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re: Article: "Record number of car buyers 'upside down' on trade-ins"
Posted on 11/28/16 at 1:34 pm to slackster
Posted on 11/28/16 at 1:34 pm to slackster
quote:Unless of course a bad economy or poor health cause you to take a big hit on income. Then you find yourself facing bankruptcy and/or repossession and a deficiency judgment.
Having equity in a car is pretty useless.
1
Posted on 11/28/16 at 1:39 pm to LNCHBOX
quote:
Why does this matter? Did you finance the car for 6 years with the intention of getting rid of it sooner?
I did not. I intend to keep the car. I am covered by gap insurance so if the car is totaled it's covered, but it's still a risk to be upside down on a car. Once it's paid off it no longer matters anyway.
This post was edited on 11/28/16 at 1:41 pm
Posted on 11/28/16 at 1:41 pm to PearlJam
quote:
Unless of course a bad economy or poor health cause you to take a big hit on income. Then you find yourself facing bankruptcy and/or repossession and a deficiency judgment.
How would paying off your car with cash avoid this financial crisis? In this context we're debating whether paying with cash or financing is better. If you're in a pinch and you can't afford the $180/month car note on your $10k load at 3% for 5 years, wouldn't your situation have been worse much earlier if the car was paid for in cash? Isn't cash flow the most important issue? Financing the car gives you more flexibility, not less.
Posted on 11/28/16 at 1:42 pm to GetCocky11
Our govt has been enabled by us to enact rule after rule that adds 1000's of dollars to the cost in the name of safety and fuel economy. The consumer should be the only judge of the importance of safety and MPG.
Posted on 11/28/16 at 1:43 pm to slackster
My comment was in response to why it isn't worthless to have equity in a car. The equity gives you flexibility of you wetter to suffer a loss or reduction in income.
However, that same flexibility would apply had one purchased a car with cash instead of financing.
However, that same flexibility would apply had one purchased a car with cash instead of financing.
quote:Equity definitely gives one more flexibility over debt. Financing can allow for more cash flow, but it certainly doesn't provide flexibility.
Financing the car gives you more flexibility, not less.
This post was edited on 11/28/16 at 1:47 pm
Posted on 11/28/16 at 1:48 pm to PearlJam
quote:
My comment was in response to why it isn't worthless to have equity in a car. The equity gives you flexibility of you wetter to suffer a loss or reduction in income.
Fair enough, but the original comment is discussing the pros and cons of paying cash vs. financing. My point in that statement is that not all equity is created equal. I don't know anyone who buys a car for less than it is worth, so you'r not driving off the lot with equity unless you paid for it in cash. In the majority of financial binds, I'd rather be upside down on the car and have more cash on hand than have a car that I bought with cash that I'll never see again.
Posted on 11/28/16 at 1:52 pm to Ace Midnight
quote:
what you do with your money. Just don't waste your money, laugh at me and say, "I'm getting rich. I smart." I call BS on that every time.
And I still say no one is saying that, so congrats I guess.
Posted on 11/28/16 at 1:54 pm to slackster
quote:Sounds good theoretically, but that isn't the way financial binds work. You don't have cash on hand, thus the bind. If you have equity in the vehicle you can get out from under it (if financed). That was my point regarding having a vehicle with equity.
In the majority of financial binds, I'd rather be upside down on the car and have more cash on hand than have a car that I bought with cash that I'll never see again.
I have dealt with a lot of people in bankruptcy and not everyone was completely dumb with their money. Many behave the way a majority of Americans do, but a bad break with income or health combined with what was at one time very manageable debt sends them to bankruptcy.
This post was edited on 11/28/16 at 1:55 pm
Posted on 11/28/16 at 1:57 pm to TIGRLEE
quote:
Vehicles are worst investment a human can make
Who buys a car as an investment?
Posted on 11/28/16 at 2:20 pm to PearlJam
quote:
Equity definitely gives one more flexibility over debt. Financing can allow for more cash flow, but it certainly doesn't provide flexibility.
I disagree.
Assume you paid $10,000 and you've got $20,000 in cash on hand before deciding whether to purchase in cash or finance for 5 years @ 3%. Most resources suggest a car will still lose 50% of its value between years 5 and 10, and if you're buying a $10k vehicle, assuming it is 5 years old already isn't terribly crazy.
If you finance it, you'll pay ~$180/month for 60 months. If you pay cash, you'll have no note but you'll be down $10k in your cash on hand. Financing the vehicle will result in more cash on hand for the first 56 months of the lease, even if you're only making 1% annualized on your cash. If you're making more than the 3%, you'll always have more cash on hand by financing.
Your net worth is obviously better if you pay cash than if you finance and you're making less than 3% on your cash, but that isn't the whole story. After 60 months the financing will have cost you ~$740 more than paying cash, but you would have had a more flexible cash flow for 56 of those months. That is the most important way to avoid a financial pinch.
I'd rather be $100 upside down 2 years later with $5800 more cash on hand than have $6000 of equity in the vehicle.
Posted on 11/28/16 at 2:21 pm to PearlJam
quote:
Many behave the way a majority of Americans do, but a bad break with income or health combined with what was at one time very manageable debt sends them to bankruptcy.
Presumably that debt gave them the ability to kick the can down the road as long as possible hoping for things to get better.
Posted on 11/28/16 at 2:24 pm to slackster
Sure, but that isn't a real world scenario for 90% of people. They either pay cash for a $7000 vehicle or finance a $35,000 vehicle. In 3 years when they lose their job, having that asset gives them more flexibility than being upside down on a car and having to scrounge to make a payment.
Posted on 11/28/16 at 3:05 pm to PearlJam
The problem is people that have to have that new car every 4 years, so people will think they're not poor, are taking out loans for 6 years.
Posted on 11/28/16 at 3:18 pm to LSUSkip
This is a lesson I learned the hard way in my mid-20s. We were out of college a year or two, and wanted newer vehicles. Thankfully we bought them both used and drove them a while, but car payments ate up a good bit of our income. When my wife finally wanted a new vehicle, we found a good deal on a used one and financed over 60 months at a good rate. I sold the old one and mine and paid cash for mine out of that. I don't think it is the length of the loan that strains so many families, it is having two or more car payments at the same time. I'll never have more than one from now on.
Posted on 11/28/16 at 3:19 pm to LSUSkip
quote:
The problem is people that have to have that new car every 4 years, so people will think they're not poor, are taking out loans for 6 years
Social pressure is a big part of it. Keeping up with the Jones in both housing and auto markets.
Posted on 11/28/16 at 3:20 pm to Tigerpaw123
quote:
Who buys a car as an investment?
Wat
Posted on 11/28/16 at 3:30 pm to TU Rob
quote:
it is having two or more car payments at the same time. I'll never have more than one from now on.
I definitely feel you on this one. Have one more year of two payments, and won't be doing that again either. At least the almost paid off car is still in outstanding shape and only has 60k miles on it. I don't plan to get rid of it until it dies.
Posted on 11/28/16 at 3:31 pm to Mir
quote:
Can anyone fill me in on the regulations or rules regarding diesel and why they seem to retain value so well?
I don't think there's specific CAFE regs for diesel, but there are some pretty challenging emissions requirements that makes diesel engines expensive (and increasingly so every year).
CAFE is at least partially responsible for extensive use of aluminum, smaller displacement engines, 8 and 9 speed transmissions or CVTs, and lightweight designs that significantly add to the cost of a new vehicle. That's especially true with pickup trucks and SUVs.
IMO most pickup drivers are a fairly pragmatic bunch. They want capability, durability, and versatility. They value efficiency with respect to overall cost of ownership. With gas prices this low, they would never opt for an aluminum truck with chin spoilers, low rolling resistance tires, aluminum body, 35 speed transmissions, and a turbocharged miniature motor over a traditional setup. In many cases they don't have the option, and have to swallow that cost when they make the purchase because the manufacturer is being pushed by the feds to increase their corporate average fuel economy.
That kind of expensive use of light materials and capability-robbing "add-ons" are more accepted with hybrid sedans.
This post was edited on 11/28/16 at 3:38 pm
Posted on 11/28/16 at 3:45 pm to GetCocky11
I pay cash so I don't have these problems
Posted on 11/29/16 at 12:24 pm to Ace Midnight
quote:
I literally DGAF what you do with your money. Just don't waste your money, laugh at me and say, "I'm getting rich. I smart." I call BS on that every time.
See again spouting shite that nobody said. You are right people should not buy something they can not afford. But throughout this whole thread you have demonstrated your complete lack of understanding of higher level finance(really not even high level)
bottom line is if you can make more money investing the cash then you would pay in interest then its smart to finance, period.
Quit trying to twist shite to fit your agenda. I agree that its prolly not smart for somebody poor, that doesn't understand finance to pull a move like this. But the whole notion that everybody should pay cash everytime is not correct no matter how you twist it.
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