# A $45,000 Loan For A $27,000 Ride: More Borrowers Are Going Underwater On Car Loans



## Leeda.the.Paladin (Nov 13, 2019)

*A $45,000 Loan for a $27,000 Ride: More Borrowers Are Going Underwater on Car Loans *
*As cars become more expensive, buyers are getting hampered by burdensome loans*





By 
AnnaMaria Andriotis and 
Ben Eisen
November 9, 2019


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TEXT

John Schricker took out a loan to buy a car in 2017. Then he took out another. And then another.

In two years, the 40-year-old electrician signed up for four auto loans, each time trading in the previous car and rolling the unpaid balance into the next loan. He recently bought a $27,000 Jeep Cherokee with a $45,000 loan from Ally Financial Inc.

Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis: by piling on debt to such a degree that it often exceeds the car’s value. This phenomenon—referred to as negative equity, or being underwater—can leave car owners trapped.

Share of people who have negative equity whentrading in vehicles for new ones
%2002’04’06’08’10’12’14’16’181520253035
Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago, according to car-shopping site Edmunds. Those borrowers owed about $5,000 on average after they traded in their cars, before taking on new loans. Five years ago the average was about $4,000.

Rising car prices have exacerbated an affordability gap that is increasingly getting filled with auto debt. Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can last seven years or longer.

Borrowers are responsible for paying their remaining debt even after they get rid of the vehicle tied to it. When subsequently buying another car, they can roll this old debt into a new loan. The lender that originates the new loan typically pays off the old lender, and the consumer then owes the balance from both cars to the new lender. The transactions are often encouraged by dealerships, which now make more money on arranging financing than on selling cars.

Consumer lawyers say borrowers are typically trading in their vehicles because they have to—often because their needs change, or because the vehicles have problems.

“These aren’t Rolls-Royces,” said David Goldsmith, a lawyer who defends consumers in auto cases. “They’re Ford Escapes.”

John Schricker adjusts his daughter's car seat in the back of his Jeep Cherokee. PHOTO: KRISTIAN THACKER FOR THE WALL STREET JOURNAL
Mr. Schricker would like to get a new car because the Jeep Cherokee started having mechanical problems this year. He recently discovered the vehicle was in an accident before he bought it, a fact he said the dealership didn’t disclose. The dealership, Rotolo Motors, didn’t return requests for comment. 

Mr. Schricker hired a lawyer, who is trying to resolve the issue with the dealership. He estimates that even if he sold the vehicle, he would still owe Ally up to $18,000. Ally said it couldn’t comment.

Mr. Schricker, who lives in Bethel Park, Pa., said he didn’t intend to cycle through so many vehicles. He replaced one because it had 100,000 miles and another when he went through a divorce, and he changed cars again when his family was expanding.








Borrowers with negative equity at the time of purchase tend to get longer loan terms, higher interest rates and higher monthly payments, according to Edmunds. The higher rates and longer repayment periods mean a smaller share of their monthly payments goes toward paying down principal in the first few years of the loan. The result for some consumers is a cycle in which each new trade-in leaves them deeper underwater.


Underwater car loans are more prevalent among subprime borrowers, according to ratings firms. That is in part because consumers with lower credit scores often don’t have the means to pay off the remaining balance on one car loan before buying their next vehicle.

If borrowers default, lenders generally repossess the cars and try to resell them, then apply that money to the unpaid balance. Often, though, that isn’t enough to cover the borrower’s unpaid balance.

Yolanda Finley drives a GMC Yukon with more than 188,000 miles on it. She still owes thousands on a car that was repossessed. PHOTO: MICHAL CZERWONKA FOR THE WALL STREET JOURNAL
Yolanda Finley of Pomona, Calif., bought a used 2011 Chevy Traverse with a loan of $25,585 from Santander Consumer USA Holdings Inc. in 2014. The loan included a nearly $2,200 balance she owed on her Dodge Durango after she traded it in.

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The Chevy broke down in 2017 shortly after Ms. Finley took it for an oil change and she couldn’t afford the repairs. She says that Valvoline installed a faulty oil filter and she is suing the company. Valvoline said it was aware of her allegations and had no comment. 


Ms. Finley, a 38-year-old legal-support assistant, stopped making payments. Santander repossessed the Chevy in 2017 and resold it for $2,400. The lender soon after informed her that she still owed around $27,000, which she hasn’t paid. Santander said it couldn’t comment on a specific customer’s experience.

Ms. Finley currently drives a GMC Yukon with more than 188,000 miles. She bought it from a family friend for $3,500 out of pocket.

Yolanda Finley drives her car to pick up her dad in Pomona, Calif. PHOTO: MICHAL CZERWONKA FOR THE WALL STREET JOURNAL
She would like to buy another car, but the only loans she has been offered have high interest rates she can’t afford. Her credit reports state she defaulted on her car loan.

Most auto loans are originated at dealerships, which assign loans to a variety of lenders, including banks, credit unions and the finance arms of car manufacturers.

Lenders are typically willing to make the underwater loans, though they often charge high interest rates. Many of the loans are bundled into bonds and snapped up by Wall Street investors.

The added debt can make it difficult for borrowers to stay current. Some 5.2% of outstanding securitized subprime auto-loan balances were at least 60 days past due on a rolling 12-month average during the period ending in June, up from 4.8% the year before and 4.9% two years before, according to Fitch Ratings.


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## Cheleigh (Nov 13, 2019)

I read this article over the weekend. In every one of these cases (there's another story about a pair of friends from Hawaii that this version of the article doesn't show), the same issues were repeated:

John couldn't afford the first car. He replaced one because it had 100K. Not that it had mechanical problems. He just preemptively traded up. And after the divorce he either gave the car to the spouse and was given his half in cash, or they sold it and split the profit. And I'm pretty sure he didn't HAVE to get a bigger car (because he sure didn't get a smaller one or the same size) because of the new family add ons.
Yolanda couldn't afford the first car. She was already underwater with the Durango--why did she trade it in? And if she couldn't afford repairs on a car (for whatever reason), she had no business owning it. And what's wrong driving a car with 188K miles on it? People do that everyday, especially with smaller sedans. She wants a giant car (every vehicle she had was an SUV) but they cost more in gas and repairs than a sedan or CUV.
The Hawaiian friends couldn't afford the first car. They actually went into the dealership to trade DOWN their vehicle and came out with a $900 car payment and a brand new truck. 
All of these high-balance loans could have been mitigated if they had just kept the cars until they were paid off (or of course never gotten the loan in the first place).  Just terrible decision making in each of these stories.


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## HappilyLiberal (Nov 13, 2019)

I'm in this situation right now.  I had a car that would have been paid off next year if I had just kept it.  In my defense, when I bought my current car, I was a few months out of Chemotherapy and wanted to buy myself something big.  But it was an extremely dumb decision and I don't even like the new car (it is smaller than the old one).  I ended up getting a loan to pay for the new car and what I owed on the old car (underwater).  So, now I am REALLY underwater on the new one.  My current plan is to pay this one off tout de suite and drive it until the wheels fall off.  I plan to pay cash for my next car!


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## Keen (Nov 13, 2019)

I just got a car and the dealership surely tried. I wasn't having it. Every time I told them the payment was too high, their solution was to extend the loan to 72 months instead of lowing the price. One company has a loan with a balloon payment. The idea is to roll the balloon payment into a new car payment when the balloon is due.  So the future new car loan  in 4 years would be New car price PLUS balloon payment minus trade-in equity. I told them that's too much math for me. That's how people end up with a $45K for a $27K car.


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## Black Ambrosia (Nov 13, 2019)

I had a cousin who would’ve been in a similar situation. She ended up keeping the car she already had and getting a second car. I guess she could’ve avoided the insurance cost if she traded in the old car but she felt like “why give them the car if I still have to pay for it?”


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## Black Ambrosia (Nov 13, 2019)

Not trying to make excuses for bad decisions but I think a lot of us on this board are savvier than the average person. And people that have bad credit tend to carry themselves accordingly because they  don’t think they have a lot of options -  “It’s not a great deal but I’m gonna pay a premium wherever I go so might as well...” type thinking.

Honestly the bigger issue in my mind is the difficulty getting out of these situations. We all make bad choices from time to time (it’s called experience) but you shouldn’t need bankruptcy to be able to start over (which is what I’d be considering )

If you owe $5k extra you can charge it to the game and pay it off over time. If you owe over $20k extra you’ll probably be upside down on your next 2 cars because they’ll stop running before you’ve paid off the debt and you’ll be forced to get something else. This feels like something the CFPB should be regulating so that you can’t finance so much more than the car is worth.


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## MizAvalon (Nov 13, 2019)

What is everyone's obsession with having new cars so often? I have been driving the same car for 15 years and it runs perfectly fine. Other than routine maintenance I think I have only had repairs done like twice.

I'm looking to get something newer and nicer in the next few years but I will still keep this one as a run-around car.


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## RoundEyedGirl504 (Nov 13, 2019)

I think this was posted in the finance forum. People want new cars and will end up paying for the new car AND the old car, and don't see how that screws them over until they have a noose around their neck for 7 years on a car that is worth scrap. And most people do not want to commit to paying cash for a car either. I have been foolish enough to do roll a loan into a new car. Never again. I am riding this current car into the ground LOL!


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## 1QTPie (Nov 13, 2019)

MizAvalon said:


> What is everyone's obsession with having new cars so often? I have been driving the same car for 15 years and it runs perfectly fine. Other than routine maintenance I think I have only had repairs done like twice.
> 
> I'm looking to get something newer and nicer in the next few years but I will still keep this one as a run-around car.



I've never had a brand new car because I'm a champion of buying used, but I understand.

I just found out that my car, prior to purchase, has had the fender replaced, the windshield and a bunch of other things and I've had that car for six years.  I found out about the windshield when I finally took my car to the bodyshop to address the leaking roof.    Found out that half of my car is after-market.   Carfax didn't say anything about an accident.  So I get it.  Plus, new cars look and smell good.


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## MizAvalon (Nov 13, 2019)

1QTPie said:


> I've never had a brand new car because I'm a champion of buying used, but I understand.
> 
> I just found out that my car, prior to purchase, has had the fender replaced, the windshield and a bunch of other things and I've had that car for six years.  I found out about the windshield when I finally took my car to the bodyshop to address the leaking roof.    Found out that half of my car is after-market.   Carfax didn't say anything about an accident.  So I get it.  Plus, new cars look and smell good.



I totally get that because with a used car you truly never know how the previous owner cared for it. So I get wanting to buy new from a peace of mind standpoint. But what I don’t get is wanting a new car so frequently that you never pay anything off and keep going into more and more debt over it. That’s just crazy to me.


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## Everything Zen (Nov 13, 2019)

It wasn’t the desire for a new car for just bc for me- it was the fact that I was a super commuter and often had to have an oil change every 3-4 weeks. I put 100,000 miles on a car easy in 3 years. For the first 10 years of my career that was just life. It was only a matter of time before you knew that major things were going to go wrong with the car. I hate cars because of that experience. The expense of repairs once your outside of the warranty is ridiculous. 
We got ours new from the dealership only bc Toyota that will cover the maintenance for so many miles once I got a job with a reasonable  commute and FH is in car sales so we got them at cost


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## Brwnbeauti (Nov 13, 2019)

Sold my car last December. Loved driving it. Love not having a car note more. 

Also, people ignore interest rates...had an associate who was paying 19%. Ma’am that’s a credit card- not a reoccurring bill for the next 3-5.


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## Black Ambrosia (Nov 13, 2019)

Brwnbeauti said:


> Also, people ignore interest rates...had an associate who was paying 19%. Ma’am that’s a credit card- not a reoccurring bill for the next 3-5.


That’s the game of dealerships. They know you walk in wanting to not get robbed but once they get you focusing on the monthly payment it’s a wrap. You don’t realize you paid too much AND they’ve added a bunch of fees.


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## LostInAdream (Nov 13, 2019)

I know a few people in this situation and so just SMH. I hate the car buying experience, been through it 4 times. I’ve never had to rollover a loan. 2 brand new and 2 late model used. I’ve had my current car for 6 years, have no car payments and will ride this to the wheels fall off. My engine is covered for the life of the car so as long as that dealership stays in business I’m straight.


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## LostInAdream (Nov 13, 2019)

Duplicate post


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## Everything Zen (Nov 13, 2019)

LostInAdream said:


> I know a few people in this situation and so just SMH. I hate the car buying experience, been through it 4 times. I’ve never had to rollover a loan. 2 brand new and 2 late model used. I’ve had my current car for 6 years, have no car payments and will ride this to the wheels fall off. My engine is covered for the life of the car so as long as that dealership stays in business I’m straight.



I refuse to get involved in the car buying experience or even go in when it’s time to do a deal. My father bought my first car, he handled the second and FH handles everything and keeps them in his name bc he is out here straight  customers  

I tell folks he’ll do you a solid at another dealership on his day off but don’t come into his dealership during his shifts expecting a deal- We got bills to pay.


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## Z-kitty (Nov 13, 2019)

My 2009 Acura has 196k miles and I’ve only had the standard maintenance done.  I’m hoping my baby has at least another 3 years left in her.   I refuse to buy a new car unless I absolutely have to.  

I know a few people on this situation and one them said she likes new cars and will always have car payment.  SMH!


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## Black Ambrosia (Nov 13, 2019)

Z-kitty said:


> My 2009 Acura has 196k miles and I’ve only had the standard maintenance done.  I’m hoping my baby has at least another 3 years left in her.   I refuse to buy a new car unless I absolutely have to.
> 
> *I know a few people on this situation and one them said she likes new cars and will always have car payment.*  SMH!


If you lease, this is always your situation. Nothing wrong with that.


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## CarefreeinChicago (Nov 13, 2019)

I just got a new car this year I gave my old car to my friend it still worked but it was having trouble picking up speed on the expressway so my friend uses it in the suburbs it was a 1999 Mitsubishi I paid it off in two years and hope to do the same with my new car


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## CarefreeinChicago (Nov 13, 2019)

Black Ambrosia said:


> If you lease, this is always your situation. Nothing wrong with that.


Someone said if you have your own business you can write your lease off


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## Z-kitty (Nov 13, 2019)

Black Ambrosia said:


> If you lease, this is always your situation. Nothing wrong with that.



She doesn’t lease that’s the thing.  She is upside down. She even rents a trailer in a trailer park.  I don’t understand.


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## dicapr (Nov 14, 2019)

Everything Zen said:


> It wasn’t the desire for a new car for just bc for me- it was the fact that I was a super commuter and often had to have an oil change every 3-4 weeks. I put 100,000 miles on a car easy in 3 years. For the first 10 years of my career that was just life. It was only a matter of time before you knew that major things were going to go wrong with the car. I hate cars because of that experience. The expense of repairs once your outside of the warranty is ridiculous.
> We got ours new from the dealership only bc Toyota that will cover the maintenance for so many miles once I got a job with a reasonable  commute and FH is in car sales so we got them at cost



I commuted for years. Actually highway miles aren’t that bad on a car. I rode mine until it died (due to an accident) with minimum repair cost except for breaks, tires, and AC. High miles on a car doesn’t always translate into high repair cost.  I was nearing 300K miles when a deer killed my car. I had a Honda. Plus it was paid for. So long as routine costs didn’t equal a monthly car payment I was fine.


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## Black Ambrosia (Nov 14, 2019)

Z-kitty said:


> She doesn’t lease that’s the thing.  She is upside down. She even rents a trailer in a trailer park.  I don’t understand.


I was just pointing out how the situation is the same with a lease even though it’s perceived differently. 

When I had my first summer internship I learned that people in corporate jobs lived in trailer parks. There was a white woman (I think she was an admin) who was proud of her little trailer. It had 3 bedrooms and she told me it was in a nice area. I think she was paying less than $400 per month. 

It’s not for me but it’s not the sign of poverty that I thought it was. Idk about the woman in the article though. It could be poverty for her. I think they’re all stuck in a predatory situation but because they aren’t perfect victims they aren’t getting much empathy.


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## Leeda.the.Paladin (Nov 14, 2019)

dicapr said:


> I commuted for years. Actually highway miles aren’t that bad on a car. I rode mine until it died (due to an accident) with minimum repair cost except for breaks, tires, and AC. High miles on a car doesn’t always translate into high repair cost.  I was nearing 300K miles when a deer killed my car. I had a Honda. Plus it was paid for. *So long as routine costs didn’t equal a monthly car payment I was fine.*


 This is how we decide whether it’s time for a new vehicle. Glad to hear your honda lasted so long. My honda just hit 180k. She’s had to have a few repairs here and there but it’s been a good vehicle. Especially since we bought it used from CarMax ( I think it had 20k miles on it then).


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## Everything Zen (Nov 14, 2019)

dicapr said:


> I commuted for years. Actually highway miles aren’t that bad on a car. I rode mine until it died (due to an accident) with minimum repair cost except for breaks, tires, and AC. High miles on a car doesn’t always translate into high repair cost.  I was nearing 300K miles when a deer killed my car. I had a Honda. Plus it was paid for. So long as routine costs didn’t equal a monthly car payment I was fine.



Well I had two Hyundais and my costs were the equivalent of monthly car payments and more after the powertrain warranty ran out. My first one was paid for and the second, I was still making car payments. I rode them both to about 140k miles. I was also laid off in the recession so my finances were jacked up for several years before I felt a sense of stability and started making decent money to be able to make car payments on a comfortable level again.


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## Keen (Nov 14, 2019)

Brwnbeauti said:


> Sold my car last December. Loved driving it. Love not having a car note more.
> 
> Also, *people ignore interest rates.*..had an associate who was paying 19%. Ma’am that’s a credit card- not a reoccurring bill for the next 3-5.



Dealers make so much money on financing. The automaker dealers do offer better financing from my experience. After I negotiated my car purchase and trade in, the dealer ran my credit for a loan. He offered 4.1%. I said nope, another dealer offered me 2.9%. I'm going to find my own financing for 2.9% and get back to you. The dealer gave me an extra $1K for my trade to bring my payment down to what it would have been if interest rate was 2.9%

Did I mention my new car is 2020 CERTIFIED USED. It had 500 miles. I got an extra year of warranty because it was certified use.


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## B_Phlyy (Nov 14, 2019)

I had every intention of running my first car until the wheels came off... then the wheels did come off when I moved and my little car couldn't handle the commute. It was at the point where despite repairs and maintenance, my check engine light was coming on at least once every 2-3 weeks. I had the car for 3.5 years and only put about 45K miles on it.

I was underwater on the original loan by <4k and my interest rate on the new car loan is 1.9% so the trade up was worth it to me. The new car is bigger but the gas mileage is better so overall I'm paying less than I was for the smaller car. I suspect I'll put 40k miles on it this first year alone. But I think this car will last me the long haul. A few people at my job have the same car as mine, just older. One provider said his has lasted him all through undergrad until now (he's in his 3rd or 4th year being an attending). Easily 280k miles on it but it runs super smooth. This is my dream for my car. 

DH is someone who always wants a new car. I think in the almost 7 years we've been together, he's had 5 cars. He's never underwater when he trades up, but I'm still like dude, you could have picked one and paid it off in all this time.


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## dicapr (Nov 14, 2019)

Everything Zen said:


> Well I had two Hyundais and my costs were the equivalent of monthly car payments and more after the powertrain warranty ran out. My first one was paid for and the second, I was still making car payments. I rode them both to about 140k miles. I was also laid off in the recession so my finances were jacked up for several years before I felt a sense of stability and started making decent money to be able to make car payments on a comfortable level again.



That’s fine. To me so long as the yearly total of repairs is less than the yearly total of payments I’m good. Once those 2 things are equal I start looking for a new car. But paying 2.5K once a year isn’t enough to make me jump ship. A car payment over a year is more than a one time cost.


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## Crackers Phinn (Nov 14, 2019)

CarefreeinChicago said:


> Someone said if you have your own business you can write your lease off


You don't have to own the company, cars can be leased for employees as well.  The way it works is the car is leased and insured in the company's name and makes the payments and get a tax write off.  The owners/employees are listed as authorized drivers on the auto policy.   There's no problem as long as the company makes enough money to pay the lease and insurance.  Me and the old man's cars are leased through our shared company. 

Sidenote: A couple of my in-laws are interior designers and not only do they lease their cars through the businesses, they bought their house in a separate business name and leases it out to their other business as a "Showroom".   Basically a  "Showrooms"  is a fancy way to say instead of having a home office, their office is a home that they can show their clients their decorating style.  As long as the addresses match the tax documents, it passes the IRS smell test.


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## Brwnbeauti (Nov 14, 2019)

Keen said:


> Dealers make so much money on financing. The automaker dealers do offer better financing from my experience. After I negotiated my car purchase and trade in, the dealer ran my credit for a loan. He offered 4.1%. I said nope, another dealer offered me 2.9%. I'm going to find my own financing for 2.9% and get back to you. The dealer gave me an extra $1K for my trade to bring my payment down to what it would have been if interest rate was 2.9%
> 
> Did I mention my new car is 2020 CERTIFIED USED. It had 500 miles. I got an extra year of warranty because it was certified use.


I always use credit unions. Back in ‘10 my rate was 4.8 with a credit score in the 500s


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## Keen (Nov 14, 2019)

Brwnbeauti said:


> I always use credit unions. Back in ‘10 my rate was 4.8 with a credit score in the 500s


That's what I've always heard. I think I benefited from buying towards the end of the year. I spoke to a couple of people who bought recently from the same make dealerships. They had good credit, went through credit unions and ended up paying 4.9%. 

I intended on checking with credit unions. But I didn't feel like they could do better than 2.9% on a use car.


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## CarefreeinChicago (Nov 15, 2019)

Crackers Phinn said:


> You don't have to own the company, cars can be leased for employees as well.  The way it works is the car is leased and insured in the company's name and makes the payments and get a tax write off.  The owners/employees are listed as authorized drivers on the auto policy.   There's no problem as long as the company makes enough money to pay the lease and insurance.  Me and the old man's cars are leased through our shared company.
> 
> Sidenote: A couple of my in-laws are interior designers and not only do they lease their cars through the businesses, they bought their house in a separate business name and leases it out to their other business as a "Showroom".   Basically a  "Showrooms"  is a fancy way to say instead of having a home office, their office is a home that they can show their clients their decorating style.  As long as the addresses match the tax documents, it passes the IRS smell test.


Thanks! That showroom idea sounds like an awesome idea!


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## SpiritJunkie (Nov 15, 2019)

Z-kitty said:


> My 2009 Acura has 196k miles and I’ve only had the standard maintenance done.  I’m hoping my baby has at least another 3 years left in her.   I refuse to buy a new car unless I absolutely have to.
> 
> I know a few people on this situation and one them said she likes new cars and will always have car payment.  SMH!


i have an Acura also that i've had for 11 years with 229,000 km. 2008 i bought it brand new. before that i had an acura for 4 years lease...when i had my business.

I never heard of underwater loans.  I'm planning to by a used benz cash from the dealer with full warranty.  I've been shopping around and the car biz ain't no check.  You must do your homework


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## cutiepiebabygirl (Nov 17, 2019)

MizAvalon said:


> What is everyone's obsession with having new cars so often? I have been driving the same car for 15 years and it runs perfectly fine. Other than routine maintenance I think I have only had repairs done like twice.
> 
> I'm looking to get something newer and nicer in the next few years but I will still keep this one as a run-around car.



I think it's a status thing.

I've had my car since 2008. I am not buying another until it is completely inoperable and even then I will only buy a new- used car.

I'll never buy a new car again, it's a hustle.


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## itsallaboutattitude (Nov 17, 2019)

Just talked a family member down from
talk about her 2008 RDX $2k in repairs vs buying a new car. 

The RDX is paid in full.

$2k is not the equivalent in monthly car note for 1 year. They were paying $600+ a month for this car originally. 

They can delay the repair - not an urgent issue right now.


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## Black Ambrosia (Nov 17, 2019)

cutiepiebabygirl said:


> *I think it's a status thing.*
> 
> I've had my car since 2008. I am not buying another until it is completely inoperable and even then I will only buy a new- used car.
> 
> I'll never buy a new car again, it's a hustle.


It might be for some people but the people in the article weren't flossing. The attorney even said that these people were getting Ford Escapes not luxury vehicles.


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## Black Ambrosia (Nov 17, 2019)

itsallaboutattitude said:


> Just talked a family member down from
> talk about her 2008 RDX $2k in repairs vs buying a new car.
> 
> The RDX is paid in full.
> ...


Just wondering... is $2k everything it needs or just what's urgent?


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## demlew (Nov 17, 2019)

I've underwritten $78K car loans for 84 month terms. Some financial institutions finance cars/trucks for 96 months.


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## MizAvalon (Nov 17, 2019)

demlew said:


> I've underwritten $78K car loans for 84 month terms. Some financial institutions finance cars/trucks for 96 months.


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## demlew (Nov 18, 2019)

MizAvalon said:


>



Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh.  The application was declined.


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## FoxxyLocs (Nov 18, 2019)

demlew said:


> Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh.  The application was declined.



That is crazy! Not that I would ever pay $1700/mo for any car but if I did it would be an Aston Martin or something. Not a dang Chevy Silverado.


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## fluffyforever (Nov 18, 2019)

I paid off my car earlier this year (a 2013 sedan). I bought it brand new - I learned my lesson and never will do that again. Although I want a new one  car (new to me, not brand new) because I want a car with AWD and more comfort/luxury, I can't justify the price when my car is perfectly capable of getting me around town. So instead I just bought some good all weather tires and I decided to keep driving this car until it no longer functions and can't be fixed. 

I don't ever want to go back to a monthly car payment. In the future, I will only buy cars I can afford to buy completely outright without financing. 

I never knew a person could rollover an old car loan into a new car loan after trading in their old car and getting a new car. Why would underwater loans like that even be legal?


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## demlew (Nov 18, 2019)

fluffyforever said:


> I paid off my car earlier this year (a 2013 sedan). I bought it brand new - I learned my lesson and never will do that again. Although I want a new one  car (new to me, not brand new) because I want a car with AWD and more comfort/luxury, I can't justify the price when my car is perfectly capable of getting me around town. So instead I just bought some good all weather tires and I decided to keep driving this car until it no longer functions and can't be fixed.
> 
> I don't ever want to go back to a monthly car payment. In the future, I will only buy cars I can afford to buy completely outright without financing.
> 
> I never knew a person could rollover an old car loan into a new car loan after trading in their old car and getting a new car.* Why would underwater loans like that even be legal?*



You'd be surprised at what's legal in the car business. I've seen some applicants get a 17.90% interest rate on their car loan. As far as the bolded, I see it happening frequently here in Texas. Part of it is because leases are impractical in this state because everything is so spread out. Soo...you combine geography with some consumers who need to always upgrade to the newest model and voila....$19K in negative equity.

For me personally, I'm not into new cars. I bought a car brand new because there were no used models yet. I drove it 11 years. My current car is 13 years old and I pray we keep rolling for years to come lol.


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## oneastrocurlie (Nov 18, 2019)

demlew said:


> Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh.  The application was declined.



Good. That's a blessing in disguise for them.


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## dancinstallion (Nov 19, 2019)

demlew said:


> Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh.  The application was declined.



That is a mortgage payment on a big ass house! $1754  people are stupid. Frfr


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## itsallaboutattitude (Nov 19, 2019)

Black Ambrosia said:


> Just wondering... is $2k everything it needs or just what's urgent?


Everything.


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## winterinatl (Nov 27, 2019)

demlew said:


> Ikr?! We had one come through yesterday. The couple applied for $98K/84 months to buy a 2020 Chevy Silverado ($1754 payment). They were upside down $19K on a 2017 model smh.  The application was declined.


Dang. It ain’t even that serious. 
I wanted a new Highlander or Murano but these prices are stupid. Even if I get the zero or 1% financing the payment is more than I’m comfortable with. So; certified pre owned is what will happen if I jump ship at all. I want a certified luxury crossover. Like my current one. But I want a backup camera, moonroof, and leather seats. It’s not needs, just wants. So it can wait.


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## aribell (Nov 30, 2019)

dicapr said:
			
		

> High miles on a car doesn’t always translate into high repair cost. I was nearing 300K miles when a deer killed my car. I had a Honda. Plus it was paid for. So long as routine costs didn’t equal a monthly car payment I was fine.



My first car was a Honda Accord that had about 220K miles on it when a parking lot flooded and water got into the exhaust.  That car never had any problems.  We replaced the starter once and besides that it was just regular maintenence.  I really believed it would have gotten to 300K, and I would have been happy driving it.



			
				1QTPie said:
			
		

> I just found out that my car, prior to purchase, has had the fender replaced, the windshield and a bunch of other things and I've had that car for six years. I found out about the windshield when I finally took my car to the bodyshop to address the leaking roof. Found out that half of my car is after-market. Carfax didn't say anything about an accident. So I get it. Plus, new cars look and smell good.



Same thing happened to me (2nd Honda).  The Carfax was totally clean.  Came to find out after hitting a deer (two, actually ) that it must have had significant repairs done in the past.  The bodyshop guy told me that if no insurance claim is filed, then it's not going to show up on the Carfax.  The car had been previously leased, which I thought made it more trustworthy.  But they said the dealer likely fixed it up in-house.  That car had so many mechanical problems from day 1, I could have just gotten a new car for all the money that ended up going into ongoing repairs.  I remember the salesman's face falling when my father and I said we'd pass on the warranty, taking the condition at face value.  He must've known.  $2500 transmission bill within a few months followed by multiple other issues.  

For that reason I became strongly hesitant to buy used ever again.  I'd need to know the person I was buying from or get a certified pre-owned vehicle with a strong warranty.

My current car (also a Honda) is one I'm happy with and, yes, was initially underwater on, though not to to the degree discussed above.  I was basically in a position where I had to buy a car for work, had little to put down, and I wanted something reliable that I wouldn't need to worry about and that I would want to keep for a long time--also something that would retain its value.  Still not a good financial decision, but I hopefully will have it paid off early this year and have no plans to buy a new one any time soon.

I receive auto financing offers on a weekly basis now.  They are very aggressive in trying to get people to trade in/up.


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## Brwnbeauti (Nov 30, 2019)

FoxxyLocs said:


> That is crazy! Not that I would ever pay $1700/mo for any car but if I did it would be an Aston Martin or something. Not a dang Chevy Silverado.


People pay a lot for pickup trucks. I had a small luxury sedan and folk with 60k trucks were giving me the “oh she fancy black” looks.


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## ScorpioBeauty09 (Dec 2, 2019)

Earlier this year Ali Velshi on MSNBC had a financial expert on his show talking about how there's a subprime car loan bubble forming that's akin to the subprime mortgage loan crisis that caused the 2008 crisis. Obama signed in policies to address it or something, and no surprise the Orange pimple reversed it.  The bubble is most concentrated in Millennials/Gen Z.

I've never had a new car and never will, if I can help it. My dad, who bought two new cars over the course of my childhood, bought a used car when his 10 year old car was totaled a few months ago.


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## SpiritJunkie (Dec 2, 2019)

@aribell get what works for your pocketbook.  I don't mind getting used...either I get a certified pre-own or last resort...a new car from the dealer. Like you I hate no knowing the history of the car


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## Black Ambrosia (Dec 2, 2019)

ScorpioBeauty09 said:


> Earlier this year Ali Velshi on MSNBC had a financial expert on his show talking about how there's a subprime car loan bubble forming that's akin to the subprime mortgage loan crisis that caused the 2008 crisis. Obama signed in policies to address it or something, and no surprise the Orange pimple reversed it.  The bubble is most concentrated in Millennials/Gen Z.
> 
> I've never had a new car and never will, if I can help it. My dad, who bought two new cars over the course of my childhood, bought a used car when his 10 year old car was totaled a few months ago.


We talked about this in the recession thread a few months ago.

*A record 7 million Americans are 3 months behind on their car payments, a red flag for the economy*
Heather Long

*A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported Tuesday, even more than during the wake of the financial crisis.*

Economists warn that this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills.

“The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,” economists at the New York Fed wrote in a blog post.

A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is usually a sign of significant duress among low-income and working-class Americans.

'Repo men' are doing better than ever

“Your car loan is your No. 1 priority in terms of payment,” said Michael Taiano, a senior director at Fitch Ratings. “If you don’t have a car, you can’t get back and forth to work in a lot of areas of the country. A car is usually a higher-priority payment than a home mortgage or rent.”

People who are three months or more behind on their car payments often lose their vehicle, making it even more difficult to get to work, the doctor’s office or other critical places.

*The New York Fed said that there were over a million more “troubled borrowers” at the end of 2018 than there were in 2010, when unemployment hit 10 percent and the auto loan delinquency rate peaked. Today, unemployment is 4 percentand job openings are at an all-time high, yet a significant number of people cannot pay their car loan.*

*Most of the people who are behind on their bills have low credit scores and are under age 30, suggesting young people are having a difficult time paying for their cars and their student loans at the same time.*
Auto loans surged in the past several years as car sales skyrocketed, hitting a record high in 2016 of 17.5 million vehicles sold in the United States. *Overall, many borrowers have strong credit scores and repay their loans on time, but defaults have been high among “subprime” borrowers with credit scores under 620 on an 850-point scale.*

The share of auto loan borrowers who were three months behind on their payments peaked at 5.3 percent in late 2010. The share is slightly lower now — 4.5 percent — because the total number of borrowers has risen so much in the past several years. Still, economists are concerned because the number of people impacted is far greater now and the rate has been climbing steadily since 2016 even as more people found employment.

Experts warn Americans to be careful where they get their auto loan. Traditional banks and credit unions have much smaller default rates than “auto finance” companies such as the “buy here, pay here” places on some car lots.

Fewer than 1 percent of auto loans issued by credit unions are 90 days or more late, compared with 6.5 percent of loans issued by auto finance companies.

“The No. 1 piece of advice I have is to not get your financing from a car dealership,” said Christopher Peterson, a law professor at the University of Utah and former special adviser to the Consumer Financial Protection Bureau. “Shop separately for the vehicle and the financing. Go to a credit union or community bank to get a low-cost loan.”

Rates can vary substantially depending on a borrower’s credit score and where they obtain a loan. A “prime” borrower with a credit score in the range of 661 to 780 can get an auto loan rate of about 4.5 to 6 percent, according to NerdWallet. In contrast, a subprime borrower is typically looking at rates between 14.5 and 20 percent.

*After the financial crisis, the government placed heavy restrictions on mortgages to make it harder to take out a home loan unless someone could clearly afford to make the monthly payments. But experts warn that there are far fewer restrictions on auto loans, meaning a consumer has to be savvier about what they are doing when they take out a loan.*

*"Predatory lending practices and a lack of real transportation options leave many households trapped in debt with few ways out,”* said Faye Park, president of the U.S. Public Interest Research Group, which advocates for consumer protections.

Repossessing a car is also a quick process thanks to technology and the laws in many states. Some cars are installed with devices that prevent the car from turning on if someone misses a payment and it has become easier to geo-locate a car to tow it away.

“It’s a lot easier to repossess a vehicle than to foreclose on a home,” Taiano said.

He noted that *non-prime and subprime auto loans increased from 28 percent of the market in 2009 to 39 percent in 2015, a reminder of how aggressively lenders went after borrowers who were on the margin of being able to pay. *More lenders are giving people six or seven years to repay now vs. four of five years in the past, according to Experian, another tactic to try to make loans look affordable that might not otherwise be.

While defaults on auto loans are a red flag, they are unlikely to take down the entire financial system as mortgages did in the lead-up to the 2008-2009 financial crisis. The total auto loan market is just over $1 trillion, far smaller than the $9 trillion home mortgage market.

The amount of money people borrow to buy a car is also much smaller — typically under $35,000 — vs. a home loan, where people often borrow several hundred thousand dollars.







(NY Fed)


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## demlew (Dec 3, 2019)

aribell said:


> My first car was a Honda Accord that had about 220K miles on it when a parking lot flooded and water got into the exhaust.  That car never had any problems.  We replaced the starter once and besides that it was just regular maintenence.  I really believed it would have gotten to 300K, and I would have been happy driving it.
> 
> 
> 
> ...



At the bolded - it's also possible that his face fell because you said no to the backend (items added on top of the sales price - like GAP, warranty, accessories)  and that's where the dealer makes their money. Generally speaking, dealers make little to no money on the car itself (the front-end) if they don't increase the sales price above the MSRP/Retail value, so they count on the backend. I'd recommend certified pre-owned. That's what I'm getting when my 2006 car goes to glory.

Your Honda will have you in a good equity position in no time. They're reliable and hold value very well.


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## cocosweet (Dec 6, 2019)

demlew said:


> I've underwritten $78K car loans for 84 month terms. Some financial institutions finance cars/trucks for 96 months.


The way  a lot of these cars are being priced these days, you need about that long to pay for them. It’s scary. It’s gotten to the point where the average person cannot really afford a newer car.
We have a 13 year old Town and Country and a 4 year old Sonata. We’re driving both these jokers until the wheels fall off.


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## demlew (Dec 6, 2019)

cocosweet said:


> The way  a lot of these cars are being priced these days, you need about that long to pay for them. It’s scary. It’s gotten to the point where the average person cannot really afford a newer car.
> We have a 13 year old Town and Country and a 4 year old Sonata. We’re driving both these jokers until the wheels fall off.



Agreed. Somebody hit my 2006 car and drove off. I’m praying State Farm doesn’t total it. I love not having a car payment.


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## nyeredzi (Dec 6, 2019)

I want a minivan, but I was not prepared for the price. I see what that article was saying now, how the price of cars has risen faster than wages. I bought my car, granted a cheap car, for $12,800 new in 2010, my Hyundai Elantra. I was not prepared for the prices when I saw them. These things' base models are like 30k new, averaging around 36k new. I was not ready! I forgot, too, that a minivan would be more expensive than a sedan, duh. In my head, I was expecting 25k new, around 17-18 for a ~3 year old used one. I'm completely rethinking getting the minivan now. My car feels kind of small for having 2 kids, but I've been living with it, maybe it's not that bad after all. Better than spending $400 or $500/month for a note. But how long can a Hyundai last, lol? My husband says my car is going to basically be junk in short order ... :/


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## Leeda.the.Paladin (Dec 7, 2019)

nyeredzi said:


> I want a minivan, but I was not prepared for the price. I see what that article was saying now, how the price of cars has risen faster than wages. I bought my car, granted a cheap car, for $12,800 new in 2010, my Hyundai Elantra. I was not prepared for the prices when I saw them. These things' base models are like 30k new, averaging around 36k new. I was not ready! I forgot, too, that a minivan would be more expensive than a sedan, duh. In my head, I was expecting 25k new, around 17-18 for a ~3 year old used one. I'm completely rethinking getting the minivan now. My car feels kind of small for having 2 kids, but I've been living with it, maybe it's not that bad after all. Better than spending $400 or $500/month for a note. But how long can a Hyundai last, lol? My husband says my car is going to basically be junk in short order ... :/


I was in the same position as you. I’d been riding in my sedan and it was starting to get cramped with the kids. We went to CarMax and got a minivan. I think it has 20k miles on it, but was in great condition and a lot less cheap than buying new. We’ve had it 9-10 years now and it’s good. It needs minor repairs here and there but still cheaper than having a car note (in the long run). 

I’ve talked to other people who have the same make/model and I think we have another 5-7 years if we play my cards right.


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## nyeredzi (Dec 7, 2019)

Leeda.the.Paladin said:


> I was in the same position as you. I’d been riding in my sedan and it was starting to get cramped with the kids. We went to CarMax and got a minivan. I think it has 20k miles on it, but was in great condition and a lot less cheap than buying new. We’ve had it 9-10 years now and it’s good. It needs minor repairs here and there but still cheaper than having a car note (in the long run).
> 
> I’ve talked to other people who have the same make/model and I think we have another 5-7 years if we play my cards right.



Yeah, I really had my mind set on a minivan. But it looks like car prices have risen so much in the last 10 years. How much did you pay for your minivan, and how many miles do you drive it a year? How many miles are you anticipating putting on it before you get rid of it?

If I want a a used minivan with 30k or fewer miles on it, like a Honda Odyssey, Kia Sedona, or Chrysler Pacifica, I can't find anything like that list for less than ...quick check in my already open carfax page within 100 miles of me:
Sedona: 25k
Odyssey: 17k (oh, this is a steal, at 29k miles, though it has damage reported, no accidents cheapest is 18.5k)
Pacifica: 19k

Wait, where does  the Kia get off being so expensive, lol? I'm going to start a new thread, I need help


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## Black Ambrosia (Dec 7, 2019)

I vaguely recall hearing that the cash for clunkers government program inadvertently caused used car prices to go up during the last recession. Not sure of the long term impact or the connection to auto sales now but I think it might be relevant.

Around the same time car companies stopped focusing on the lower tier cars. Most new cars start at a higher price point now than they did 10+ years ago so the base price for most new cars is higher and the inventory of used cars is also priced higher than back in the day. Even when we account for inflation, prices are higher because car companies don’t like the profit margins on lower priced cars.


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