Negative equity

[danstraylee]

I don’t add cars into any net worth calculation, they are a cost, and a depreciating asset. Period. A necessary expense and little more.

100% and also I do not make payments any depreciating asset period!! If I can't afford it I don't buy it.

 

[grampi]

We all have choices to make. We need to give people better personal finance education to give them a fighting chance.

I don't think it would take with the people I'm talking about...

 

[JeffKeryk]

I don't think it would take with the people I'm talking about...

Who knows? All I know is, education is power.

 

[SC Maintenance]

Who knows? All I know is, education is power.

The vast majority of Americans hold the whole world of information in there smart phone. How they choose to use it is ultimately up to them. When I was a kid I had to beg my mother to take me to the library, and choose between books that were already 10 years old.

I am good with offering education, but honestly having managed a number of different types of people over the years, my expectations of the general public are quite low.

 

[JeffKeryk]

The vast majority of Americans hold the whole world of information in there smart phone. How they choose to use it is ultimately up to them. When I was a kid I had to beg my mother to take me to the library, and choose between books that were already 10 years old.

I am good with offering education, but honestly having managed a number of different types of people over the years, my expectations of the general public are quite low.

Motivation is the key. What will it take to spark their curiosity? Of course, one size does not fit all, so I try and be open.

 

[PandaBear]

Old cars aren't always better. I have seen most of the popular models that everyone say you should drive to 240k miles stay high in resell despite being similar price to the poor reliability models when new, so it makes no sense buying those cars used.

2026 having biggest negative equity likely means they got a bad deal during mid / post covid shortage. People overpaid back then are having negative equity. Sometimes things like that happen in life. I wish those guys well.

I want to like new cars out there today, but after I look around, I can't find a family hauler I like better than the one they discontinued and I'm still driving now. They are either all too expensive, worse fuel economy, or cater toward different kind of customers (the SUV lovers). I figure even if I have to replace my head gasket and hybrid battery I am still going to be ahead and like my current car better than the new SUVs and CUVs out there.

 

[PandaBear]

You can do that? Isn't the loan secured by the new car's value? Sounds like some kinda predatory (aka stupid) lending.

They are selling the loan to people wanting a higher interest rate return, and then to investors of insurance products.

When interest rate is too low many who insist on high return will take on a lot of risk.

 

[PandaBear]

Lexus has a current offer:

• $7500 Lex cash OR
• $5000 Lex cash + 0% financing for up to 60 months.

That's free money.

They just raise the price or not give you a needed discount as a cancel out. Nothing is free money in the world unless you get lucky.

Well maybe not. I got a promo from a credit union once for a 1.5% new car loan so I finance my cash paid car, took the cash, to pay off my mortgage at 2.5% faster. I got a free 1% return. But that's a lot of effort to save $200 of cash.

 

[OX1]

You beat me to it, good on ya!
The article says that around 30% of those looking to finance a replacement vehicle had negative equity in their current ride and that the average deficit was $7200.00 for that group of buyers. An anecdote involving a guy who had 40K+ in negative equity in his Ford truck was mentioned.
It would obviously make more sense for these people to simply continue with their current vehicles, to pay them off and then to enjoy at least a few years of payment free driving, but not everyone thinks that way. Whether the vehicle suits their use well or not, they simply have to tough it out and make better choices when they are able to do so without borrowing more money to pay off their current loan.
This is partly a matter of insane vehicle retail pricing during the pandemic years but mainly a matter of poor personal financial planning and decision making.

Especially with relatively "cheap" 10 year warrantee's available. Of course it does not cover EVERYTHING (like the first 3 years of warrantee on new cars), but it's a nice insurance policy, if you have even just one weird/stubborn electronic problem (lets say).

 

[PandaBear]

Gap insurance? Many of these financial geniuses don't have ANY insurance...

My understanding of a financed asset insurance is the insurance company will notify the lender if the insurance is cancelled and the lender would likely default the loan and repo the asset asap. Knowing people in financial distress, they don't want to wait.

 

[JeffKeryk]

They just raise the price or not give you a needed discount as a cancel out. Nothing is free money in the world unless you get lucky.

Well maybe not. I got a promo from a credit union once for a 1.5% new car loan so I finance my cash paid car, took the cash, to pay off my mortgage at 2.5% faster. I got a free 1% return. But that's a lot of effort to save $200 of cash.

Actually, this was off MSRP. My neighbors got a Lex RZ350E Premium; they took the $7500.
That is Lex most in-demand vehicle right now. Here's the current offers.

 

[fdcg27]

My understanding of a financed asset insurance is the insurance company will notify the lender if the insurance is cancelled and the lender would likely default the loan and repo the asset asap. Knowing people in financial distress, they don't want to wait.

In general, this is not how it works.
The retail installment contract will almost always allow the holder of the paper to apply single interest coverage (SI) to the collateral at the buyer's expense, covering the value of the collateral for the lender but not for the buyer.
Lenders hate to repossess vehicles if they can avoid doing so. They would rather continue getting that stream of payments even if late and generally won't repo a vehicle on technical grounds.