Owe more than it's worth... I'm upside down and I can't get up!

stickguy

Well, you have to take out all the non-financed (aka paid in cash) cars that are mixed into the 28K average. I assume the aveage price of financed cars is considerably higher!

I wonder if they count self financing (say, a HELOC) as financed or not (probably not), and if they account for captive financing (or at least through the dealer) the same as bringing in a CU check?

Kirstie_H

I admit that credit is too easy and the lenders must share the blame

Oh, I don't think that lenders must share blame so much as suffer the consequences. If they give away too much credit too easily to those who aren't good risks, then they go under. I don't believe that the customers who signed up for the bad loans "share the blame" for the lenders going under, in the same way that I don't believe lenders are responsible for consumer's foolish actions.

I could probably be approved for a car loan at 3x my current car loan, but rather than make an impulsive decision based on "I deserve it, I want it," I took a real look at my overall budget and *I* decided what *I* could afford.

People who cannot do this should, IMO, quite simply not go shopping without being accompanied by someone who can.

stickguy

I'm with you about lenders being overly optimistic about how much debt you can handle. I'm guessing that I could go out tomorrow and buy a really nice car with a payment that would give me heart palpatations (maybe a nice S class benz?), and they would be happy to give me the loan just based on percentages. I could probably step up to a Maybach if my house was paid off!

Actually, a few years ago (well, 11 now) when I bought my current house, I had to close before selling my prior house. Turns out that, even though I was nervous about taking on the higher (new) mortgage, the lender was perfectly happy to loan me enough to buy own both houses! So instead of a brdge loan of some kind, I just took out a mortgage on the new house.

Of course, even though the bank said it was OK, I would have been a wreck being tied to that monthly nut on one house!

lemko

A year ago in September, I was considering a house in a nice suburb. The mortgage broker said I qualified for something called a "bridge loan" in order to pay the mortgage on my current home while paying for the mortgage on my new home. The guy had every confidence I could afford it. Oh, I could "afford" it, but at what cost? I have bulletproof credit and I'm not going to do anything to compromise it, not even risk being late on a utility bill because I overextended myself on a mortgage. Seeing how the housing market is in a meltdown, I definately made a smart decision to stay in my current place with my current mortgage that is less than the rent on many one-bedroom apartments.

joel0622

Why does every one think that we are all in this crisis right now? Just because the talking heads say it every day does not make it true.

Has anybody here had to personally change there life style drastically due to the "crisis"?

Here where I live the news had a big thing how TN home sales are at there lowest point in 3 years.

What the meat heads fail to mention is that 2005 and 2006 were record years in the state and that 2007 was the third best year ever. But to report that would not be sexy and have no wow factor.

Don't look at the current market as a crisis, look at it as a opportunity. An opportunity to acquire some investment property.

The only people it are a crisis for are the people who took out loans they could not afford, for the rest of us it just means that it is a buyers market and we may not want to sell for the next 6 months.

Any one who thought the housing market would continue to climb at the rate it has been was fooling themselves anyhow.

My owner told us this morning that the news is going to be talking about recessions and car sales falling in 08. he then pointed out that we Ford people have been in a recession since 01 anyhow so we are ready for it, and it will do nothing but benefit us because whenever this happens the manufacture panics and puts on crazy incentives.

He went on to talk about how in this day in age the people hit hardest by the recessions are not the target demographic.

"Imports are superior"
.

paisan

Yup, I'm doing just that. Wife and I are looking at an apartment that was sold in 05 for $650k, was listed in May 07 for $599k, is now listed for $499k and we will likely pick it up for $425k.

Great opportunity for folks who don't have to sell to pickup investment proporty or for folks renting to jump in and buy something.

-mike

dtownfb

Not sure i completely agree with you. You know the auto industry better then I do but I don't understand how a recession will benefit Ford jsut because Ford has been in its own recession since 2001. Yes there will more incentives but Ford will also have to resort to these same incentives to move cars. Americans expect to see incentives on cars. We're addicted to them.

I imagine your area in TN is similar to where I live, south central PA. We tend to be a year or two behind the trend. Our housing market has finally slowed. Houses in my neighborhood used to sell in 2 weeks at full price. Now there are 5 houses that have been on the market since the spring. Builders have canceled several planned developments in my area. I'm happy because 3 of these developments involved closing golf courses. I'm not sure if we are in a crisis yet, I know people have less money whether it's due to a bad mortgage, higher gas and energy prices or higher food prices. And they are predicting job loss this year.

I'll be interested in seeing how Ford benefits from all of this.

joel0622

My point was that we don't need to brace ourself for a big change, we have been fighting it already for 6 years, between 911 and tires we have been been fighting a declining market share. Obviously I don't wish a recession on us, just saying we are ahead of the game if it happens.

If it does decline then the manufacture will support us with the appropriate programs which 3 times in the past have equated to record months for us.

We have already taught ourselves how to work smart and dig for sales. We have also cut all the fat from the dealership and run on a lean budget.

I also understand the 7 year cycle our business seems to run on, the end of this year will be about the bottom and then the turn will come.

"imports are superior"

dtownfb

Ok. So you are talking more at the dealership level then the manufacturing level.

I hope you are right about this bottoming out this year. Nobody wants or needs a recession. Luckily I am in recession proof business.

blueiedgod

I don't think people understand how this loan business works.

The traditional way was that the bank would loan you money and then collect the payments over the years to make the original amount plus interest back. So, banks had vested interest to make sure that they will get their money back.

This all changed recently, when banks were allowed to package these loans into securitues and sell them on the securities exchange. So, the banks no longer had to make sure that you would be able to pay them back, they knew they could make money tomorrow by selling your loan as a securities paper.

So, if you lend Pete money on Monday with the promise that he will pay you back on Friday, but he does not pay, you are not going to lend him anymore money next Monday. However, if you lend Pete $20 on Monday, and sell his loan to Joe on Tuesday for $25, then when Pete comes back to you next Monday for more money, you lend him some more money, because you don't care anymore.

So, all these foreign nations that trade with us, have these huge sums of US currency that they were pumping into these securities papers. All over sudden, they were not seeing the reutrns they were expecting, the stopped buying the securities, and the dollar started to lose value. Since oil is traded in dollars, devalued dollar, made the oil look very expensive....

I hope it clears up the global picture... We are in for a long long recession and the dollar may be surpassed by the Peso one day.

PF_Flyer

Dub Schwartz chimes in on being upside down on the Alternate Route today!

Karen_S

A reporter with a large national newspaper is interested in talking with consumers about their experience during this economic downturn and if they might have lost or had their car repossessed. If oyu are in this situation,, please contact Chintan Talati at ctalati@edmunds.com no later than Friday, May 9.

the_big_al

This is an interesting comment only because of the field I am currently in. I work for a company the does the financing of mobile homes. You think paying 20K for a 15K car is bad, wait till you have people spending 60K for a home that is worh 20K in 5 years and that on a 30 yr mortgage. I don't even want to do that math on how far upside down you would end up.

Anyway, part of my job is I get the joy of going to people's homes that have defaulted on the loan to try and make contact if they won't return phone calls, set up payment arrangements etc.... I get the joy of knocking on thier door and personally getting to try and get a payment. That aside, I am always amazed when I pull up to a home that is old and decrepit and falling apart and yet there is a brand new Navigator, Silverado, or other Brand new vehicle in the driveway. Or the vehicle(s) have 20 in wheels, boomin sound system and all the aftermarket goodies..... They can't pay for their home, but at least they can live out of thier ride if the house gets taken. More often than not these vehicles look worse than my 4 year old 100K truck. The best one I saw was a home where the person couldn't keep up with the payments so she was trying to sell a couple of her vehicles to pay off the house. Guess what she was trying to sell? A 03 BMW 3 series and an 04 fully loaded Tahoe.

the_big_al

Actually - that case just about fit me a few years ago. I ahd a 95 Sonoma that I bought in '01 for about 8K with 70K miles on it. 5 year loan, don't remember the interest rate, but by '03 and 100K miles I had put in a new tranny, clutch, starter, entire front end (the steering linkage) replaced, it had been in a front/side collosion, and finally it wouldn't shut off. I had to pop the clutch to kill the motor and the ignition was still hot and the fuel pump burned out. I still owed 4K on it, was dropping a payment's worth of repairs a month into it, plus the monthly payment. I needed to get it running again just so I could figure out why it wouldn't shut off (ain't that a paradox... ). Anyway, I was driving home with a new fuel pump when I stopped by the dealership to see what they had because I was so fed up with my vehicle. They just happened to have a loss leader vehicle on the lot, you know the one they advertise with a low low price to bring in customers?? Luckily they still had that vehicle and it was a 2001 S-10 that had the options that I needed (note: needed not wanted) and so we started to bargain. They gave me a 1000 for my trade-in which was probably what it was worht given it had 100K on it and it wasn't running - nor would it quit running once it got running - and so that knocked my negative equity down to about 3K. By the time all paperwork was worked out I ended up paying in Feb of 2003 16K for a 2wd Ex-cab v6 LS S-10 with 26K miles. I booked it after I bought it and found that it was worth pretty close to what I paid for it. So even with the negative equity I had, I came out okay in the end. I still have that truck and it is now paid off and it now has 100K on it but no where near the problems the last truck had. Now I basically drive around for free! Except for gas and tires.

As a side note I window shopped a dealership the other day just to "look" so I would be a little more prepared to buy than last time and they tried to talk me into an '06 crew cab Silverado with 500 a month payments. I looked at them like they were crazy bonkers and basically walked out. A long story short, they were only going to give me at first about 2k for my truck and rebate the Silverado to about 26K. They finally after I kept telling them time and time again I wasn't going to buy even if the payment was only 100 a month came back and said 5K for my trade and a payment of 300 a month, but I still said no deal because I didn't want a car payment, I had a good truck that was paid for, needed very little maintanence, ran well, and got better gas mileage and still did everything I needed it to do.

They tried to throw at me the warranty, no out of pocket costs, and what if my 100k truck breaks down, or a tranny goes out etc... I came back with, I would rather drop 1200 once for a new tranny and get another 100K miles than drop 26K for a new truck I'll be paying for for the next 5 years. And then they said what if your truck starts having problems? And I said what if?? That's what if? It hasn't yet, I maintain it very well and I would be ashamed if I gave away a truck that goes another 100K with no problems that I don't have payments on only to have to pay to drive a "new" truck that in a couple months would no longer be "new"...... Drive it till it drops it my motto.... and while I am driving it till it drops, I take the money I would have spent on monthly payments, pay myself to drive and then take that money down and make a deal on a new vehicle when ever that happens...

the_big_al

This is off topic - but we finance our repos at 9% and it's a 15-20 year term with 5% down.... Sometimes you can come out okay if you buy a repo since we are only trying to recover what was left on the loan, but more often than not there is owed more on the trailer than what it is actually worth. The regualr financing I am not too sure about, but some of the home I get to inspect after we have repoed them are your dinky "Kia Type" homes that the person owed 30K+, sometimes close to 50K and the home itself is only worth about half that. Talk about being upside down. I actually took back a home the other day that the person was almost done paying it off-they had less than 5K to go and was tired of paying so they quit and we ended up taking it back. He paid out over 60K for the home and it's only worth about 10K

mookie14

I have a lease it ends in 8-2010 i
want to keep this auto now when its time take it back do any of you thinks its in the best interest of me to get a new one i am not leasing again though. With the deals going on now & the economy the way that it is. When 2010 comes around will i be in a position to get a good deal thats all guys thanks.

.

shipo

So, you're asking if we think there will be good deals 21 months from now? :confuse:

Hmmm, I think I have a better chance of predicting the 2010 Kentucky Derby winner.

Best regards,
Shipo

phollie

I have a relatively expensive german car that I can afford the payments on. Got it at 2.9% interest in 2007. I'd like to trade it in for something cheaper because in today's economy, I just don't feel comfortable with a payment that exceeds $750/month.

I'm trimming costs in other areas of life...is it conceivable to think that one could trade in a BMW for a Honda and have a lower payment (without sinking in $10k to make it work)?

Have any of you "traded down"?

jimbres

The Real-World Trade-In Values discussion is a good place to start. Post all of the pertinent details - year, model, mileage, options, color, etc. - about your BMW & ask for trade-in & private sale values. Once you have those numbers, you'll have a better idea of what to do next.

In this awful economy, plenty of people are trading down. For many, it's a sensible way to manage expenses.

volvomax

Trading down only works if you have equity in your trade.

phollie

That's what I thought. I've been looking into moving a 2007 Audi A4 AT 2.0. Seems like the market isn't too strong for that car. I'll just have to cut costs elsewhere.

blueiedgod

I have a relatively expensive german car that I can afford the payments on. Got it at 2.9% interest in 2007. I'd like to trade it in for something cheaper because in today's economy, I just don't feel comfortable with a payment that exceeds $750/month.

I'm trimming costs in other areas of life...is it conceivable to think that one could trade in a BMW for a Honda and have a lower payment (without sinking in $10k to make it work)?

Have any of you "traded down"?

Sure, you give me your BMW and I will give you my Honda. You pay your BMW rate, and I will continue paying my Honda rate.

Deal?

Honestly, if you can afford to pay for it, keep paying. Don't fall for a knee jerk reaction. If you really want out of it, be prepared to lose a shirt in the deal. No one really wants a really expensive car right now. And people who want them, they can buy brand new one from the dealer without hassle of private transaction.

Good luck.

euphonium

Don't confuse the value of the collateral with the terms and conditions of the debt.

One is not dependent on the other. They are two different issues. If the value of the collateral diminishes, it does not affect the issue of honoring the note. And if the collateral increases in value, the note is not affected either.

Bottom Line: Honor your debts and pay off the balance.

joel0622

If I was you I would ditch the Honda idea and go look at a Ford Fusion. Fit, finish, and quality is as good or better then a Honda or Toyota plus you can get 0% for 72 months on one right now WAC. You would be amazed how much a payment will drop when you are not paying interest, plus 100% of the payment is going to principal.

If you have good credit FMCC will carry the advance for you.

I did some quick ball park figuring. If you are $10K hooked you could look at a $24K Fusion and drop your note $250 a month on a 0% loan.

blueiedgod

Bad idea. Ford resale is crap. And does not support the US economy.

Ford Fusion is made in Mexico providing jobs for the Mexicans and ther suppliers.

Honda Accord designed and built in the good ole' USA out of USA supplied component. An all american car.

Interestingly, Mazda 6, Ford Fusion's sister is made in Detroit at a Ford plant...

joel0622

He did not ask for conversation on who's car is more American (My company is HQ'ed out of Detroits, the two you mention are in Japan) he was asking about getting out of a car he is killed in. Even if the whole resale excuse held any water it still would not matter. What does resale matter when you are $10K plus tax and profit in the bucket?

cep2535

I thought I was the only one.

I bought a 01 BMW 2.5 years ago, payments are a bit high because of my credit back than. I was looking to refi, but now the car is more than 7 years old, I owe about 12k on it, but now its worth only like 8ish.. what a crap deal I got huh.. Live and learn.. Looks like I am keeping it till I pay it off. Hopefully nothing breaks on it, knock on wood.

volvomax

Dude, WHY on earth did you buy an antique bimmer in the first place??

Esp if you had so-so credit.
You should have bought a nice econobox,fixed your credit THEN get the nice car.

Why do people do this!!!!!!! :sick:

cep2535

No idea. I have to cash to make up the difference, but I am just going to follow the payments to build TL on my credit report.

smithed

Bad idea. Ford resale is crap. And does not support the US economy.
Ford Fusion is made in Mexico providing jobs for the Mexicans and ther suppliers.
Honda Accord designed and built in the good ole' USA out of USA supplied component. An all american car.
Interestingly, Mazda 6, Ford Fusion's sister is made in Detroit at a Ford plant...
^^^^^^^^^
Those Mazda 6 look very interesting and sportier than Accord/Camry. Close=Altima

blueiedgod

Why do people do this!!!!!!!

Image!

Drive by the projects, and you will see more Escalades and Lexus SUV's than you would in the wealthy part of town.

bigm3

The only thing you missed in your calculation is advance for the banks....you can borrow up to 110% of dealer cost and get 0% financing,so if that fusion has MSRP of 24 K lets say dealer cost is 22K+ title ,license ,registration,sales tax,doc fee and 10K negative equity you are at $33854 or around 150% LTV .No way to get 0%

joel0622

In what world???? I roll 150% deals every day.

joel0622

here is a good example from just yesterday.

Offering Info Term: 72
Est Pmt: $544
Unpaid Bal: $38,329
Wholesale: $25,105
Pct Adv: 153%
Decision: Approved
Tier: 1
Cond Pct Adv:

grandtotal

Would it be possible to do that for a borrower who was not tier 1? Presumably this is usually for a borrower who is severely 'upside down'?

joel0622

Our tier system runs 0-5. 0 being the best 5 being the other end. 0-2 would be no problem, 3 would be iffy and a 4 is hard to get it done, unless they have good credit and it is the overadvance that is making it a higher tier. Lending is really a case by case thing.

fezo

Glad you make money that way but I just cannot imagine going that deep into the hole.

I'm of the opinion, and have seen it in this topic many times, that the first thing to do when you find yourself in a hole is to stop digging!

Of course if you're top tier credit you have to be doing something right!

joel0622

If people with negative equity stopped buying cars the entire auto industry would fold in 3 6 months max. 70% of the people who come in owe more then there car is worth.

ghulet

.....just buying a car and (gasp!) just keeping it til it's paid off? I guess when cars didn't last as long (and people didn't finance for 60-84 months), trading every three years was a viable option, commonplace; I can't see doing that now, unless you're putting massive amounts of miles on it (or otherwise wearing it out), or you have money to burn. :confuse:

lokki

Keeping it till it dies was a lot easier when your only accesories were a heater and an AM radio.

Now an old car suffers the death of 1,000 cuts. A power mirror quits working, then the auto wipers, then the self-dim rear view mirror, then the power seat, then the power window, then the cruise control, then one of the power locks, then the climate control, then the back up camera, but you get the idea :P

jimbres

Although I often hear people cite the greater complexity of today's cars as a reason for trading frequently, my experience, which goes back to the early 70s, is that the supposedly simpler cars of 30+ years ago were far more prone to breakdowns in their later years.

My '78 VW Rabbit - stick, no air, AM radio - died short of its 4th birthday, with just 55K on the clock. I sold it to someone who was looking for parts. Contrast this with my wife's '99 Lexus ES 300, with all the goodies. We kept it for more than 8 years - 4+ years past warranty expiration - & spent a total of $500 on repairs before selling it for top dollar. We'd still have it today if my wife hadn't fallen in love with the ES 350.

I've found that I can easily get 10 years out of a properly maintained car without any heroics. That's why we've bought a grand total of 6 cars for 2 drivers during the past 25 years.

fezo

70%! Wow.

I can't think of the last time I've been upside down on a car. As I said earlier, Joel, I'm glad this works for you. You'd hate me at shopping. Our Accord will hit 10 in December. It recently hit 168K on the clock which makes it officially the highesy mileage car we've ever had. It long ago became the one we've put he most miles on since out two previous 167K+ cars were bought used with mileage in the upper 30s when we got them.

fezo

I had an 80 Rabbit that never made it past its payments. What a piece of junk. It was great when it ran. A lot of fun. Unfortunately that wasn't a frequent event.

fezo

Now I am of the buy it new or slightly used and drive it into the ground over a long period of time school, but a friend of mine has another theory. He had used my method for years but I suspect the new one is because he has more money to throw around and it still works pretty well.

He figures to always carry a car payment. He bought new a bunch of years back - a Subaru Outback. When it hits about 59 K he trades it in for another. He keep a low loan payment and keeps a small fund for putting down on the next one. He figures he never pays for repairs, never has an unmanageable payment and always has a nice, clean, well kept car. He could do worse.

benjaminh

Yeah. I had an 87 Jetta. Nice handling. Nice manual. Functional package. And yet, at the same time, total, total unreliable junk. It's amazing that VW has survived in the US as long as it has given that they did that to generations of customers....Is their reliability better now?

stickguy

Basically, your friend is doing a self-managed lease. He just assumes the end of lease value risk.

At one point, my method was 1 new car (the wifes family mobile) kept as long as it served it's prupose and was reliable. Target being 6 years at least, and it got the long trips (so 100% reliability was key). the Quest? No problem for the 6. The Voyager? That made 3 before it got traded for the Quest!

My car was a 3 YO something interesting that I would keep until it was 6 years old, theoreticlaly lower the cost.

WOrked correctly, every 3 years or so a car would be purchased.

I have since abandoned the plan, and for me, find that buying new and keeping a long time should work better (not that I can do it).

Currently we are invested heavily in being too poor to buy a new car (and college bills loom), so we have switched to the keep them forever plan and hope they last!

But, if I do need to replace one soon, I am going with a 2-3 yo semi luxury with heavy depreciation (say, a 2007 Volvo). Some good buys to be found tht way.

fezo

Yes, we even would refer to it as a self managed lease. One reason he likes it better than leasing from the dealer is that if he hit a bad patch for any reason he has more control over the situation.

tidester

kept as long as it served it's prupose and was reliable

I think that's redundant. If it's not reliable then it's not serving its purpose.

tidester, host
SUVs and Smart Shopper

ghulet

....one should necessarily 'drive their car into the ground', Fezo, unless keeping a car for five years constitutes same; for most, it doesn't, unless the car is neglected or miles have really piled up. I just can't see trading a car in after a couple or three years just because you've got the itch, especially if you're upside down. I mean, people make up all kinds of reasons to trade even when upside down (this or that are broken, I had a kid so suddenly I need an SUV, can't afford the gas), but the realities are that it's more expensive, and more importantly, people just want new stuff....understandable.

fezo

I think the only time I didn't get at least through the payments was my 80 Rabbit which was falling apart the moment I took possession of it. Add to this legendary VW service.... If my luck holds up by the end of next year I'll have four vehicles and no payments. That would be a good deal.