A $45,000 Loan For A $27,000 Ride: More Borrowers Are Going Underwater On Car Loans

Keen

Well-Known Member
I always use credit unions. Back in ‘10 my rate was 4.8 with a credit score in the 500s
That's what I've always heard. I think I benefited from buying towards the end of the year. I spoke to a couple of people who bought recently from the same make dealerships. They had good credit, went through credit unions and ended up paying 4.9%.

I intended on checking with credit unions. But I didn't feel like they could do better than 2.9% on a use car.
 

CarefreeinChicago

Well-Known Member
You don't have to own the company, cars can be leased for employees as well. The way it works is the car is leased and insured in the company's name and makes the payments and get a tax write off. The owners/employees are listed as authorized drivers on the auto policy. There's no problem as long as the company makes enough money to pay the lease and insurance. Me and the old man's cars are leased through our shared company.

Sidenote: A couple of my in-laws are interior designers and not only do they lease their cars through the businesses, they bought their house in a separate business name and leases it out to their other business as a "Showroom". Basically a "Showrooms" is a fancy way to say instead of having a home office, their office is a home that they can show their clients their decorating style. As long as the addresses match the tax documents, it passes the IRS smell test.
Thanks! That showroom idea sounds like an awesome idea!
 

SpiritJunkie

Well-Known Member
My 2009 Acura has 196k miles and I’ve only had the standard maintenance done. I’m hoping my baby has at least another 3 years left in her. I refuse to buy a new car unless I absolutely have to.

I know a few people on this situation and one them said she likes new cars and will always have car payment. SMH!
i have an Acura also that i've had for 11 years with 229,000 km. 2008 i bought it brand new. before that i had an acura for 4 years lease...when i had my business.

I never heard of underwater loans. I'm planning to by a used benz cash from the dealer with full warranty. I've been shopping around and the car biz ain't no check. You must do your homework
 
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cutiepiebabygirl

Well-Known Member
What is everyone's obsession with having new cars so often? I have been driving the same car for 15 years and it runs perfectly fine. Other than routine maintenance I think I have only had repairs done like twice.

I'm looking to get something newer and nicer in the next few years but I will still keep this one as a run-around car.

I think it's a status thing.

I've had my car since 2008. I am not buying another until it is completely inoperable and even then I will only buy a new- used car.

I'll never buy a new car again, it's a hustle.
 
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Black Ambrosia

Well-Known Member
I think it's a status thing.

I've had my car since 2008. I am not buying another until it is completely inoperable and even then I will only buy a new- used car.

I'll never buy a new car again, it's a hustle.
It might be for some people but the people in the article weren't flossing. The attorney even said that these people were getting Ford Escapes not luxury vehicles.
 

Black Ambrosia

Well-Known Member
Just talked a family member down from
talk about her 2008 RDX $2k in repairs vs buying a new car.

The RDX is paid in full.

$2k is not the equivalent in monthly car note for 1 year. They were paying $600+ a month for this car originally.

They can delay the repair - not an urgent issue right now.
Just wondering... is $2k everything it needs or just what's urgent?
 

fluffyforever

Well-Known Member
I paid off my car earlier this year (a 2013 sedan). I bought it brand new - I learned my lesson and never will do that again. Although I want a new one car (new to me, not brand new) because I want a car with AWD and more comfort/luxury, I can't justify the price when my car is perfectly capable of getting me around town. So instead I just bought some good all weather tires and I decided to keep driving this car until it no longer functions and can't be fixed.

I don't ever want to go back to a monthly car payment. In the future, I will only buy cars I can afford to buy completely outright without financing.

I never knew a person could rollover an old car loan into a new car loan after trading in their old car and getting a new car. Why would underwater loans like that even be legal?
 

demlew

Well-Known Member
I paid off my car earlier this year (a 2013 sedan). I bought it brand new - I learned my lesson and never will do that again. Although I want a new one car (new to me, not brand new) because I want a car with AWD and more comfort/luxury, I can't justify the price when my car is perfectly capable of getting me around town. So instead I just bought some good all weather tires and I decided to keep driving this car until it no longer functions and can't be fixed.

I don't ever want to go back to a monthly car payment. In the future, I will only buy cars I can afford to buy completely outright without financing.

I never knew a person could rollover an old car loan into a new car loan after trading in their old car and getting a new car. Why would underwater loans like that even be legal?

You'd be surprised at what's legal in the car business. I've seen some applicants get a 17.90% interest rate on their car loan. As far as the bolded, I see it happening frequently here in Texas. Part of it is because leases are impractical in this state because everything is so spread out. Soo...you combine geography with some consumers who need to always upgrade to the newest model and voila....$19K in negative equity.

For me personally, I'm not into new cars. I bought a car brand new because there were no used models yet. I drove it 11 years. My current car is 13 years old and I pray we keep rolling for years to come lol.
 

winterinatl

All natural!
Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh. The application was declined.
Dang. It ain’t even that serious.
I wanted a new Highlander or Murano but these prices are stupid. Even if I get the zero or 1% financing the payment is more than I’m comfortable with. So; certified pre owned is what will happen if I jump ship at all. I want a certified luxury crossover. Like my current one. But I want a backup camera, moonroof, and leather seats. It’s not needs, just wants. So it can wait.
 

aribell

formerly nicola.kirwan
dicapr said:
High miles on a car doesn’t always translate into high repair cost. I was nearing 300K miles when a deer killed my car. I had a Honda. Plus it was paid for. So long as routine costs didn’t equal a monthly car payment I was fine.

My first car was a Honda Accord that had about 220K miles on it when a parking lot flooded and water got into the exhaust. That car never had any problems. We replaced the starter once and besides that it was just regular maintenence. I really believed it would have gotten to 300K, and I would have been happy driving it.

1QTPie said:
I just found out that my car, prior to purchase, has had the fender replaced, the windshield and a bunch of other things and I've had that car for six years. I found out about the windshield when I finally took my car to the bodyshop to address the leaking roof. Found out that half of my car is after-market. Carfax didn't say anything about an accident. So I get it. Plus, new cars look and smell good.

Same thing happened to me (2nd Honda). The Carfax was totally clean. Came to find out after hitting a deer (two, actually :look:) that it must have had significant repairs done in the past. The bodyshop guy told me that if no insurance claim is filed, then it's not going to show up on the Carfax. The car had been previously leased, which I thought made it more trustworthy. But they said the dealer likely fixed it up in-house. That car had so many mechanical problems from day 1, I could have just gotten a new car for all the money that ended up going into ongoing repairs. I remember the salesman's face falling when my father and I said we'd pass on the warranty, taking the condition at face value. He must've known. $2500 transmission bill within a few months followed by multiple other issues. :nono:

For that reason I became strongly hesitant to buy used ever again. I'd need to know the person I was buying from or get a certified pre-owned vehicle with a strong warranty.

My current car (also a Honda) is one I'm happy with and, yes, was initially underwater on, though not to to the degree discussed above. I was basically in a position where I had to buy a car for work, had little to put down, and I wanted something reliable that I wouldn't need to worry about and that I would want to keep for a long time--also something that would retain its value. Still not a good financial decision, but I hopefully will have it paid off early this year and have no plans to buy a new one any time soon.

I receive auto financing offers on a weekly basis now. They are very aggressive in trying to get people to trade in/up.
 

ScorpioBeauty09

Well-Known Member
Earlier this year Ali Velshi on MSNBC had a financial expert on his show talking about how there's a subprime car loan bubble forming that's akin to the subprime mortgage loan crisis that caused the 2008 crisis. Obama signed in policies to address it or something, and no surprise the Orange pimple reversed it. :nono: The bubble is most concentrated in Millennials/Gen Z.

I've never had a new car and never will, if I can help it. My dad, who bought two new cars over the course of my childhood, bought a used car when his 10 year old car was totaled a few months ago.
 

Black Ambrosia

Well-Known Member
Earlier this year Ali Velshi on MSNBC had a financial expert on his show talking about how there's a subprime car loan bubble forming that's akin to the subprime mortgage loan crisis that caused the 2008 crisis. Obama signed in policies to address it or something, and no surprise the Orange pimple reversed it. :nono: The bubble is most concentrated in Millennials/Gen Z.

I've never had a new car and never will, if I can help it. My dad, who bought two new cars over the course of my childhood, bought a used car when his 10 year old car was totaled a few months ago.
We talked about this in the recession thread a few months ago.

A record 7 million Americans are 3 months behind on their car payments, a red flag for the economy
Heather Long

A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported Tuesday, even more than during the wake of the financial crisis.

Economists warn that this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills.

“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,” economists at the New York Fed wrote in a blog post.

A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is usually a sign of significant duress among low-income and working-class Americans.

'Repo men' are doing better than ever

“Your car loan is your No. 1 priority in terms of payment,” said Michael Taiano, a senior director at Fitch Ratings. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher-priority payment than a home mortgage or rent.”

People who are three months or more behind on their car payments often lose their vehicle, making it even more difficult to get to work, the doctor’s office or other critical places.

The New York Fed said that there were over a million more “troubled borrowers” at the end of 2018 than there were in 2010, when unemployment hit 10 percent and the auto loan delinquency rate peaked. Today, unemployment is 4 percentand job openings are at an all-time high, yet a significant number of people cannot pay their car loan.

Most of the people who are behind on their bills have low credit scores and are under age 30, suggesting young people are having a difficult time paying for their cars and their student loans at the same time.
Auto loans surged in the past several years as car sales skyrocketed, hitting a record high in 2016 of 17.5 million vehicles sold in the United States. Overall, many borrowers have strong credit scores and repay their loans on time, but defaults have been high among “subprime” borrowers with credit scores under 620 on an 850-point scale.

The share of auto loan borrowers who were three months behind on their payments peaked at 5.3 percent in late 2010. The share is slightly lower now — 4.5 percent — because the total number of borrowers has risen so much in the past several years. Still, economists are concerned because the number of people impacted is far greater now and the rate has been climbing steadily since 2016 even as more people found employment.

Experts warn Americans to be careful where they get their auto loan. Traditional banks and credit unions have much smaller default rates than “auto finance” companies such as the “buy here, pay here” places on some car lots.

Fewer than 1 percent of auto loans issued by credit unions are 90 days or more late, compared with 6.5 percent of loans issued by auto finance companies.

“The No. 1 piece of advice I have is to not get your financing from a car dealership,” said Christopher Peterson, a law professor at the University of Utah and former special adviser to the Consumer Financial Protection Bureau. “Shop separately for the vehicle and the financing. Go to a credit union or community bank to get a low-cost loan.”

Rates can vary substantially depending on a borrower’s credit score and where they obtain a loan. A “prime” borrower with a credit score in the range of 661 to 780 can get an auto loan rate of about 4.5 to 6 percent, according to NerdWallet. In contrast, a subprime borrower is typically looking at rates between 14.5 and 20 percent.

After the financial crisis, the government placed heavy restrictions on mortgages to make it harder to take out a home loan unless someone could clearly afford to make the monthly payments. But experts warn that there are far fewer restrictions on auto loans, meaning a consumer has to be savvier about what they are doing when they take out a loan.

"Predatory lending practices and a lack of real transportation options leave many households trapped in debt with few ways out,” said Faye Park, president of the U.S. Public Interest Research Group, which advocates for consumer protections.

Repossessing a car is also a quick process thanks to technology and the laws in many states. Some cars are installed with devices that prevent the car from turning on if someone misses a payment and it has become easier to geo-locate a car to tow it away.

“It’s a lot easier to repossess a vehicle than to foreclose on a home,” Taiano said.

He noted that non-prime and subprime auto loans increased from 28 percent of the market in 2009 to 39 percent in 2015, a reminder of how aggressively lenders went after borrowers who were on the margin of being able to pay. More lenders are giving people six or seven years to repay now vs. four of five years in the past, according to Experian, another tactic to try to make loans look affordable that might not otherwise be.

While defaults on auto loans are a red flag, they are unlikely to take down the entire financial system as mortgages did in the lead-up to the 2008-2009 financial crisis. The total auto loan market is just over $1 trillion, far smaller than the $9 trillion home mortgage market.

The amount of money people borrow to buy a car is also much smaller — typically under $35,000 — vs. a home loan, where people often borrow several hundred thousand dollars.



(NY Fed)
 

demlew

Well-Known Member
My first car was a Honda Accord that had about 220K miles on it when a parking lot flooded and water got into the exhaust. That car never had any problems. We replaced the starter once and besides that it was just regular maintenence. I really believed it would have gotten to 300K, and I would have been happy driving it.



Same thing happened to me (2nd Honda). The Carfax was totally clean. Came to find out after hitting a deer (two, actually :look:) that it must have had significant repairs done in the past. The bodyshop guy told me that if no insurance claim is filed, then it's not going to show up on the Carfax. The car had been previously leased, which I thought made it more trustworthy. But they said the dealer likely fixed it up in-house. That car had so many mechanical problems from day 1, I could have just gotten a new car for all the money that ended up going into ongoing repairs. I remember the salesman's face falling when my father and I said we'd pass on the warranty, taking the condition at face value. He must've known. $2500 transmission bill within a few months followed by multiple other issues. :nono:

For that reason I became strongly hesitant to buy used ever again. I'd need to know the person I was buying from or get a certified pre-owned vehicle with a strong warranty.

My current car (also a Honda) is one I'm happy with and, yes, was initially underwater on, though not to to the degree discussed above. I was basically in a position where I had to buy a car for work, had little to put down, and I wanted something reliable that I wouldn't need to worry about and that I would want to keep for a long time--also something that would retain its value. Still not a good financial decision, but I hopefully will have it paid off early this year and have no plans to buy a new one any time soon.

I receive auto financing offers on a weekly basis now. They are very aggressive in trying to get people to trade in/up.

At the bolded - it's also possible that his face fell because you said no to the backend (items added on top of the sales price - like GAP, warranty, accessories) and that's where the dealer makes their money. Generally speaking, dealers make little to no money on the car itself (the front-end) if they don't increase the sales price above the MSRP/Retail value, so they count on the backend. I'd recommend certified pre-owned. That's what I'm getting when my 2006 car goes to glory.

Your Honda will have you in a good equity position in no time. They're reliable and hold value very well.
 

cocosweet

Well-Known Member
I've underwritten $78K car loans for 84 month terms. Some financial institutions finance cars/trucks for 96 months.
The way a lot of these cars are being priced these days, you need about that long to pay for them. It’s scary. It’s gotten to the point where the average person cannot really afford a newer car.
We have a 13 year old Town and Country and a 4 year old Sonata. We’re driving both these jokers until the wheels fall off.
 
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demlew

Well-Known Member
The way a lot of these cars are being priced these days, you need about that long to pay for them. It’s scary. It’s gotten to the point where the average person cannot really afford a newer car.
We have a 13 year old Town and Country and a 4 year old Sonata. We’re driving both these jokers until the wheels fall off.

Agreed. Somebody hit my 2006 car and drove off. I’m praying State Farm doesn’t total it. I love not having a car payment.
 

nyeredzi

Well-Known Member
I want a minivan, but I was not prepared for the price. I see what that article was saying now, how the price of cars has risen faster than wages. I bought my car, granted a cheap car, for $12,800 new in 2010, my Hyundai Elantra. I was not prepared for the prices when I saw them. These things' base models are like 30k new, averaging around 36k new. I was not ready! I forgot, too, that a minivan would be more expensive than a sedan, duh. In my head, I was expecting 25k new, around 17-18 for a ~3 year old used one. I'm completely rethinking getting the minivan now. My car feels kind of small for having 2 kids, but I've been living with it, maybe it's not that bad after all. Better than spending $400 or $500/month for a note. But how long can a Hyundai last, lol? My husband says my car is going to basically be junk in short order ... :/
 

Leeda.the.Paladin

Well-Known Member
I want a minivan, but I was not prepared for the price. I see what that article was saying now, how the price of cars has risen faster than wages. I bought my car, granted a cheap car, for $12,800 new in 2010, my Hyundai Elantra. I was not prepared for the prices when I saw them. These things' base models are like 30k new, averaging around 36k new. I was not ready! I forgot, too, that a minivan would be more expensive than a sedan, duh. In my head, I was expecting 25k new, around 17-18 for a ~3 year old used one. I'm completely rethinking getting the minivan now. My car feels kind of small for having 2 kids, but I've been living with it, maybe it's not that bad after all. Better than spending $400 or $500/month for a note. But how long can a Hyundai last, lol? My husband says my car is going to basically be junk in short order ... :/
I was in the same position as you. I’d been riding in my sedan and it was starting to get cramped with the kids. We went to CarMax and got a minivan. I think it has 20k miles on it, but was in great condition and a lot less cheap than buying new. We’ve had it 9-10 years now and it’s good. It needs minor repairs here and there but still cheaper than having a car note (in the long run).

I’ve talked to other people who have the same make/model and I think we have another 5-7 years if we play my cards right.
 

nyeredzi

Well-Known Member
I was in the same position as you. I’d been riding in my sedan and it was starting to get cramped with the kids. We went to CarMax and got a minivan. I think it has 20k miles on it, but was in great condition and a lot less cheap than buying new. We’ve had it 9-10 years now and it’s good. It needs minor repairs here and there but still cheaper than having a car note (in the long run).

I’ve talked to other people who have the same make/model and I think we have another 5-7 years if we play my cards right.

Yeah, I really had my mind set on a minivan. But it looks like car prices have risen so much in the last 10 years. How much did you pay for your minivan, and how many miles do you drive it a year? How many miles are you anticipating putting on it before you get rid of it?

If I want a a used minivan with 30k or fewer miles on it, like a Honda Odyssey, Kia Sedona, or Chrysler Pacifica, I can't find anything like that list for less than ...quick check in my already open carfax page within 100 miles of me:
Sedona: 25k
Odyssey: 17k (oh, this is a steal, at 29k miles, though it has damage reported, no accidents cheapest is 18.5k)
Pacifica: 19k

Wait, where does the Kia get off being so expensive, lol? I'm going to start a new thread, I need help
 

Black Ambrosia

Well-Known Member
I vaguely recall hearing that the cash for clunkers government program inadvertently caused used car prices to go up during the last recession. Not sure of the long term impact or the connection to auto sales now but I think it might be relevant.

Around the same time car companies stopped focusing on the lower tier cars. Most new cars start at a higher price point now than they did 10+ years ago so the base price for most new cars is higher and the inventory of used cars is also priced higher than back in the day. Even when we account for inflation, prices are higher because car companies don’t like the profit margins on lower priced cars.
 
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