Avoid being Upside down on auto loans

[DrZoidberg]

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.

[jeffm4688]

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.

[sccredit]

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@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.

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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.  

[Anonymous]

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

[sccredit]

This is a very good take on it.  

[awp317]

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. 

[Anonymous]

#humblebrag

[Anonymous]

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@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. 

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