we are leasing a 2015 Honda. the residual is 13k on a 20k new car? approx. I think its high cuz we pay so little. zero down, 200/mo. wife bought a 76 impala off lease in 1979. car new was 5k and she bought it for 1500. which is less than 1/3 of value. did car value really take a dive like that back than? she got an 18 mo loan for car and paid $100/mo. I think interest was pretty high. those were the days. car had 75k so it wasn’t ridden into the ground.
Yes, '70s cars depreciated very quickly.
Also, American cars still suffer more depreciation than Honda and Toyota. That is why leases are cheaper on them, with a lease, you are paying for the expected depreciation plus a profit. The only exception to this is when there is a vast oversupply of a model because of poor sales. This seems to be the case right now with the Chevy Cruze and Kia Optima.
Uumm, yeah, that pretty much WAS run into the ground in those days. 100K was considered pretty much worn out and on borrowed time by most people back then. And after 3 years, you’d be lucky not to have a rust-through somewhere on the body if the car was in the rust belt.
I dunno, cars I bought I tended to keep so all I ever got was the scrap value. But in 81 I paid $10,000 for my diesel Olds. Two years later I wanted to get rid of it with 70,000 miles on it and the dealer offered $2400 on a trade. That was pretty steep depreciation so I just kept it.
My parents bought a new 75 Nova. Sticker was $4200. They paid $4000 cash.
The OPEC oil crunch threw the Big 3 into the ditch with their gas guzzlers by 1975 while interest rates rose and domestic dealers were folding up from coast to coast with lots covered with old inventory. It would be difficult to synopsize the bedlam of the automobile market of the 1970s.
I have book of loan payment tables from that time with the lowest rate 10%.
BTW, is anyone familiar with “Rule of the 78s?”
Yeah the bank rate was 11% for years for everyone. Yes they all (most) used the rule of 78ths to calculate interest. In essence what it does is accelerate interest payments so that the majority of interest is paid in the first third or half of the loan and then the principle is paid in the later term, as opposed to simple interest on the loan balance. You really need to avoid this type of interest calculation. Credit unions are more simple interest on the unpaid balance and I don’t think anyone anymore uses the rule of 78ths.
I knew what I was doing, and at that time the only people I dealt with was the local bank so in 81 (remember that time?) I needed a car and the best I could get was 18%. (I laughed at my CPA BIL that paid 17% a few months before).
After two years the rates came back down so I went down to renegotiate the loan into a lower interest rate. I still owed about 90% of the principle so wouldn’t save a thing even at the lower interest rate. So I just sucked it up but that was the last car loan I ever did at the bank. Next one was GMAC at 7%, then credit union at 3%, then 1%, yee ha. So yeah, avoid 78ths.
You can just google it and let your head spin. 12+11+10+. . .=78. So month one you pay 12/78th of the interest and month 2, 11/78th etc. Congress tried to outlaw it but chickened out. Wear a helmet.
The rule of the 78 is the amount of time and investment will double based on compounding interest. If you are getting 1% on your investment, it will double in value every 78 years. If you get 2%, then it doubles every 78/2 or every 39 years. The formula is time = 78/interest rate.
The rule of 78ths though is for computing interest paid not earned.
If you finance a car for 24 months and after the first month decide to pay it off the “rule of 78s” will force you to pay 99% of the interest that would have accumulated on the loan if paid of in 24 months. At 10% interest that’s a significant amount. Some car notes were for 18% to 24%.
Yeah I think on a 24 month loan, the first month you would pay 24/156th of the total interest or 15% of the total interest for one month. Or something like that. I had the discussion with the banker on this but its been quite a few years. There are charts though. At any rate yeah, its significant. Doesn’t make any difference if you go to the full term but get skewered paying early. They are illegal for anything over 60 months and for mortgages. Gotta beware.
You’re thinking of the “rule of 72.”
From what I remember, the new car price dropped about 50% the first year in the early 70’s.
Since 1+2+…+24 = 300, the first month you pay 24/300 = 0.08 or 8% of the total agreed upon finance charge.
I believe that should be 8%, not 99%.
If you pay 100% of the balance due after 1 month you will owe the total interest/300 X 299.
No, it would be total interest/300 X 24.
Yeah its probably 300. I’ll take your word for it. I’m getting confused again but don’t do it anyway. I believe if you paid it off after the first month, the interest would be 24/300ths of the total interest plus of course the principle that wouldn’t have been touched yet. Not as bad as a pay day loan or credit card. I guess the point is, you shouldn’t get into one of these unless you plan on going the full term, 'cause you will have already paid most of the interest in the first part of the loan term.