The part about cars are a cost not an asset is why leasing may not be a bad idea if the price of the vehicle is reasonable or conservative relative to income and if you get a low rate. When you capitalize the cost, add in maintenance, it works out similarly. It’s why a lot of high net worth people lease depreciating assets. I typically don’t do it because I don’t like payments but financially (again if you are not leasing to drive a Ferrari that you couldn’t afford to buy) it’s not that different. Add in a business deduction if legitimate and it’s pretty much a wash vs buying and certainly not a material difference if you are relatively high income.
Negative equity
- Thread starter andrew_j
- Start date
There is always a leveling when market demand is high and supply is low. There was quite a few dealers early in the COVID market that stayed to MSRP but eventually when you see other dealerships and even private parties running side hustles buying your MSRP inventory and treating it like whole sale pricing and make $10K-$30K profit flipping it, you cannot ignore that money being left on the table and not join in.
I don’t disagree with you; this is why I said these types of loans should require higher capital charges.
There is one thing I would tell folks though, having worked in finance and law for a long time - it’s that the bigger firms have for a long time tied the compensation of pretty much anyone who can implicate risk to how the tails of those risks work out. To take some old and older but well known examples: when Long Term Capital Management went under and had to be rescued in the late 90s the principals of the firm - highly experienced and knowing their business very well - lost everything. Similarly when Lehman failed, management and again anyone in trading, risk management, etc. had almost all their compensation and most of their net worth tied to the fortunes of the firm. Post GFC, firms have become even stricter about this. There is no one at a mid size or large commercial bank or investment bank who is going to cash out of their investment or banking clients and leave the firm with the losses, it just doesn’t work that way, particularly not in the last 15 years. Even a recent failure like Credit Suisse was much more about 10 plus years of bad risk management that ruined the franchise.
Where you still will find poor risk management is at the smaller community banks and what not. Many of the firms may be credit unions or local banks, perhaps state regulated, where such practices are not adequately discouraged by capital penalties (ie requiring the bank to hold more capital against higher risk, under collateralized loans).
But the reality is that when politicians talk about measures to make sure banks don’t refuse to do business with, or otherwise “discriminate” against certain groups or neighborhoods, they are often encouraging banks, via weak capital and
Liquidity requirements, to make high risk loans. To some degree the housing crisis of 08 really began years earlier when the government started taking steps to make it affordable for everyone to own a home. It would be inaccurate to blame that factor alone as there were also holes in the regulatory framework, but the push for everyone to own a home certainly got the ball rolling towards a disaster 10 or so years later.
Long was of saying there is more to it than tying risk taking to incentives. That’s been done already, for a long time in fact.
Last edited:
Thats a solid lesson learned, ownership of your decision-making, and wise counsel right there.
Look at all of the people who are buying $50K+ vehicles. Many of them I KNOW can't afford them and will end up having them repo'd...
And prices would go down...they'd have to...
Nobody takes a financial beating like those driving a brand new vehicle off the lot. The only way to make that a sensible decision is to keep that vehicle until the wheels fall off...over the last 23 years I've bought nothing but used, and they have all been reliable. My last car was sold with 458K miles, and it was still going...of course, having a good bit of mechanical knowledge, and doing your research before hand helps immensely in choosing the right used vehicle...
And consumers are still stuck with the pandemic prices...
But they gotta have that new Beemer or Mercedes...
Gap insurance?
Many of these financial geniuses don't have ANY insurance...Look at the people driving around in premium brand vehicles. A lot of them, if not most of them don't exactly look like business execs...
I would bet any amount of money that more of them don't have ANY insurance than those who have gap insurance...
We all have choices to make. We need to give people better personal finance education to give them a fighting chance.
Good thread but much incorrect information.
The majority of new auto loans are not originated by the banks, there originated by the OEM's captive lenders - like GM financial. They only exist to originate overpriced car loans. So those complaining about bank regulation need to complain about some other form of regulation. But the Ford / GM / UAW golden children would never stand for any such regulation.
Some are originated by banks and credit unions but I suspect those are much better quality loans because bankers are not stupid.
Its not considered predatory to roll negative equity. There simply re-financing debt that already exists. If the borrower is dumb enough to do it, and the lender is dumb enough to lend, then so be it.
Negative equity has been a thing forever. Simply the amount is higher now - likely due to the overpriced cars people have been buying.
The majority of new auto loans are not originated by the banks, there originated by the OEM's captive lenders - like GM financial. They only exist to originate overpriced car loans. So those complaining about bank regulation need to complain about some other form of regulation. But the Ford / GM / UAW golden children would never stand for any such regulation.
Some are originated by banks and credit unions but I suspect those are much better quality loans because bankers are not stupid.
Its not considered predatory to roll negative equity. There simply re-financing debt that already exists. If the borrower is dumb enough to do it, and the lender is dumb enough to lend, then so be it.
Negative equity has been a thing forever. Simply the amount is higher now - likely due to the overpriced cars people have been buying.
I have posted many times on this board that it is required in 30 states.
Even if not required your school district can implement it.
AZjeff
$50 Site Donor 2023
I've never known anyone who bought a car, motorcycle, pool, etc because the neighbor got whatever. Has anyone?
Similar threads
