Car owners can't afford their loans any more. It's bad for everyone.

[PilotMark]

This is a problem for the auto industry. Not on an individual level, but on the market level. No finance company wants to loan more money than the collateral.

Generally, this handled by either a higher interest rate or no loan.

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[lwilliams0514]

I've shared that my 2022 MME Premium is worth about $16k less than I owe. This is a growing and troubling trend.

"The share of trade-ins with "negative equity" — meaning the owner owes much more on their loan than their car is worth — was hovering at about 25% at the end of 2024, according to data from the car-shopping website Edmunds. That was up from about 20% in 2023."

https://apple.news/AywQqA_ktSY-gA86ZxYN4Gg

Vehicles are DEPRECIATING assets. Always have been. Plus the book value companies know the government gave subsidies and that is factored into the used car evaluation when they come out with book values.

EVs are no exception. I would offer an alternate reason.... less money down and longer financing terms are more to blame. Many people are financing with little to no money down and financing longer terms in an attempt to bring the payment down. Couple that with the huge markups during COVID and boom! Too many people severely upside down.

But remember, many people also cashed in during the pandemic with their used cars were at a premium when new cars were scarce.

Pick your poison. But you can't have it both ways lol.

 

[apwelsh]

This is so crazy. If you borrow enough money that you are upside down, you basically over extended and you should not purchase a new car period.

How is this such a hard concept to accept?

Leasing would be equally as bad for those that are financially strapped.

There are a vast majority of people living paycheck to paycheck but yet they still feel obligated to drive a new car because of the slick sales approach by many Sales people to lead them to believe that they can afford it.

Now granted, the people that purchase these cars are not the brightest but there are many that do get taken advantage of and are mislead.

It is like the credit card. Before the CC, many people only purchased things they actually could afford. Now (with CC), many people are literally living on borrowed time.


The title of this thread should read, "There are many people that purchase new cars (that should not) and it is bad for those that can afford new cars". Someone at the end of the day typically bails out the ill advised/informed that leave debt and the people that manage money well are left paying the debt in the long run.

It is so frustrating that so many people can't manage money but yet they wonder why they are upside down?

I mean, it's not always possible. We you are on a small income and your car breaks down, and now you need a car, finding something reliable that you can afford under these terms may be impossible. If you live paycheck to paycheck, you can't technically afford any cars under this premise that your downpayment must ensure you are not negative equity.

But the general idea still stands, that you should buy what you ca afford, not what you a qualify for on a loan. And what you can afford might mean you need to leverage debt. When leveraging debt, payments can be arranged to make the payments manageable, even if not optimal, and under these terms, you need to keep the car for the full duration of the loan, and then some.

If you are buying a new car, before your loan is paid off, or before there is equity, then the issue isn't that the loans are too expensive, it's that you actually cannot afford that vehicle, and probably should wait until you can afford it. In the event of a vehicle break-down, or immediate/urgent need for a vehicle, then it could be that the right car for you is a used car. I can't say, but I wouldn't judge someone's financial situation.. I was jus trying to explain that what the OP is complaining about it nothing new, and boils down to the basic issue of affordability.

Simply put, almost all American made cars are priced out of the afforability of nearly 70%+ of the US population. If you caonside that there is 100% tariff on EVs, and see the sale price of non-americas EVs are around $40k, you have to then realize that that means the majority of imported EVs would be in the $20k price range -- making them very affordable. But they aren't, because we are trying to give Ford and GM an oopportunity to catch up, and they just keep making expensive vehicles that under deliver for the given price tags, making them further unattainable for most Americans.

 

[DennisD]

I mean, it's not always possible. We you are on a small income and your car breaks down, and now you need a car, finding something reliable that you can afford under these terms may be impossible. If you live paycheck to paycheck, you can't technically afford any cars under this premise that your downpayment must ensure you are not negative equity.

But the general idea still stands, that you should buy what you ca afford, not what you a qualify for on a loan. And what you can afford might mean you need to leverage debt. When leveraging debt, payments can be arranged to make the payments manageable, even if not optimal, and under these terms, you need to keep the car for the full duration of the loan, and then some.

If you are buying a new car, before your loan is paid off, or before there is equity, then the issue isn't that the loans are too expensive, it's that you actually cannot afford that vehicle, and probably should wait until you can afford it. In the event of a vehicle break-down, or immediate/urgent need for a vehicle, then it could be that the right car for you is a used car. I can't say, but I wouldn't judge someone's financial situation.. I was jus trying to explain that what the OP is complaining about it nothing new, and boils down to the basic issue of affordability.

Simply put, almost all American made cars are priced out of the afforability of nearly 70%+ of the US population. If you caonside that there is 100% tariff on EVs, and see the sale price of non-americas EVs are around $40k, you have to then realize that that means the majority of imported EVs would be in the $20k price range -- making them very affordable. But they aren't, because we are trying to give Ford and GM an oopportunity to catch up, and they just keep making expensive vehicles that under deliver for the given price tags, making them further unattainable for most Americans.

I personally think there are a high percentage of people that purchase something they can't afford. I see it on this forum on almost a weekly basis and some of these people had no business purchasing an expensive EV in the first place.


The proof is in the title of this thread. It states many people can't afford their loans. Once again, those people had no business whatsoever in purchasing the car in the first place and taking out a ridiculous loan. Unfortunately, it is usually someone that works with a repo company that reminds them of this misfortune.

The first car I purchased was $1,350 and I paid cash. I wasn't complaining how people can't afford loans then, and I am not doing it now. I am only pointing out that they shouldn't be doing it and maybe try another mode of transportation if they can't afford a car.

 

[ryannix123]

Vehicles are DEPRECIATING assets. Always have been. Plus the book value companies know the government gave subsidies and that is factored into the used car evaluation when they come out with book values.

EVs are no exception. I would offer an alternate reason.... less money down and longer financing terms are more to blame. Many people are financing with little to no money down and financing longer terms in an attempt to bring the payment down. Couple that with the huge markups during COVID and boom! Too many people severely upside down.

But remember, many people also cashed in during the pandemic with their used cars were at a premium when new cars were scarce.

Pick your poison. But you can't have it both ways lol.

Cars aren't assets. In most cases, they're liabilities. The point is that many people are upside down on their loan-to-value, and not by a little. Yes, the car depreciates the second you leave the lot. But depreciating by roughly 30% in a year?!

I plan to keep the car long-term because I love it. Still, it's depressing to see a massive hit like that.

 

[Snakebitten]

Don't they call them "Trailer HOUSE"...................... So..yes.

I used to live in a Trailer House/Home and it sucked but it was my "home".

They also call them RV ?

I own 2 homes on some acreage.
(house we raised our family in, and a guest apartment on one end of a barn)

After losing my soulmate of 32 years tragically, I found it ridiculous to live alone, and so unashamingly manipulated our children that have children to live rent free in either dwelling. The property came alive with 5 of my now 8 grandchildren.

Meanwhile I WAS going to build a 3rd house. A tiny-house, if you will. I purchased an RV to stay in while I decided on the tiny-house plans. It's now been 9 years in the RV? ???

I think the only thing that depreciated faster than an EV is an RV!
I couldn't care less. Besides, my "house" cost less than any of the cars/trucks in the barn anyway.

 

[dalola]

They also call them RV ?

I own 2 homes on some acreage.
(house we raised our family in, and a guest apartment on one end of a barn)

After losing my soulmate of 32 years tragically, I found it ridiculous to live alone, and so unashamingly manipulated our children that have children to live rent free in either dwelling. The property came alive with 5 of my now 8 grandchildren.

Meanwhile I WAS going to build a 3rd house. A tiny-house, if you will. I purchased an RV to stay in while I decided on the tiny-house plans. It's now been 9 years in the RV? ???

I think the only thing that depreciated faster than an EV is an RV!
I couldn't care less. Besides, my "house" cost less than any of the cars/trucks in the barn anyway.

You know what they say about RV's, boats, etc.. Your best days with them are the day you buy them, and the day you sell them.... ?

 

[devmach-e]

Cars aren't assets. In most cases, they're liabilities. The point is that many people are upside down on their loan-to-value, and not by a little. Yes, the car depreciates the second you leave the lot. But depreciating by roughly 30% in a year?!

I plan to keep the car long-term because I love it. Still, it's depressing to see a massive hit like that.

Cars are not liabilities. The loan used to buy the car is a liability.

 

[DennisD]

Cars are not liabilities. The loan used to buy the car is a liability.

You are correct. The car is an asset and technically the loan is the liability in this case.

Although the car is an asset, it typically is a depreciating asset thus the word "Upside Down" exist with many with loans.

My personal opinion is that whenever a loan is "upside down", the person that borrowed the money is overextended. In other words, the equity in the car does not match the liability owed on said car. That is how people get in trouble real fast.


So in conclusion, the title of this thread should not be that "car owners can't afford their loans", it should instead read "you shouldn't purchase an expensive car if you can't afford the loan."

I am a firm believer that one should be able to put down enough on the loan (liability) on a car to handle the depreciation when it drives off the lot. I would never get a loan that lasts more than 3 years as well.

There are far too many people IMHO that get loans that last more than 3 years and they also borrow the full amount.

Now there are those that suggest that if you can get the interest rate below 4%, you are better off to borrow the money and place your money into stocks that yield more than 4%.

While that is true on average, all it takes is one dip in the economy and the wheels will start to fall off along with all of the other things they have borrowed.

I wonder if those same people take out insurance? After all, on average you would be better off if you didn't? Same ill fated logic..............?

People live beyond their means and they seem confused when things go sideways.

 

[enhost]

Misleading title. Having an upside down loan is not the same as not being able to afford a car payment. A car is not an investment, it is a depreciating asset. Usually loans are upside down when you buy a car brand new from the lot. The smart thing to avoid this is to buy used and let the previous owner eat the depreciation. Easier said than done.

 

[vortix]

I guess I just don't understand why someone would trade a car they're underwater in, rolling the negative equity into the next car. It's crazy and irresponsible. Just keep driving it.

I did it - and it only makes sense when you can get more car for the same or less money, or simply when the new deal is far better than the old deal. I applied negative equity on my previous RWD Select to get a new 39 mo lease on a GT. The negative equity was 100% offset by a lower payment over the 39 month term. My car now has AWD, ER battery, premium sound, glass roof, faster motors, etc. for $0 net cost to me over that time period.

 

[Kamuelaflyer]

My personal opinion is that whenever a loan is "upside down", the person that borrowed the money is overextended. In other words, the equity in the car does not match the liability owed on said car. That is how people get in trouble real fast.

This is probably splitting hairs but being upside down in a loan doesn’t mean diddly unless you’re trying to offload the loan such as in a trade in or house sale etc. As long as the owner can afford the loan payments they’re fine. The loss isn’t real until it’s realized. Unless they’re using the equity for additional loans.

 

[DennisD]

This is probably splitting hairs but being upside down in a loan doesn’t mean diddly unless you’re trying to offload the loan such as in a trade in or house sale etc. As long as the owner can afford the loan payments they’re fine. The loss isn’t real until it’s realized. Unless they’re using the equity for additional loans.

You are correct as long as things "go as planned". I am talking about when/if the person loses their job or another unexpected cost is incurred. If you own an asset that you owe more than it's worth, you are upside down. That is where the downward spiral begins. Too many people assume that things will always be hunky dory and they live paycheck to paycheck. If the collector comes for the car, you not only lose the property but you still owe on the property you no longer have.

I may be old School, but I have never had the fear of losing my car and still owing money.

Misleading title. Having an upside down loan is not the same as not being able to afford a car payment. A car is not an investment, it is a depreciating asset. Usually loans are upside down when you buy a car brand new from the lot. The smart thing to avoid this is to buy used and let the previous owner eat the depreciation. Easier said than done.

It is easy to do as long as you don't purchase a car you can't afford.

Yes, it is a depreciating asset but that is a known quantity. It is/should be known before driving the car off the lot and therefore should be handled as a non investment but rather as a weight. The more the weight the harder it is to lift. To keep with the analogy, you should never try to lift more than you can handle.

In this generation, too many people view a loan as "if I can pay for it now, tomorrow doesn't mean anything". Tomorrow is what you should be planning for. Plan for the worse and hope for the best. This is the mentality that gets people in trouble if that isn't followed. I can't tell you how many people lose a home or car due to poor planning. Yes, they technically could afford it when gas prices stay static, and the like but they live so close to the razor's edge that they lose most things when things dip if you will.

 

[Triggerhappy007]

I did it - and it only makes sense when you can get more car for the same or less money, or simply when the new deal is far better than the old deal. I applied negative equity on my previous RWD Select to get a new 39 mo lease on a GT. The negative equity was 100% offset by a lower payment over the 39 month term. My car now has AWD, ER battery, premium sound, glass roof, faster motors, etc. for $0 net cost to me over that time period.

You probably got a really bad deal on the Select if you can get the GT for lower.

 

[superdave80]

My personal opinion is that whenever a loan is "upside down", the person that borrowed the money is overextended.

But that isn't true. Say (for example) my current loan balance is $30k. The resell value is $20k. In your opinion, I am overextended.

Tomorrow, Canada shuts off oil supplies due to tariffs, and gas skyrockets to $8/gal. Everybody is now trying to get an EV, and my car's resell value skyrockets to $40k. Am I still overextended? It's the same car and loan. Nothing has changed for me.

Or conversely, I decide to pre-pay $10k towards my loan (dropping it to $20k, same as my resell value), and I am no longer 'upside down'. Am I still overextended? Why or why not? It's the same cash I was going to used to make my monthly payments anyways.

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