Overhaulin'

How do people get so upside down on car loans?

I dont get it. I have financed a lot of vehicles and some with no money down. But I have never owed more than car is worth and have been able to sell the vehicle and put money in my pocket after paying off the loan. I guess I could see if you bought brand new and were maybe $1000 or $2000 upside down, but everyday I see people on here who are $8000 to $10000 or more upside down. How does this happen? Are they just paying too much for the vehicle and trading in there old car for way under value? I am not trying to slam anyone here, just trying to understand how people get in these positions.

Public Comments

1. The only way to get upside down so quickly is to get tired of the car when it's only a year or less old. The biggest drop in value comes in the first few years, and you still owe most of the percentage. Or, they bought with a HUGE percent loan ( ie, bad credit, so they had to pay 15-20 percent to even get one ). Either way, they're stupid for paying more than they can afford, and wanting to get rid of the car so quickly after getting it. - The Gremlin Guy - owes NOTHING on his 8 Gremlins...
2. You get people that put nothing down and then finance for 60-96 months and put a ton of miles on the car while beating the crap out of it. I have seen 4 year old cars come in that have dents scratches and holes in the interior and you can tell the car was very abused, not to mention the 75-100K miles on it. Say it was 25K and they financed for 8 years, for the sake of easy math, they owe 12.5K on it and it is worth maybe 3-5K. They will wrap that up in the new car and now instead of a 25K car they are buying it's a 37.5K car. The cycle just goes on an on. If you are going to put more mile on the car than average and only plan to keep it a couple years, you need to put loads down at the start, and you should not get a really expensive car, get a cheap commuter car and later if you can afford it a weekend car. The worst I have seen is a guy with a 2006 GMC Denali, it was fully loaded and he has almost 60K on it, he owes 38K and in the current gas climate no one wants a 5 passenger 6.0 Liter SUV with a ton of miles, he was about 19K flipped.
3. Its very simple - I have been at this a long long time. A person has a car for a couple of years, then gets the itch for a shiny new toy. Since most of us have forgotten how to delay gratification, they trade that car in - even though they are $2000 upside down. Then they put $0 down, so they finance taxes, DMV fees, doc fees and extras. That makes them $5-6000 upside down. But did they learn? no. they do it all again in 3 m ore years. Only now, they leave $8-9000 upside down. So they stretch that term to 72 months to make the paymetns liveable. Thats a good way to get your Escallade! Then a gas crunch hits - no one wants that Escallade. So they try to trade it. But the combination of rolling negative from car to car, and the huge drop in the book value, they find they are $10-12000 flipped. but you know what makes it worse? Since I cant trade them out, It is MY fault they are screwed. They don't realize that they are where they are as a result of several foolish financial moves. they are screwed because they just had to have a new toy, instead of paying the one they have off. But since I am the one telling them all of this - I am the bas.tard. But, after a decade and a half, I am used to it. And as a side note - for everyone who screams DONT LEASE!! - this is the time when you should. When you trade cars every couple of years. for everyone who says tehy got hosed on a lease, I can show you 20 who are buried in a 72 month purchase and no way out.