How do you assure that you’ll never get out from under owing money on a car? That’s easy. Just buy  – finance – another a new one before you’ve paid off the one you still owe money on.

The lure into this trap is tempting.

You’re already under water; i.e, the money you still owe before the car you have is paid off is more than the car is worth. The dealer tickles your ear with an offer that seems too good to be true – because of course, it is. He offers to take your old car off your hands and fold what you owe into the payments on a brand-new car!

You get to drive a new car. And you also get to make payments for longer. Ideally, forever.

About 30 percent of current trade-in transactions involve an under water trade-in and the sums still owed are pretty astounding. The average amount still owed on about 30 percent of traded-in vehicles is $7,214 and more than one in four of these serial debtors still owes more than $10,000 on their trade-in.

None of this ought to be surprising given that the average priced paid for a new vehicle exceeded $50,000 last year. Depreciation has always been part of the cost of buying a new vehicle but because of the never-higher buy-in cost of new vehicles, the cost of depreciation is higher than ever. That $50,000 new vehicle you financed (plus interest) will likely be worth half (or less) that by the time you get to the end of a six-year loan, so it’s easy to see how easy it is to end up under water by then.

Well, why not just keep the vehicle and pay off what’s left on the note?

That was common sense until new vehicles could no longer be counted on to not cost you big money shortly after the new vehicle warranty expired. This happened – roughly – around 2010 or so, which was around the time that the complexity that once was characteristic of high-end luxury-brand vehicles became commonplace in all new vehicles. Body control modules replaced simple electronic switches for such things as power windows and locks; drive-by-wire controls replaced physical controls; LCD touchscreen interfaces and software-driven systems are now impossible to avoid in any new vehicle, regardless of make or model.

As an example, the Nissan Kicks that is the featured review on EPautos this week has a huge, single sheet LCD touchscreen dash that looks and is a lot like the single sheet LCD touchscreen dash inside a 2010 Mercedes S-Class. What was once something found only in rich people’s cars that rich people could afford to lease every three years is now common in ordinary cars that ordinary people cannot afford to keep making payments on for six-plus years.

Or afford to have repaired.

It used to be that it was a safe bet to keep on driving a paid-off car that was only seven or eight years old. Probably, it’d be ok for 12-15 years or more. It isn’t anymore. It is no longer a safe bet to keep on driving a five or six year old car – once the warranty coverage is over, unless you have the ability to pay big bucks for repairs.

Many no longer do.

This is key to understanding the predatory nature of what’s going on. Consider the situation the person who owns a six-year-old car that’s out of warranty that they still owe $10k on when something expensive fails – like the LCD screen in our example. The dealer tells the owner the cost to replace the touchscreen will be $3,000 (not plucked out of a that; this is about what it costs). A transmission failure can run to $5,000 or more. These didn’t usde to commonly fail before 15-20 years.

The odds of a failure much sooner are now greater.

Not many people have $3,000 (let alone $5,000) in their wallets – or their bank accounts. So the only way they can pay the bill is by putting it on a credit card. Many credit card issuers charge shylock interest; in some cases, more than 30 percent. At that rate, a $3,000 balance can become a $6,000 obligation almost before you can say Shazam! – and that might not be the end of it – because if you get behind, the interest will continue to accrue.

That’s when the service advisor calls over the new car salesman, who soothes your nerves with the offer of a lower interest rate on a new loan.

Voila! The trap is sprung.

This is how the poor schmucks get talked into paying more than $900 each month – and in some cases, for as long as 84 months. At the end of which, it is almost certain they will (once again) find themselves under water, only much more so – having taken out a larger loan to begin with.

So people get comfy with gigantic and never-ending monthly payments. They figure it’s the way to avoid repairs they can’t afford to pay for.

Our enserfment proceeds at a gallop.

. . .

If you like what you’ve found here please consider supporting EPautos. 

 

 

The post “Under Water” Hardly Covers It appeared first on EPautos - Libertarian Car Talk.