Equity and depreciation are not related, in the least - they are two separate subjects. Unfortunately, people who jump into car deals with trading a car with no equity or not putting some cash down, or buying a car that drops like a rock in the market, then they have to suffer both hard depreciation and negative equity.
My original point is that they aren't always mutually joined.
into a car. One is for the buyer to put cash in by making a downpayment or making extra payments somewhere along the way. The other is for the dealer to put the cash into it buy selling it for a very low sales price. In my previous statements, I have assumed best case is that they bought it for invoice not MSRP.
Equity = value of the asset - amount owed on the asset.
Since the value of the asset depends on depreciation, equity is related to depreciation.
That's the basis I was using when I said they would lose their shirt trading it back in for another vehicle. Whether they financed it or paid cash for it makes no difference. The depreciation has to be paid somehow.
Just because there is depreciation doesn't mean they have negative equity. While if you buy a vehicle with little cash, trade or rebate down, trading soon will always find you upside down.
If you put some good money down, or had good equity in your trad-in or paid cash, the equity issue is a non-issue.
..... One of the biggest problems with the market is, that most folks put little or no money down .. when you do that with the first vehicle, it's not quite so bad .. but on the 2nd or the 3rd turn (if it get's possible) most folks end up being $4/$7/$11 grand in the bucket depending on what they drive ..
What I never understood was, these are the same folks that put down 50% on their fiances duralight ring or the 40% down on their home .. why would you not at least put the taxes, tag and title down on their vehicle.?
Maybe I did jump, A LITTLE, but they tone of the caligirl's post suggests she is NOT in a good financial situation...
Before she gets into a WORSE situation it is important that she get some idea of what she might be facing. Seems to me she is ALREADY "freaking out" -- I can imagine that she might be seeking advice from some folks who would paint a MUCH ROSIER picture, to her detriment...
The situation I laid out, with $8K negative equity on a six month old truck & considering getting a small, fuel sipping vehicle seems EXACTLY like what she might be considering...
Before preceding she definitely needs to get all the details out in the open...
MODERATOR /ADMINISTRATOR Find me at kirstie_h@edmunds.com - or send a private message by clicking on my name. 2015 Kia Soul, 2021 Subaru Forester (kirstie_h), 2024 GMC Sierra 1500 (mr. kirstie_h) Review your vehicle
If she put $5k down and that is her equity then it was lost when she drove it off the lot.
Let's say she put $20K down and her price was $30K just for example. Now the trade-in value of her truck is $15K as you guys have said in our discussion about the volvo. Then she has $5K equity left but she will have to waste the other $15K she put down on the downpayment. What really matters here is the depreciation not the equity. She may have equity in it but it is because she put cash down which now is gone. Then the loss came on the front end but it is still lost.
a $30,000 vehicle, put $10,000 down and want to trade it after a month, when it's dropped $5,000 in value, I still have $5,000 equity. It's worth $25,000, I owe $20,000.
and that is a net $5K loss when you trade it back in since what you paid was $10K and what you got back was $5K. What you lost was the depreciation. Equity is not the controlling factor here. What matters is cash out of pocket whether it be at purchase time or at trade-in time.
Who cares what the equity is since the buyer is the one who had to put the cash into it to get the equity?
"but they tone of the caligirl's post suggests she is NOT in a good financial situation"
What post did you read, Rerenov8r? All her post says is that she wants something small, more fuel efficient, and lower in insurance. How on earth do you read from that she is NOT in a good financial situation.
There are many people who find out they don't need a truck and are interested in fuel economy. Anyone who is SMART with their money (read GOOD financial situation) is interested in getting lower insurance.
Why not read into it exactly what she said? She doesn't know what the process is for trading in a new(er) vehicle. I only saw ONE post (Zeus) that gave her advice as to what she should do while everyone else tried to play "Financial Advisor" when they don't know the first thing about her "situation".
Here are some efficient wagon/SUV models you might want to consider if you're coming from a big truck and still need some practical space:
* Toyota RAV4 * Toyota Matrix * Pontiac Vibe * Mazda Protoge5 * Highlander (4 cyl) * Subaru Forester * Subaru Legacy or Outback * Honda CR-V * Honda Element
All of them are reasonably reliable and should average 20mpg or better, yet they'll give you enough space that they'll still be practical. They cover a wide price range, maybe $15-25k or so.
I think jumping into a compact sedan is too much of a step down in size from a big truck, try something inbetween.
My suggestion would be to go to an auto show where you can browse all of these models together, back to back, and pick a couple of favorites you can test drive later.
Then consider trading semi-used for semi-used, maybe a demo or very slightly used 1 year old model. Good luck.
She is trying to save some money on fuel. Let's say she gets something that gets 25 mpg instead of 15 mpg. Let's also use $1.60 as a reasonable gas price right now. I know that varies across the country but just for the calculation. Let's say she loses $10K on the trade-in due to depreciation. It will take her over 200,000 miles to make up the depreciation loss in gas savings.
The Quests/Villagers are (were?) assembled by Ford employees in Ohio using Nissan drivetrains (from Japan?), sheetmetal stamped in TN and an assortment of Ford interior parts and switches, etc. I heard that the engine and/or tranny production shipped stateside at some point but never verified the rumor. Nissan designed them in CA, at least the '99 and later flavors. Good vans.
"#3113 of 3145 Can I trade in... by caligirl2 Feb 24, 2003 (5:13 pm) Would it be possible to trade in my used truck that I bought in September for something else? I'm not sure how I would go about that. The truck is fine, has under 20,000 miles on it. I just need something smaller and that gets better gas mileage, and lower insurance. Would I have to take it back to the dealer ship I got it from, or could I take it anywhere? If anyone could help me with that, I would appreciate it. Thanks"
Everyone let's read it - it was a used truck. Where does it say she's has a negative equity position? All she is asking is how to sell it or trade it in?
What if daddy wrote a check for it, or she traded in her paid for IROC-Z and got $9,000 in trade (yeah right).
My only point was that everyone was telling her how much cash she was going to need and didn't even know the whole story.
You remember how Walter Matthau broke down the word "assume" in the "Bad News Bears"? If you're younger than 30, you won't know what I'm talking about.
Don't look at her current depreciation hit, because if she replaces is with a cheaper car (new or used) she'll still owe less or have cash in the bank.
If she has a payment, it can be lowered. If it's paid off, she can cash out. Buy a more affordable car with lower operating costs.
The key is to pick something that's still practical and does what she needs.
It is a safe assumption. It doesn't matter if her daddy did write a check for it because then daddy's money would be lost. I am not talking about how much cash she will need but about how much cash she has already spent. That already spent money (depreciation + equity), or cash paid out at trade-in (depreciation) if she did finance it is trashed when you trade it in after only 6 months. Financed or cash, it makes no difference.
She appears to be looking to save money and trading it in would be quite the opposite. If it were a "people who drive low mpg vehicles support terrorists" or "gas guzzlers eat up the ozone" arguement, she knew that when she bought it. However, she didn't know gas was going to go up as high as it has so quickly. She also would not have mentioned the insurance if it wasn't a financial issue at the heart of it.
Would any of you salesmen/dealers really do something like this with your own car, cash or financed?
No one ever said that (unless she financed the truck). That money is already spent. Maybe your headache is getting worse because your not paying attention.
If I had paid cash for a car for my daughter and she did something as stupid as turning around 6 months later and trade it in for something else, she would be paying me for the depreciation that I paid for and she wasted.
She ONLY asked about the process of trading in her vehicle.
Good lord, makes my mother-in-law look like a saint with all this "I don't know your business, so I'll just make up scenarios for you and tell you how to fix them.".
under which it makes financial sense to buy any new car and then turn around and trade it in for another at a dealer 6 months down the road. Do that or state that you think that its ok to throw away $10K in cash and I will be through. Otherwise, please be honest with people here.
Who ever said it makes sense to trade a vehicle shortly after buying it? I NEVER addressed that and throwing away money, in any form, is stupid.
However, if the girl needs to trade her truck, she has every right to, but several people in this forum began jumping up and down about how much money she'd have to put down.
I argued that just because a vehicle depreciated, it didn't necessarily affect the equity situation, so downpayment money is an unknown until all the facts are out - and none of you had the facts - I only know it's a GMC from her profile. No one else even bothered to ask questions before jumping to conclusions.
That was my only point all along - I made no other argument. So now I'm dishonest? I'm really having a hard time figuring out where you came up with that one.
Again, you've crossed the line from good debate and conversation to unbased personal attacks.
"Who ever said it makes sense to trade a vehicle shortly after buying it? I NEVER addressed that and throwing away money, in any form, is stupid."
That proves my point. You don't need any more information to tell her that it will cost her alot of money. But you seem to take no concern over the money that she spent up front on the truck.
Its misleading to tell her that it won't cost her alot of money no matter what the details of her situation are.
You remember how Walter Matthau broke down the word "assume" in the "Bad News Bears"? If you're younger than 30, you won't know what I'm talking about.
I'm under 30 and know what you're talking about. See what happens when you assume...
"Losing money on a purchase (which she'll do) and needing more money to put down (which she may not)..." We certainly agree on but "...are clearly two different things." we do not. Money is money. Is the trade-in cash worth more than the purchasing cash? Is there some kind of exchange rate here? If you don't take both into account, then you are saying that it is OK to throw away large sums of money.
tboner seems to understand. I know others here do too.
Either way, take the hint that I'm done with that conversation. I take breaks between reports to come on Edmunds and relax and learn something and visit with friends.
I do not come here to argue over pointless issues, especially when we haven't heard from the young lady again who asked the original question.
on the fact that she bought the car 6 months ago. He's all excited about the money that has been spent and lost to depreciation.
My question would be: At what point in a vehicle's life is spent money NOT lost to depreciation? If the poster was trying to trade in a 3 year old vehicle would the money previously spent somehow not be lost?
The truth is that it is always lost but becomes less and less of an impact as time goes on. We think of it on a $/yr or $/mile basis. A $10k loss to depreciation becomes $3333/yr after 3 years but is $20,000/yr at the 6 month interval. However, we have to remember that after 3 years, there is more depreciation lost than there is after 6 months.
thinking about new trailblazer ext 4x4, but the trade in offered for my 2001 nissan quest SE seems low compared to kelly blue book. I have been offered 14k for it. It has 29K on it, V6, auto, vhs video entertainment pkg, 16" wheels, factory tow hitch, running boards, two-tone black,silver, gray interior, pw ,pl,cruise,tilt, remote entry. Is in good shape, only has two very small dings from shopping cart in one door. Front tires are new. Rear tires about halfway worn. I live in Georgia.
"real world trade in values" but these vans aren't very strong in the market. Figuring a grand back of book, plus two dings and two tires, that's about right for me. Try to work $15K out of them or sell it yourself.
Keep the van, it sounds like it's well equipped and shouldn't depreciate a whole lot more over the next couple of years.
The Trailblazer EXT, meanwhile, will likely depreciate like it drove off a cliff. No offense to Chevy fans, but read the $10k plunge in resale above.
So I'd suggest you consider buying a used EXT in a year or two, which will probably save you $10 grand or so. You'll probably only lose $2-3 grand extra depreciation on the van, so you'll come out way, way ahead that way.
As I look over your posts, you seem very knowledgeable regarding lemon law claims/recalls etc. My wife and I are considering purchasing a near luxury car within the next 12 mo's. She really likes the Audi a4. I've always liked the looks, but I'm not sure about reliability. Which of the near luxury makes do you encounter the least problems with? Where does Mercedes and BMW fit in as far as claims in your experience? Thanks in advance.
is one of the more problematic vehicles, along with the A6. On the nice side VW/Audi will usually step up and take care of problems, but you have to sue them to get that done. That's a shame, because I love the S4 and my dream car is an S8 after seeing the movie "Ronin".
Mercedes is a brick wall when it comes to helping consumers. They'll fight, tooth and nail, against complying with state lemon laws and the Mag-Moss act.
I see very few BMW products and the cases on these cars and SUVs are always sttled before arbitration or trial - I have yet to go to an arb (as a witness) in a BMW case.
Lexus and Infiniti are always a good bet and the Acura RL and TL (only '02 and up) are on my personal top ten list for recommended vehicles.
Regarding Post #3180; How do you compare the 2003 ES300 with the 2003 Acura TL? Can you give us reasons why the 2003 Acura TL is on your top-ten recommended list? Why only 2002 and up? Thanks in advance for your answers.
Comments
Equity and depreciation are not related, in the least - they are two separate subjects. Unfortunately, people who jump into car deals with trading a car with no equity or not putting some cash down, or buying a car that drops like a rock in the market, then they have to suffer both hard depreciation and negative equity.
My original point is that they aren't always mutually joined.
Equity = value of the asset - amount owed on the asset.
Since the value of the asset depends on depreciation, equity is related to depreciation.
That's the basis I was using when I said they would lose their shirt trading it back in for another vehicle. Whether they financed it or paid cash for it makes no difference. The depreciation has to be paid somehow.
I thought its the other way around...
Just because there is depreciation doesn't mean they have negative equity. While if you buy a vehicle with little cash, trade or rebate down, trading soon will always find you upside down.
If you put some good money down, or had good equity in your trad-in or paid cash, the equity issue is a non-issue.
What I never understood was, these are the same folks that put down 50% on their fiances duralight ring or the 40% down on their home .. why would you not at least put the taxes, tag and title down on their vehicle.?
Terry.
Before she gets into a WORSE situation it is important that she get some idea of what she might be facing. Seems to me she is ALREADY "freaking out" -- I can imagine that she might be seeking advice from some folks who would paint a MUCH ROSIER picture, to her detriment...
The situation I laid out, with $8K negative equity on a six month old truck & considering getting a small, fuel sipping vehicle seems EXACTLY like what she might be considering...
Before preceding she definitely needs to get all the details out in the open...
If you are looking to buy a vehicle (new or used) any make or model(luxury buyers are of particular interest), you are invited to participate in the survey at:
http://www.kellogg.northwestern.edu/students/j-long2/surveyintro.- htm
The survey closes Saturday, March 1 at midnight.
Many Thanks!
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Find me at kirstie_h@edmunds.com - or send a private message by clicking on my name.
2015 Kia Soul, 2021 Subaru Forester (kirstie_h), 2024 GMC Sierra 1500 (mr. kirstie_h)
Review your vehicle
Let's say she put $20K down and her price was $30K just for example. Now the trade-in value of her truck is $15K as you guys have said in our discussion about the volvo. Then she has $5K equity left but she will have to waste the other $15K she put down on the downpayment. What really matters here is the depreciation not the equity. She may have equity in it but it is because she put cash down which now is gone. Then the loss came on the front end but it is still lost.
I give up. No slide rules allowed here.
Who cares what the equity is since the buyer is the one who had to put the cash into it to get the equity?
Actually pretty reliable cars especially when compared to the Windstars.
What post did you read, Rerenov8r? All her post says is that she wants something small, more fuel efficient, and lower in insurance. How on earth do you read from that she is NOT in a good financial situation.
There are many people who find out they don't need a truck and are interested in fuel economy. Anyone who is SMART with their money (read GOOD financial situation) is interested in getting lower insurance.
Why not read into it exactly what she said? She doesn't know what the process is for trading in a new(er) vehicle. I only saw ONE post (Zeus) that gave her advice as to what she should do while everyone else tried to play "Financial Advisor" when they don't know the first thing about her "situation".
Good grief. No wonder she hasn't come back.
* Toyota RAV4
* Toyota Matrix
* Pontiac Vibe
* Mazda Protoge5
* Highlander (4 cyl)
* Subaru Forester
* Subaru Legacy or Outback
* Honda CR-V
* Honda Element
All of them are reasonably reliable and should average 20mpg or better, yet they'll give you enough space that they'll still be practical. They cover a wide price range, maybe $15-25k or so.
I think jumping into a compact sedan is too much of a step down in size from a big truck, try something inbetween.
My suggestion would be to go to an auto show where you can browse all of these models together, back to back, and pick a couple of favorites you can test drive later.
Then consider trading semi-used for semi-used, maybe a demo or very slightly used 1 year old model. Good luck.
-juice
Did she know that? That was my point.
Can we talk about something that doesn't involve unbased assumptions and doesn't make my headache worse?
Steve
Host
SUVs, Vans and Aftermarket & Accessories Message Boards
Would it be possible to trade in my used truck that I bought in September for something else? I'm not sure how I would go about that. The truck is fine, has under 20,000 miles on it. I just need something smaller and that gets better gas mileage, and lower insurance. Would I have to take it back to the dealer ship I got it from, or could I take it anywhere? If anyone could help me with that, I would appreciate it. Thanks"
Everyone let's read it - it was a used truck. Where does it say she's has a negative equity position? All she is asking is how to sell it or trade it in?
My only point was that everyone was telling her how much cash she was going to need and didn't even know the whole story.
You remember how Walter Matthau broke down the word "assume" in the "Bad News Bears"? If you're younger than 30, you won't know what I'm talking about.
If she has a payment, it can be lowered. If it's paid off, she can cash out. Buy a more affordable car with lower operating costs.
The key is to pick something that's still practical and does what she needs.
-juice
She appears to be looking to save money and trading it in would be quite the opposite. If it were a "people who drive low mpg vehicles support terrorists" or "gas guzzlers eat up the ozone" arguement, she knew that when she bought it. However, she didn't know gas was going to go up as high as it has so quickly. She also would not have mentioned the insurance if it wasn't a financial issue at the heart of it.
Would any of you salesmen/dealers really do something like this with your own car, cash or financed?
Sure, there's depreciation, but depreciation has nothing to do with whether you need to put money down or not - why is that so hard to understand?
Jim
Giving up now, my headache is worse
If I had paid cash for a car for my daughter and she did something as stupid as turning around 6 months later and trade it in for something else, she would be paying me for the depreciation that I paid for and she wasted.
Good lord, makes my mother-in-law look like a saint with all this "I don't know your business, so I'll just make up scenarios for you and tell you how to fix them.".
Geez.
Keep talking in circles like that and you'll take off like a helicopter.
"Otherwise, please be honest with people here"
Who ever said it makes sense to trade a vehicle shortly after buying it? I NEVER addressed that and throwing away money, in any form, is stupid.
However, if the girl needs to trade her truck, she has every right to, but several people in this forum began jumping up and down about how much money she'd have to put down.
I argued that just because a vehicle depreciated, it didn't necessarily affect the equity situation, so downpayment money is an unknown until all the facts are out - and none of you had the facts - I only know it's a GMC from her profile. No one else even bothered to ask questions before jumping to conclusions.
That was my only point all along - I made no other argument. So now I'm dishonest? I'm really having a hard time figuring out where you came up with that one.
Again, you've crossed the line from good debate and conversation to unbased personal attacks.
That proves my point. You don't need any more information to tell her that it will cost her alot of money. But you seem to take no concern over the money that she spent up front on the truck.
Its misleading to tell her that it won't cost her alot of money no matter what the details of her situation are.
Of course, we can come up with hypotheticals all day long. For instance...
Let's say she got ganked on the interest rate and was paying 15% or something in that neighborhood on a 5+ year loan on 30K financed.
And for sake of argument, let's say she had excellent credit, so she could qualify for 0% on a new Chevy car.
So she trades the truck, for a Cavalier, and cuts all of her costs, including interest she won't have to pay significantly.
Now she just has to make sure she gets a good trade allowance or sells the truck outright for more than is owed on it.
Heck, if she owns it outright, then she might just go trade it today and take home both a car and a check for more than just gas money, LOL.
But she probably still loses a bunch of cash to depreciation.
TB
Losing money on a purchase (which she'll do) and needing more money to put down (which she may not) are clearly two different things.
How I became a liar in all this, I don't know.
Keep your distance, and I'll do the same.
I'm under 30 and know what you're talking about. See what happens when you assume...
tboner seems to understand. I know others here do too.
but I've only assumed a small bit!
Either way, take the hint that I'm done with that conversation. I take breaks between reports to come on Edmunds and relax and learn something and visit with friends.
I do not come here to argue over pointless issues, especially when we haven't heard from the young lady again who asked the original question.
Change the subject, please.
My question would be: At what point in a vehicle's life is spent money NOT lost to depreciation? If the poster was trying to trade in a 3 year old vehicle would the money previously spent somehow not be lost?
Let's let it go - pleeeeaaaaasssssseee!!
SHE DIDN'T ASK HOW MUCH SHE WAS GOING TO LOSE ON A TRADE.
SHE WANTED TO KNOW HOW TO TRADE IN THE TRUCK.
SHE DID NOT SAY SHE COULD NOT AFFORD THE TRUCK.
SHE DID NOT ASK US TO FIX HER FINANACIAL SITUATION.
WHERE IS SHE NOW?
Next subject please.
Today he traded it in to us because it hurt his back and of course they wouldn't take it back.
The Trailblazer EXT, meanwhile, will likely depreciate like it drove off a cliff. No offense to Chevy fans, but read the $10k plunge in resale above.
So I'd suggest you consider buying a used EXT in a year or two, which will probably save you $10 grand or so. You'll probably only lose $2-3 grand extra depreciation on the van, so you'll come out way, way ahead that way.
-juice
Mercedes is a brick wall when it comes to helping consumers. They'll fight, tooth and nail, against complying with state lemon laws and the Mag-Moss act.
I see very few BMW products and the cases on these cars and SUVs are always sttled before arbitration or trial - I have yet to go to an arb (as a witness) in a BMW case.
Lexus and Infiniti are always a good bet and the Acura RL and TL (only '02 and up) are on my personal top ten list for recommended vehicles.