Upside down and 0% loans: cars

[powayseller]

1/3 of new car buyers are upside down on their loans, due to long loan periods and 0% financing offers.

The indebted consumer stretches all my threads: pensions, homes, savings, cars.

http://www.azcentral.com/arizonarepublic/business/articles/0613autoloans0613.html

Some may call me extremist, and may I say, I am flattered by that. It has always been those on the extreme who have been the seers and visionaries. I am proud to be the voice of reason. But I alone cannot take credit. I get EVERYTHING I say from others.

I read ft.com, bloomberg.com.

Every day, I scan the headlines.

[Anonymous]

Let’s not forget about the other side of the extreme. And I always thought that the voice of reason was found between the extremes in a place called the middle.

[powayseller]

U.S. Treasury two-year notes suffered their biggest decline since July, sending yields to the highest in more than five and a half years, as May consumer prices increased more than forecast.

Is this because foreigners are diversifying out of dollars, and the yen carry trade is ending? Or is it due to the numerous odd causes listed by bloomberg? You decide.

Schahrzad Berkland

[carlislematthew]

“It has always been those on the extreme who have been the seers and visionaries”.

Always?

There has never been a single visionary that had moderate thinking more towards the middle?

PS, This is the kind of rhetoric that I was referring to. Words like “always”, “will”, “never”, “everything”. You surely must see that your opinions are often labelled as fact in your posts, and that you can often deal with things in a very black and white fashion.

[EJ]

I agree that people who pay zero down are upside down due to depreciation as you drive off the lot. However 0% financing and a long term loan is not a bad thing. You pay no interest and as your loan term progresses, the dollar depreciates (inflation) and you are paying off the same principal with ‘cheaper’ dollars.

However, I don’t think there many 0% financing deals anymore due to rising rates (except for maybe huge SUVs that no one wants anymore).

Just my $0.02 …

[carlislematthew]

There are quite a few 0% out there right now, as well as special offers that pay your gas and other silly things like that. I believe that car sales are down (housing ATM drying up) and so the manufacturers are getting desperate – I’m looking forward to mass dumping of the ’06 models from now through to the end of the year.

A lot of the 0% financing offers aren’t that great, as all you’re doing is adding on the hidden interest over the life of the loan. You can see this in their pricing, as they’ll usually give you a few thousand bucks off if you don’t go for the “no interest” version.

[PD]

Buying a new car is almost always a bad deal. People toss big money in the garbage just by driving it home. If a person wants that new car, it is a good plan to be watchful and buy it from some yahoo who could not afford his payments and has to dump it. Let him take the initial haircut. I also think a person should not buy a car if they can’t pay cash for it.

[sdrealtor]

“Some may call me extremist, and may I say, I am flattered by that.”

Proud to be a lunatic

[Beach Rat]

Just a few things to note.

1) Buying a new car is not always bad. In my case I purchased a new 4X4 Toyota a few years back. I decided to go new because of the warranty, and mostly because I don’t think buying a used 4X4 in San Diego is a good idea. Not to mention with Toyotas you don’t save that much money going used. I really didn’t want to deal with the possibility of ending up with a 4X4 someone had rallied the hell out of in Mexico and dumped before the warranty was up.
2) With rates as low as they are/were it didn’t make sense to put a lot down. My rate is in the 4’s and after inflation is figured in am I really loosing all that much money having financed the car? Can I find a better investment with my money that will return more than the approximate 2% gap between my rate and inflation? In fact I picked up a biotech stock, the same month, after the price plummeted on the negative results of a phase 3 trial and sold a few months later when it rebounded and more than doubled in price. Awesome gains of $2.80->$6 in only a few months, I would have made more if I was more patient, but I’m not above scraping the bottom of the barrel.
3) If you are upside down in your car loan there are a few things you can do. First “Gap” coverage will be offered to you to cover the difference you are upside down. Like buying insurance in black jack. Also there are creative ways of “backing” out of these loans if you get tired of them. http://www.edmunds.com/advice/specialreports/articles/115584/article.html Not to mention that you live in San Diego! Do you have any idea how easy it is to get your car stolen next to the border!
4) Are we seriously stressing out that people leveraged out car loans so much when money was that cheap? It is similar to the problem with home ownership, but cars are much easier to dispose of, plus even if you do wind up in a loss your only looking a few grand max. Unless you are mob’n in an Austin Martin.

[lostkitty]

sdrrrrrrrrrrrrrrr (growling) –

Dude, give it a rest…
Relax…
Kick back…
Chill out…
Watch the sunset…

[PD]

Beach Rat, buying a new car is not always bad. It is, however, one of the biggest financial mistakes Americans make – and they do it over and over and over.

My last car was four months old when I bought it. It had 4,000 miles on it and a warranty up to 60,000. I saved 20% of the lowest new purchase price available at the time. I’m now up to 70,000 miles and no problems.

I did have to sell a bunch of ebay to buy it. Turns out I missed out on 40k in gains. 🙁 Oh well, if we could predict the future we would all be rich!

[powayseller]

You can check the history of a car with Carfax, and make sure there is no salvage title and that it is indeed a CA car. I wouldn’t want a non-CA car, due to the retrofit for emissions and stuff.

I also buy only used. My husband bought a 911 Porsche Carerra, just a few years old, that sells for $80K new, and he paid $30K cash. We ran the carfax report, and asked our mechanic to check it out. Hide your eyes if you don’t want to read my referral: Poway Import Car Specialist.

Buying a new car is a luxury that should be used only by those who can afford to pay cash. If you need a loan, you can’t afford a new car. Never. Ever. Under no conditions.

Hey, is that extreme enough?

Think of me as the counter-voice to all those people who try to convince you that a new car is safer and better, that real estate can only go up, that commodities are the next sure thing. Isn’t it refreshing to hear with certainty that the other extreme is also possible? Make your own choice. I am passionate about my beliefs. No apologies from me. I am proud of my lunacy, and I am so certain of my vision. I just know it deep inside, and everyday I read more and more articles which validate my positions.

[JES]

I bought a new Toyota in 04′ and another a few weeks ago and have no regrets. I negotiate prices that are darn close to what used models with 15k miles on them are selling for, and for Toyotas resale values are not that much less for the previous model year. Certainly not less enough to justify me losing 1 year of the warranty, having to buy from an unknown person, car condition etc. The cost of ownership over the life of my vehicles is less than almost all American cars and if past experience and consumer reports is any indicator, I will be driving these vehicles past 200k miles. How exactly is this one of the biggest mistakes I will make in my life?

[PD]

I did not say that buying a new car is ALWAYS a mistake. I am glad it worked out for you. Clearly, you did research and used that research to make an informed decision. I stand by my statement, however, that buying a new car is one of the biggest financial mistakes Americans make.

[JES]

All things considered you are absolutely correct! I paid cash, did the research like you said and feel good about my purchases. But for the guy that can’t afford it to begin with, takes out a loan, pays too much to begin with etc., it could certainly be the worst thing he ever did financially.

[Author]

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