I'm underwater on my car loan. But my credit rating was low and I got to get a new car without anything down, extended payments. The interest rate is a bit high, but now my credit score is good. It works out. At least I got a car that will last as long as the loan.
Albert Einstein famously said that compound interest is the most powerful force in the universe. He said, “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.”
While obviously not the best long-term financial decision, this situation works out for a lot of people. It's pretty risky to get a 6 or 7 year loan on a 3-5 year old car, but almost any car of almost any manufacturer should last 7-8 years minimum if purchased new and regularly serviced. Just like in the last housing bubble, being underwater is only a problem if you want or need to sell. If you are $15k underwater on your 3-year old car, that's not a problem if you plan on keeping it beyond the loan term. And even if you do need to get out of it, the best way is often not to purchase another car - it's to lease the cheapest car that will cover your negative equity and get approved by the bank. This lets you grin and bear it for 3 years and wipe out all your negative equity, while having a brand new car with service that is likely complimentary for the first 2 years if not the entire lease term (varies by manufacturer and incentives).
Thanks for sharing and good that it is working out for you. What would happen if you lose your job?
I think that is the big question for whether this would really affect people in a downturn. As long as you can keep making those payments, all good... but as soon as the jobs start to go, it cascades for a larger number of people.
Many banks will require it in lease agreements if they feel your income/payment makes you less likely to be able to cover a total loss early in the lease. It's been a while since I purchased a Toyota but I believe they require it for all leases regardless (from your insurer, not TFS).
The replacement cycle of cars has been getting longer since about 25 years ago. The average age of cars on the road is now about 12 years. This fact is often overlooked by folks who predict a rapid shift to electric cars.
No offense, but an honest question: What's to come after the loan? Even with a car that's cheap with repairs, the seven (or more?) years discussed in the article mean one has to pump a lot of money into maintenance, especially as the car gets older; even more so for people who do a lot of miles/km.
Thank you for your feedback. How about rent and other bills that can't be paid with a card? Our goal with this tool is to add ALL of your bills, then pay them all at once, or split in 2 payments. You can choose your payments dates so it matches your paycheck. Easy cashflow and easy budgeting.
