Avoid being Upside down on auto loans

[sarge12]

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!!!

[SnackTrader]

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. 

[sarge12]

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@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. 

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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.

[sarge12]

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.

[sccredit]

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@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.

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To each their own

[Anonymous]

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@sccredit wrote:

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@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.

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To each their own

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

[Anonymous]

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@Anonymous wrote:

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@sccredit wrote:

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@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.

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To each their own

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

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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.

[sccredit]

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@Anonymous wrote:

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@Anonymous wrote:

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@sccredit wrote:

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@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.

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To each their own

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

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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.

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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.  

[sarge12]

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@sccredit wrote:

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@Anonymous wrote:

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@Anonymous wrote:

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@sccredit wrote:

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@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.

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To each their own

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

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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.

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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.  

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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.

[sarge12]

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@Anonymous wrote:

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@sccredit wrote:

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@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.

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To each their own

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

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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.