How to Get Out of an Upside Down Car

  • Regular readers know that I'm a car guy. Mostly old cars, but anything on 4 or 6 wheels can turn my head. I'm also an anti-debt guy. That's why this article from Autoweek hit home for me (thanks John for sending telling me about it).

     

    "In the first quarter of 2017, the percentage of trade-ins on new-vehicle sales that had negative equity reached a record 32.8 percent. The average amount of negative equity, at $5,195, was also a high, Edmunds data show."

     

    Let me translate that to English, nearly 1/3 of people who buy a new car owed more on their old car than it was worth. By nearly $5,200!

     

    The article went on to say: "Loans lasting 73 to 84 months have also increased, according to Experian, making up 32.1 percent of new-vehicle loan share in the fourth quarter of 2016, compared with 29 percent a year earlier. On the used-vehicle side, loans lasting 73 to 84 months accounted for 18 percent of the share, up from 16 percent a year earlier."

     

    To put that simply it means that to keep their payments low 1/3 of new car buyers chose a loan of between 6 and 7 years! And even 18% of used car buyers chose a loan that long. That's an significant increase from past years. Which means that the trend is getting worse!

     

    What can you do about it? First, become informed.

     

    For instance, on a 3 year auto loan for $30k, after one year the amount you'd still owe would be down to $20,300 (assuming a 3% interest rate). If you had a 7 year loan it would only have dropped to $26,100.

     

    We have a lot of good information about auto loans in the TDS library section on Managing Your Auto Loan. You'll find articles about refinancing an auto loan, when it doesn't make sense to pay it early and what happens to your credit score as you repay your loan.

     

    What's the second step? Take action to make sure that you don't become a casualty of the auto loan debt trap. When you've been paying for a car for 3 or 4 years and you're still upside down that's a sign that you're headed for trouble!

     

    Keep on Stretching those Dollars!
    Gary


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