that time I have been broke down not 1 single time. The whole point is to not get oneself in a situation where they owe more on a car than it is worth when someone loses job or such and can not meet car payments. If you have savings elsewhere and know that you can pay for the vehicle even if you become unemployed then being upside down on a car loan is ok.

Re: Avoid being Upside down on auto loans

DrZoidberg — Wed, 24 Aug 2016 21:30:27 GMT

We get it. You like to drive severly used cars. Some people don't. Your original post was great, your second post was great. Everything after that is just personal interjections of what you do and how you would never buy new. Congrats.

Re: Avoid being Upside down on auto loans

jeffm4688 — Thu, 25 Aug 2016 06:31:07 GMT

Going to chime in here:

Being upside down on car loans happens all the time, it's a fact of buying a car regardless of income/affordability unless you're putting down a hefty down payment which a lot of people do and i'm sure just as many don't. Even putting down a large sum of money doesn't alleviate the pain of having negative equity. The real problem and my recommendation would be : don't sign a loan which is going to be upside down due to the financing and obviously buy a vehicle you can afford. The other thing is not being surprised when you go to trade in and all this other junk. I also reccomend against financing a vehicle unless it's in favorable financing terms (I.E. low interest)

Example: I have a truck which is paid for through a business & a camaro SS I bought last year. I'm upside down on the camaro for sure (and I was on the car I traded in) and that's after paying out for the negative equity and putting down $5K on a $40K car. Up until the camaro I had gone through a few cars and lost money for sure, I had an infinity G37 & a 3 series which I traded in via a short period of time. Each time I was upside down as I'd owned them less than a year and each time I ponied up and paid the negative equity off. The camaro was the first car I bought new (and also the car i've owned the longest except for my first) and boy did I lose some dollars on this thing. I owe $35K and trade in (black book) is $26K currently, but the value has bottomed out presumably for the next few years and eventually I'll hit a point that I'll be equal.

In the meantime, I've used my funds for other things, like starting a business which earns me more money along with my full time salaried employment. And the negative equity on my car is insured against the car being totalled via gap insurance. I'll happily pay the $60 a month in interest to borrow $35K, people have done much worse. I know that at the end of the day I live in NY, anything could happen, if the car gets totalled *knock on wood* that I won't lose out on the $9K of negative equity.

Re: Avoid being Upside down on auto loans

sccredit — Thu, 25 Aug 2016 12:59:09 GMT

@jeffm4688 wrote:
Going to chime in here:

Being upside down on car loans happens all the time, it's a fact of buying a car regardless of income/affordability unless you're putting down a hefty down payment which a lot of people do and i'm sure just as many don't. Even putting down a large sum of money doesn't alleviate the pain of having negative equity. The real problem and my recommendation would be : don't sign a loan which is going to be upside down due to the financing and obviously buy a vehicle you can afford. The other thing is not being surprised when you go to trade in and all this other junk. I also reccomend against financing a vehicle unless it's in favorable financing terms (I.E. low interest)

Example: I have a truck which is paid for through a business & a camaro SS I bought last year. I'm upside down on the camaro for sure (and I was on the car I traded in) and that's after paying out for the negative equity and putting down $5K on a $40K car. Up until the camaro I had gone through a few cars and lost money for sure, I had an infinity G37 & a 3 series which I traded in via a short period of time. Each time I was upside down as I'd owned them less than a year and each time I ponied up and paid the negative equity off. The camaro was the first car I bought new (and also the car i've owned the longest except for my first) and boy did I lose some dollars on this thing. I owe $35K and trade in (black book) is $26K currently, but the value has bottomed out presumably for the next few years and eventually I'll hit a point that I'll be equal.

In the meantime, I've used my funds for other things, like starting a business which earns me more money along with my full time salaried employment. And the negative equity on my car is insured against the car being totalled via gap insurance. I'll happily pay the $60 a month in interest to borrow $35K, people have done much worse. I know that at the end of the day I live in NY, anything could happen, if the car gets totalled *knock on wood* that I won't lose out on the $9K of negative equity.

I always buy GAP, it's cheap insurance on a new car. The purchase of a new car is very likely going to end up with being underwater. I'm more than happy to make a small bet (GAP) and if something does happen I get to walk away and not lose money out of my pocket.

i've been on the other side. In 2001 I purchased a Ford Ranger, put 20% down and drove the heck out of it. 2 1/2 years later the truck was totaled in a head on crash and I had to write a check to Ford Credit for $2k.

Re: Avoid being Upside down on auto loans

Anonymous — Fri, 26 Aug 2016 23:40:03 GMT

respectfully, i think you're taking too narrow of a view on this. I never quite understood the whole "save the headache in case you want to sell in the future" line of thinking. You're still eating the same depreciation when you sell; it just so happens you paid it up front. If i put a 90% downpayment on a car, and sell it 12 months later, I won't be upside down on the loan itself, but I'm still losing the same amount of $ via depreciation at the end of the day.

if you are being offered super low financing, even if you have a large downpayment, why tie up that $? Even if i can do a large down payment, if the APR is 0.0% or 0.9%, i would rather keep the cash and earn money on it. "time value of money" and "opportunity cost" are concepts a lot of people seem to disregard.

If you do need to sell the car early, you can use that cash you held back to resolve the upside down portion. Sure on paper the loan itself is upside down, but if you look at your overall picture (factor in the cash you kept back) at the end of the day you're no worse off than if you did a down payment.

And there's also the risk of your cash in event of the car being stolen/totaled. I have a long winded reply over here that explains it. http://ficoforums.myfico.com/t5/Auto-Loans/What-is-considered-a-GOOD-down-payment/m-p/4482405#M62771

Re: Avoid being Upside down on auto loans

sccredit — Mon, 29 Aug 2016 12:55:06 GMT

This is a very good take on it.

Re: Avoid being Upside down on auto loans

awp317 — Mon, 05 Sep 2016 08:49:10 GMT

To each is own. People know the risks when buying a car, if they get it repossessed and have that mark on their credit it, it's their cross to bear. I have purchased three brand new cars this year. One I paid 185k for, put 35k down, another I paid 118k for put 12k down, and the last one I paid 56k for, put nothing down, but paid it off a month later, I financed it just to get the incentives. But I have the ability to pay them off tomorrow if I had to and also own 2 other paid for cars. I have a friend that owns 55 cars in a warehouse, when I grow up I want to be him. So It's just what you're personally comfortable with and what your priorities are. Cars to me are an extension of your personality and just pretty cool. It's a hobby for me and I like to experience all makes and models this means I purchase and trade cars frequently. Sure I lose a little bit here and there on depreciation, but I haven't yet met a person who didn't spend some money on his hobby. I'm just happy and blessed to be in a stage in life that others may not be. But regardless, with financials there's no one size fits all. Its your responsibility to choose what works best for you.

My two babies right now.... now to fix my crack in the garage floor haha.

Re: Avoid being Upside down on auto loans

Anonymous — Mon, 05 Sep 2016 17:24:19 GMT

#humblebrag

Re: Avoid being Upside down on auto loans

Anonymous — Mon, 05 Sep 2016 19:37:08 GMT

@awp317 wrote:
To each is own. People know the risks when buying a car, if they get it repossessed and have that mark on their credit it, it's their cross to bear. I have purchased three brand new cars this year. One I paid 185k for, put 35k down, another I paid 118k for put 12k down, and the last one I paid 56k for, put nothing down, but paid it off a month later, I financed it just to get the incentives. But I have the ability to pay them off tomorrow if I had to and also own 2 other paid for cars. I have a friend that owns 55 cars in a warehouse, when I grow up I want to be him. So It's just what you're personally comfortable with and what your priorities are. Cars to me are an extension of your personality and just pretty cool. It's a hobby for me and I like to experience all makes and models this means I purchase and trade cars frequently. Sure I lose a little bit here and there on depreciation, but I haven't yet met a person who didn't spend some money on his hobby. I'm just happy and blessed to be in a stage in life that others may not be. But regardless, with financials there's no one size fits all. Its your responsibility to choose what works best for you.

My two babies right now.... now to fix my crack in the garage floor haha.

Mmmmmmmm.. Nice rides. And you were saying.. Let go back and read your post now....