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re: 40% of Cars financed since 2022 are underwater
Posted on 11/18/24 at 1:09 pm to theballguy
Posted on 11/18/24 at 1:09 pm to theballguy
quote:
Never finance a car. Always pay cash for the newest one you can afford. You'll never build much if you don't.
The market is getting skewed to where this "common sense" doesn't work as well. I'm not saying that to defend/promote the current state of the market.
With how crazy used prices still are, the return of manufacturer rebates, and the impact of disparate interest rates, it's not always smart to get the used-cash option.
This post was edited on 11/18/24 at 1:10 pm
1
Posted on 11/18/24 at 1:10 pm to sledgehammer
quote:
I’m sitting nice with my truck paid off.
…for the last 14 years.
Posted on 11/18/24 at 1:13 pm to TrueTiger
quote:
I had a nice paid for car and then it got totaled (not my fault).
This happened to me during the great Covid car shortage.
Super fun.
Posted on 11/18/24 at 1:14 pm to John Barron
I love that my little car is all paid off. Its nice not having a note.
Posted on 11/18/24 at 1:15 pm to Bard
quote:
there has also been discussion of 50-year home loans.
Someone would be initially paying 97% of their monthly payments purely towards interest. Crazy.
So many people think simply in terms of monthly note when the question of "what I can afford" comes up.
Posted on 11/18/24 at 1:16 pm to John Barron
I tend to go for the gently used.
let someone else eat the depreciation.
Doesn’t being underwater in this case mean owing more than it’s worth? because if so that 40% isn’t surprising at all.
let someone else eat the depreciation.
Doesn’t being underwater in this case mean owing more than it’s worth? because if so that 40% isn’t surprising at all.
Posted on 11/18/24 at 1:35 pm to SlowFlowPro
quote:
With how crazy used prices still are, the return of manufacturer rebates, and the impact of disparate interest rates, it's not always smart to get the used-cash option.
I just bought a new vehicle and it was the first time I bought “new” … still paid cash.
With the price difference between a new vs used and what I got on the new, it just made sense to me.
Posted on 11/18/24 at 1:40 pm to Cleary Rebels
I figured it was a high percentage with the amount of people driving $80-$90.000 Tahoes and Yukons. Ill never understand being a teacher and spending that much money on a vehicle
Posted on 11/18/24 at 1:57 pm to THRILLHO
quote:
If no down payment is made, yes. I have no clue, historically, what percentage of people put significant down payments down on new cars, nor do I know what the average amount of the down payment would be.
If 40% of people "underwater" is atypical, I'm guessing it's because a lot more people are putting no money down.
You can put $10k towards your new car and will still be underwater as soon as you drove off lot. The biggest depreciation period for any car is one foot off lot after buying new.
Posted on 11/18/24 at 2:00 pm to waiting4saturday
quote:
you mean to tell me all those people who bought cars for above MSRP are underwater?
In addition, depreciation is quicker than ever and obviously this crazy 72 and 84 month financing has got to go.
Posted on 11/18/24 at 2:01 pm to clamdip
quote:
Someone would be initially paying 97% of their monthly payments purely towards interest. Crazy.
So many people think simply in terms of monthly note when the question of "what I can afford" comes up.
See also: credit card payments
Most, if not all, of our GDP growth since COVID has been by consumers trying to offset the rise in inflation with their credit cards and then just servicing that debt even as it continues to grow. The longer consumers do that, the more likely they are to default then go into bankruptcy.
Credit card delinquencies have been increasing since 2021/2022 while bankruptcies have been climbing since mid-2023.
I believe a recession is inevitable within the next 12 months. If it comes to pass with this much debt still on the books and the economy being kept afloat primarily by that debt, we're going to be in for some seriously bad times.
Posted on 11/18/24 at 2:06 pm to SlowFlowPro
quote:
You're looking at this assuming the debt from the car they financed is the only debt. About a quarter of trade ins have negative equity.
People are financing vehicles falling fast in value at artificially-inflated prices AND refinancing old debt at higher rates over a longer period of time.
This is not sustainable and it doesn't take into account potential negative externalities like a car wreck (underinsurance and lack of GAP) or an economic downturn.
I made a thread on this recently.
This has been going on since they have sold cars on debt.
The key is delinquencies.
Every new car drops 20-25% in value once driven off lot. Someone putting $10k down is underwater, meaning what they owe is more than value of car.
But most new buyers are keeping their cars longer so its a moot point. No one is selling their car the day after they buy it new. It can be underwater by $20k but if they keep the car for 5 years its not underwater at the end.
From Reuters in May 2024:
quote:
Americans keep vehicles for record 12.6 years on average
quote:
The average age of U.S. cars and light trucks this year rose to a record 12.6 years, according to the report by S&P Global Mobility on Wednesday, up by two months from 2023.
You will always have those who don’t learn and trade in too fast and get more underwater. But it doesn’t mean its a higher rate of delinquent payers either.
Posted on 11/18/24 at 2:07 pm to John Barron
This doesn’t seem that crazy if you consider you don’t pay much principle early in the loan and you take a big depreciation hit once you drive off the lot.
Also consider most people buy for retail price but value is at wholesale price.
Also consider most people buy for retail price but value is at wholesale price.
Posted on 11/18/24 at 2:11 pm to purple18
quote:
I figured it was a high percentage with the amount of people driving $80-$90.000 Tahoes and Yukons
When I was in Louisiana back in 2006 for a bit most women where I was drove Lexus SUVs, they were like part of a uniform or something. I guess it was a sign you had made it
Here, where people have more money everyone drives Subarus or Tacomas.
This post was edited on 11/18/24 at 2:14 pm
Posted on 11/18/24 at 2:15 pm to waiting4saturday
quote:
can't wait to trade in my 4Runner for a low mileage Yukon for cheap.
Trading a 4Runner for a Yukon
Posted on 11/18/24 at 2:16 pm to John Barron
Houses will be next. No way that many people can afford 600k homes
Posted on 11/18/24 at 2:16 pm to John Barron
quote:
Also my wife's coworker has been driving her Lexus for a year without making a payment after her husband was laid off.
This doesn't sound believable
Do you know who the finance company is?
Posted on 11/18/24 at 2:20 pm to LSURussian
quote:
Almost every new car sold is "underwater" as soon as it is driven off from the dealership that sold it unless the buyer paid a significant down payment.
"Underwater" means the amount owed on the car loan is more than the car owner can sell the car for.
It doesn't mean the buyer is behind on payments and thus facing having his car repo-ed by the lender.
Correct
The used car market was just insane in 22. Those used cars haven't kept their inflated value so the loans are more similar to new car loans because the value tanked like a new car would.
Posted on 11/18/24 at 2:22 pm to John Barron
Well when you charge $50k for an F150 Lariat this is the natural consequence.
Posted on 11/18/24 at 2:33 pm to John Barron
Sad thing is when these hit the market even if barely used in and great shape it’ll probably be at prices they were before the insanity.
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