32% of used car trade ins are underwater

[Mr Nice]

32% of used car trade ins are underwater in recent Edmunds report. https://www.zerohedge.com/news/2018-01-2...-are-underwater

 

[Quattro Pete]

I'm surprised it's only 32%.

 

[ZZman]

No surprise there. Cars are super expensive and they depreciate a lot. Most people get tired of their vehicles in 4-5 years. Many also don't have big down payments or car equity to trade in so it is a vicious cycle.

 

[spasm3]

Originally Posted By: Quattro Pete

I'm surprised it's only 32%.

So am i!

 

[Leo99]

I don't understand this: which means that dealers lenders are willing to accept an immediate loss for new transactions Any negative equity is rolled into the new loan so how are the lenders taking a loss?

 

[Andrew1972]

*If people stuck to paying for new vehicles in 4 years or less this would not occur.

 

[dlayman]

I didn't understand that either, buy from further reading it sounds like they expect a large number of these loans to go into default with the lenders not getting their money back

 

[Donald]

Originally Posted By: Leo99

I don't understand this: which means that dealers lenders are willing to accept an immediate loss for new transactions Any negative equity is rolled into the new loan so how are the lenders taking a loss?

In reading the article the consumer can get into an unsustainable cycle. Owe $15k on car worth $10k, they roll $5k onto the new loan. You buy a $25k car with a trade in and no down payment and driving off the lot you owe $30k.

 

[NibbanaBanana]

It's insanity. There's perfectly good new cars available for less than $15K. An excellent job of marketing by auto manufacturers.

 

[Andrew1972]

It still is consumer thinking paying now in 5-8 year loan terms. Depreciation out paces the payment and surprise you are upside down.

 

[AZjeff]

Originally Posted By: NibbanaBanana

It's insanity. There's perfectly good new cars available for less than $15K. An excellent job of marketing by auto manufacturers.

These are good cars? 10 Best New Cars Under $15,000 2016 Hyundai Accent - MSRP $14,745. 2016 Nissan Versa Note - $14,230. 2016 Chevrolet Spark - MSRP $12,660. 2015 Mitsubishi Mirage - MSRP $12,995. 2016 Toyota Yaris - MSRP $14,895. 2016 Chevrolet Sonic - MSRP $14,345. 2016 Ford Fiesta - MSRP $14,580. 2016 Kia Rio - MSRP $14,165.

 

[SuzukiGoat]

Quote:

which means that dealers lenders are willing to accept an immediate loss for new transactions Any negative equity is rolled into the new loan so how are the lenders taking a loss?

Given that 625 credit score and up can finance over 100% of the value of the car plus and hard adds, it isn't hard. They then charge interest on the greater amount and make money, not lose it.

 

[Artem]

People need to keep their cars for longer, until it's paid off, AND THEN you're free to go trade it in if you want. Use that 2-3k car value as your down payment on the next one, of you want. I have a low APR on my Mazda 3 and have been paying $50 extra each month. Once it's paid off this year, it will have maybe 70-80k on it and is in MINT CONDITION. I plan to use it for an additional 5 years PAYMENT FREE before I even begin to think about getting another car payment. People these days just can't manage their money nor their desires.

 

[SuzukiGoat]

One of those cars will hit 300k with just maintenance

 

[Artem]

Originally Posted By: AZjeff

Originally Posted By: NibbanaBanana

It's insanity. There's perfectly good new cars available for less than $15K. An excellent job of marketing by auto manufacturers.

These are good cars? 10 Best New Cars Under $15,000 2016 Hyundai Accent - MSRP $14,745. 2016 Nissan Versa Note - $14,230. 2016 Chevrolet Spark - MSRP $12,660. 2015 Mitsubishi Mirage - MSRP $12,995. 2016 Toyota Yaris - MSRP $14,895. 2016 Chevrolet Sonic - MSRP $14,345. 2016 Ford Fiesta - MSRP $14,580. 2016 Kia Rio - MSRP $14,165.

The reality is, the people who technically NEED to buy those cars because it's in their budget, end up buying some $32,000 Benz instead and then struggle with the $800 monthly payment. But hey, at least they look good driving to work... to McDonalds.

 

[tomcat27]

Originally Posted By: NibbanaBanana

It's insanity. There's perfectly good new cars available for less than $15K. An excellent job of marketing by auto manufacturers.

very true. I paid off our $15,000 car within 18 months. based on the vehicles on the road and in parking lots, the average person is not happy owning a $15,000 car. $30,000 - $50,000 trucks and $50,000 - $80,000 cars are the norm. I also find it entertaining that our state offers discounted license plates for electric cars; so apparently the owner of a $70k+ Tesla needs discounted plates. I think that's hilarious!!! my wife works in a lending institution - they care most about (loan) sales growth. defaults are not part of the discussion.

 

[Snagglefoot]

Originally Posted By: AZjeff

Originally Posted By: NibbanaBanana

It's insanity. There's perfectly good new cars available for less than $15K. An excellent job of marketing by auto manufacturers.

These are good cars? 10 Best New Cars Under $15,000 2016 Hyundai Accent - MSRP $14,745. 2016 Nissan Versa Note - $14,230. 2016 Chevrolet Spark - MSRP $12,660. 2015 Mitsubishi Mirage - MSRP $12,995. 2016 Toyota Yaris - MSRP $14,895. 2016 Chevrolet Sonic - MSRP $14,345. 2016 Ford Fiesta - MSRP $14,580. 2016 Kia Rio - MSRP $14,165.

Just be careful they weren’t “underwater” from the Hurricanes. Seriously.

 

[fdcg27]

Originally Posted By: ZZman

No surprise there. Cars are super expensive and they depreciate a lot. Most people get tired of their vehicles in 4-5 years. Many also don't have big down payments or car equity to trade in so it is a vicious cycle.

New cars are actually pretty inexpensive if you buy them right and almost any new car will need nothing more than brakes and tires beyond fluid changes in its first 100K, so they're also pretty cheap to own. Buying new and keeping a vehicle is usually the most cost-effective means of ownership. Paying too much for something with high depreciation and then trading it off while still owing money on it will often result in the net payoff exceeding the market value of the thing. The finance source will then cheerfully roll that excess amount into your new loan, which will also likely be at a fairly high rate since you'd be what used to be called a bust out buyer in the trade and the selling dealer probably won't be inclined to do much price negotiation with you, since you'd likely be a little challenging to finance. To add insult to injury, your old car will end up on a lot, either the dealer's or a local used car place and will sell for maybe 2X what you were offered in trade-in. Anyone who wants to drive something new on a regular basis should be leasing, although many of these folks probably don't have the credit rating to qualify for a lease.

 

[Indydriver]

Just one facet of the credit bubble that’s headed for a major league crash and burn. I wonder how many of that 32% also have student loans that will never get paid back.

 

[OneEyeJack]

You should pay attention to the road tests and marketing hype. How could you possibly be happy with a vehicle that did not have heated/cooled seats, leather, sunroof and all that other stuff? This is especially true if you can extend the loan to keep the payments down. You just have to accept the fact that you will be making car payments the rest of your life if you want to be happy and being debt free is out of the question. Why would you want to be debt free anyhow when you could be driving a really nice vehicle? In 2003 I financed a new 4Runner. I'd never financed a car before and I'd purchased a dozen or more new cars by then. I got so nervous about having the loan that I paid it off the next day. Then I got worried that I might get a letter from the government accusing me of behaving in a manner that would hurt the economy. Can you imagine what it would do to the economy if say half the people purchased new cars with cash and people started keeping their cars a year or two more? It would be a terrible hit on the economy.