Average Amount Owed on Upside-Down Car Loans Hit an All-Time High in Q3 2024

[Realist]

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@markbeiser wrote:

@RealistTo be fair, many employer 401Ks are lackluster to put anything into beyond what the employer matches, or after maxing out a Roth IRA.
Any idiot can become a millionaire over the course of their working life just by figuring out how to budget to max their IRA contributions and putting it into index funds, without ever having to research and make smart stock picks, and if they get lucky on some individual stock picks along the way like I did, even an idiot may be able to retire a little early.
For many, it doesn't even take much of a sacrifice, just don't sign up for huge monthly car/insurance payments!

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@markbeiser  Agreed.   I don't tend to invest more than the match.  I have seperate opinions on the roth IRA aspect personally.

I take a little extra precaution to this formula.  I've trained myself in technical analysis and in how to read charts when it comes to stocks, so its an extra advantage over and above.  It's a window and eye into the market that I believe is a must have.  It wasn't hard to do, but I didn't like learning it.  Eventually I grew to love it, and would have it no other way.  I've personally designated TA and chart reading, to be the 2nd greatest skill to ever learn in life, behind typing.  This is speaking from the academics aside only, and not the skilled trades side.

I grew up with enough friends/acquaintances that lost everything in the 2001 and 2008 declines, at a time the needed to retire.  At some point in life, there's simply no time left to recover.  So by training myself to identify markers, it helps to maneuver potential pitfalls. 

You gain an eye or window into the market that you don't otherwise have.  Everything in life revolves around money, so where's there the greatest concentration of money, other than the stock market?  Based on the charts, I'm not a fan with what I see to be coming in the future.

[markbeiser]

@RealistMy only problem with my Roth IRA is I can't access it without tax and penalty for another 3 years, or I'd seriously consider retiring now!
I didn't get into learning anything at all about TA until very recently, and started dabbling in wheel strategy options trading 2 months ago.
I've learned enough about TA so far to realize there is still a massive learning curve ahead of me, but not enough for me to be totally convinced that it is much more than the digital equivalent of reading tea leaves or casting bones yet.😜
I've done pretty well in the 2 months I've been dabbling in selling puts and covered calls on stocks I have a long familiarity with, and even managed to not get beat up in the 2 mini crashes we have had recently.
I got lucky when I moved part of my IRA from index funds to 60 shares of TSLA in early 2019. No fancy analysis, I just saw that their quarterlies were climbing out of the hole, and thought I might make a few bucks. No idea those 60 shares would split into 900!
I DERPed my way into being able to retire a little early in 2028 or 2030, now I need to learn how to make a yearly income off it without diminishing it.
If only I'd held onto the $1500 worth of NVDA I picked up in 2000 instead of selling it a few years later for ~$7k to help with the down payment on a house, I'd have over $4 million...just from that...😥

[IsambardPrince]

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@pizzadude wrote:

A growing number of Americans with auto loans owe more than their cars are currently worth, Q3 2024 data from Edmunds reveals:

• The share of Americans who are upside down on their auto loans is on the rise. 24.2% of trade-ins toward new vehicle purchases had negative equity, up from 23.9% in Q2 2024 and 18.5% in Q3 2023.
• Consumers who are underwater on their car loans owe more money than ever before. The average amount owed on upside-down loans climbed to an all-time high of $6,458, compared to $6,255 in Q2 2024 and $5,808 in Q3 2023.
• More than 1 in 5 consumers with negative equity owe more than $10,000 on their auto loans. 22% of vehicle owners with negative equity owed $10,000+ on their car loans, and 7.5% of vehicle owners with negative equity owed $15,000+.

https://www.edmunds.com/industry/press/negative-equity-on-the-rise-the-average-amount-owed-on-upside...

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Shhh, don't tell that guy here that said he was "making money with his car loan".

I must be making a lot of money. I just drive a car I bought years ago and change the oil and filters sometimes.

[IsambardPrince]

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@Realist wrote:

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@markbeiser wrote:

@RealistTo be fair, many employer 401Ks are lackluster to put anything into beyond what the employer matches, or after maxing out a Roth IRA.
Any idiot can become a millionaire over the course of their working life just by figuring out how to budget to max their IRA contributions and putting it into index funds, without ever having to research and make smart stock picks, and if they get lucky on some individual stock picks along the way like I did, even an idiot may be able to retire a little early.
For many, it doesn't even take much of a sacrifice, just don't sign up for huge monthly car/insurance payments!

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@markbeiser  Agreed.   I don't tend to invest more than the match.  I have seperate opinions on the roth IRA aspect personally.

I take a little extra precaution to this formula.  I've trained myself in technical analysis and in how to read charts when it comes to stocks, so its an extra advantage over and above.  It's a window and eye into the market that I believe is a must have.  It wasn't hard to do, but I didn't like learning it.  Eventually I grew to love it, and would have it no other way.  I've personally designated TA and chart reading, to be the 2nd greatest skill to ever learn in life, behind typing.  This is speaking from the academics aside only, and not the skilled trades side.

I grew up with enough friends/acquaintances that lost everything in the 2001 and 2008 declines, at a time the needed to retire.  At some point in life, there's simply no time left to recover.  So by training myself to identify markers, it helps to maneuver potential pitfalls. 

You gain an eye or window into the market that you don't otherwise have.  Everything in life revolves around money, so where's there the greatest concentration of money, other than the stock market?  Based on the charts, I'm not a fan with what I see to be coming in the future.

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I believe that cars are this recession's version of subprime mortgage loans.

It's only a matter of time until they can't hide it from anyone and the feds are in there taking over the banks that relied exclusively on them.

Ally's selloff of the credit card portfolio to raise cash and the shuttering of the mortgage division tell me that they want a pile of cash and are probably anticipating having to spend it on auto loan write-offs later. And they are probably in there praying it doesn't get so bad it doesn't take the bank with it.

The value of a new car sinks like a brick, so by the time you repossess it, sell it at a wholesale auction, and pay the repo compant, pretty much all value is lost.

I've seen people like my mother get a car repossessed and she goes "THEY SENT ME THAT LETTER TO INSULT ME!" and I was like, "What letter?" She goes "THEY JUST HAD TO RUB IT IN MY FACE THAT THEY SOLD A CAR WORTH $11,000 for $2,000!".

I said, "They only got $2,000 after the wholesale auction and repo fees because another dealer wanted to buy cheap and find another you and that's the margin they want. They had to send you that letter because the law says so."

The value of the car disappears into the repo. If you owed them $13,000 where the loan was at now you owe them $11,000 and they sue you and you have no car. Plus their lawyer, so really the repo only deducted maybe $400-500.

That's one way car loans can end. The other way car loans can end is that after paying a boatload of interest to a bank that you never see again, you get a mostly depreciated asset that probably needs some repairs by now.

Many people just go ahead and open up a bankruptcy at this point and shove that and the credit cards they could barely make payments on and all their medical debt and traffic camera tickets and stuff in it and say "Goodbye my lovely!"

A car loan isn't rich people debt, because rich people can just buy the car in the first place. It's middle class and poverty level debt. So you're dealing with people who are leveraged and unsophisticated, mainly.

[Realist]

There's been a lot of consolidation of debts among lenders recently, not just in the auto sector.  

For whatever reason, this point in my life, nice vehicles are very nice to haves, but they aren't the highlight items of must have as top line items in my life.  I spend way more on other things that interest me.  With vehicles, SUV's are our thing, so we purchase a few years old, low mileage, run it into the ground vehicles.  Instead what we shop for are older but still certified vehicles.  You can purchase these for a very reasonable price, and still get some nice life out of them.  I would typically pay cash.

My in-laws are a bit different.  New leases for some, or new finances for a 2022+ for others, with a hefty payment to boot.  So, let's calculate the 10 year plan.

Lease 1:  $800 mo.

Lease 2.  $500 mo.

Total $1300 mo, not including anything they put down.  Not including insurance.

$1300/mo is $15,600 annually, or if all things relatively equal each lease turn in, $156,000 of equivalent spent over ten (10) years. - provided you didn't have to offer an amount down, didn't drive over the 10k limit, and didn't bend up the vehicle beyond normal wear and tear.

I pay $20,000 for a gold certified vehicle with lower miles.  It's an easy run for a solid ten (10) years.

P2 we pay $28,000 for a gold certified vehicle with obscenely low miles.  It's an easy run for ten to upwards of fifteen (15) or so years.

Total:  $48,000 cost aside from insurance and repairs.

It's a no brainer which avenue saves more than the other.  So ultimately, what matters most in ones decision making?  Keeping up the the Jones, or not?  I have no horses in others race, and everyone runs their own race in life.  Whatever makes them happy.  However, I use to follow some relatively wealth people that also purchased reasonable valued cars or trucks, and repaired them along the way.  They left the new vehicle market to those that liked the newest shiney thing, and didn't care whether they could go upside down.  This was among a pool of people that either didn't care since money was like air, or people that didn't care, because they don't know.  And then finally those that may know, but will pay any price to project an image.

Just like those that line up for the new iphone every release.  I'm content with the five+ year phone I have in my pocket that still works well.

Leasing is the most expensive way to own a vehicle.  Financing without a plan, the second most.  Is it any wonder why people can go upside down in anything financial?

[markbeiser]

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@Realist wrote:

Just like those that line up for the new iphone every release.  I'm content with the five+ year phone I have in my pocket that still works well.

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Same here, I'm happy with my 2018 Galaxy Note 9, but it will have to be replaced soon because there have been no updates from Samsung to it for over a year, and it won't be long before the apps I use for taking credit card payments, etc. will stop working on it.

[IsambardPrince]

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@markbeiser wrote:

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@Realist wrote:

Just like those that line up for the new iphone every release.  I'm content with the five+ year phone I have in my pocket that still works well.

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Same here, I'm happy with my 2018 Galaxy Note 9, but it will have to be replaced soon because there have been no updates from Samsung to it for over a year, and it won't be long before the apps I use for taking credit card payments, etc. will stop working on it.

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Item 1: The tariffs announced today will have a major effect on the price of new cars, which will probably in turn drag up the value of older cars.

The way they're structures, things that pass across the borders of all three countries multiple times could get whacked pretty badly. Ironically, the regime has harmed the American car companies, Ford and GM, a lot more than they will harm the Japanese or Euro models which get imported into the US as parts and pretty much all assembled here. Stellantis even hurried up and announced it would reopen a factory in Illinois that was seen as doomed.

Item 2: It's harder to fix new cars, so when there's a problem, pretty much count on your car being out of service longer. There's more components, they're not as well made (plastic where they used to use metal, things like this), and there are more computers and there's more software.

In the last year, my car has cost me a couple 5 qt jugs of oil and some various filters and insurance. That's it for maintainence. No car payment. 

Item 3: I know people who have a $900-1000 a month car payment, *and* their insurance costs almost 3-4 times what mine does. The insurance companies are a license to steal money and in my neck of the woods, we've been seeing sometimes 20% or more annual hikes, and they all do it together in cahoots like landlords. Isn't it better to not have to insure a brand new vehicle?

$1,000 a month for a car payment is forgivable, if you're a millionaire or something, or you have work that demands an image that's not rolling up on someone in a car with a bit of rust and some dents. 

But I know people who get a luxury vehicle, and some bank actually loaned them money for it, and they're a nurse and he's a physical therapist, or worse, my ex who is a parking enforcement officer in Seattle. Why does he need a thousand dollar a month car?

He's already told me it's killing him and between that and eating out every night and the credit cards, it's caused him to miss his rent payment at least once.

These people that are in debt basically have a net worth of less than nothing (financially, not talking about as a person...as a person they're just misguided).

I think Dave Ramsey nailed it when he said most people out there should be driving a car that'll "make your poor friends laugh at you".

People who live in major cities should just ditch the car and quit complaining about it. When do you ever drive it? It costs $150 a month to rent a place that's just to park the car, and anywhere you drive it will cost $30-50 to park it. Good lord. A bus pass is $100 a month and there's commuter trains.

An unrelated note on "negative equity".

When someone says they're "rolling negative equity into the loan" they mean they're taking the last mistake they lost their butt on and they're rolling it into the payment on the new mistake they're going to lose their butt on.

Having negative equity on a car loan and financing another car is about the dumbest thing you could do this side of the paint and puncture package.

[IsambardPrince]

Apparently, the Trump Tariff Tax will add about $3,000 to the average new car.

I don't know what supply chains look like, exactly, but this is probably going to badly hurt "American" car companies who spent all these years figuring they could use NAFTA and USMCA ("NAFTA 1.1") to produce most of the car in Mexico, but the same time employ a lot of union auto workers in the midwest. Many pieces of the car can go across borders 6-8 times during the assembly process, so unless Trump puts in a drawback allowance which makes it work more like a VAT tax they have in Europe, then people are just going to get walloped by taxes.

Wouldn't surprise me if the Euro and Asian models got hit less, except for China. Biden already put 100% tariffs on Chinese EVs, but that didn't have any real effect other than making sure you can't buy one if they ever sold them here.

Overall, most Americans don't support the tariffs.

I don't think Trump is actually doing the Tariff Tax to stimulate growth (because most figures show the US economy declining by 1-3% each year over the next few years because of this while inflation will go up by about another 0.4% each year), which sticks us squarely into a prolonged recession.

A consumption tax has been popular in Republican circles for years. They've recently floated the idea of phasing out the IRS. 

This would basically destroy the progressive nature of the US tax code and put more people in poverty, and it would make us more like Russia which has a regressive tax structure.

Most rich people don't spend money, they sit on top of it and hoard it, even during terrible recessions. If you don't tax it when they take it as income, it can sit there untaxed for generations.

I knew a guy years ago, he was a multi millionaire in the 1960s, and I don't even know how much money he had when he died.... MORE. He died in the 90s, and we went to his estate sale and grabbed a SWEET deal on a 1968 Buick. He kept it nice and his daughter sold it for $300. We were cleaning out drawers and the guy had been stealing ketchup and salt packets from McDonalds. And while he was rich by most people's standards, he was never exorbitantly rich like today's billionaires.

Rich people are almost beyond the need to worry about consuming. They "consume" very little compared to their wealth, while most people consume almost everything they make, and more. Which is why most people are on these forums worrying about their credit scores. And that's why none of them are too worried about the Tariff Tax. But it will be devastating to most of us. Especially when it extends to the EU and UK.

Hint: Have you ever seen Stanley Kubrick's last film Eyes Wide Shut? (It's quite racy and NC-17-ish) The parties never ever have food. In fact, I don't think any scenes with wealthy people in them do. Only alcoholic drink. Food is only shown in the scenes with working class and middle class people. No, this imagery was not a mistake.

If people are already underwater this badly though, on the stupid car, I guess enjoy your new consumption tax, and may the odds be ever in your favor.

Everyone who is already on the edge of the knife is going to file waves of bankruptcies because they're just barely holding on as it is. They can't afford to swallow GDP contractions, a $2000 per household reduction in income from tariffs, and high interest rates on their loans, and staggering levels of unemployment, all of which is coming.