Upside down


#1

The article documents the disturbing trend to trade in vehicles before they are paid off. Those great rebates and low finance rates don’t apply to this segment of the population. 72 months on an auto loan on aveqge? Yikes! That most of us don’t feel compelled to buy cars this way is yet another reason to be thankful.


#2

That is old news. It has been that way for years and it is not going to improve.


#3

I know many people that have done this

One guy did this, kept digging himself a bigger hole, and finally declared bankruptcy

Now he’s literally a penniless pauper

People don’t appreciate what they have, and what they can afford

Then they decide to get greedy and kick the can down the road

But there WILL be a day of reckoning for many of these folks, unless they die of old age or illness before that day arrives


#4

What I find even worse than being upside down on an auto loan is the tremendous amount some students owe on a college loan, and graduate with majors where there is little demand. The rate of increase in tuition has far exceeded the rate of inflation. University administrators are largely to blame for this in my opinion. Students are encouraged to take out big loans and are sold on the concept that when they graduate they will be making huge salaries. University administrators learned the lesson well from car salesmen. A car salesman is trained to sell the customer the most expensive car that the customer is willing to sign on the dotted line for a loan. University administrators do the same thing. At the institution where I had a 44 year tenure, the position of provost (second in command) was being filled. I attended the open forum for each of the three candidates and I asked each candidate the same question:" A prospective student asks the question ‘I can attend a community college for my first two years where the tuition is 20% of the tuition at this institution. Why should I not go to the community college for my first two years and then transfer to this university?’ How would you respond to that student?". None of the candidates gave a satisfactory answer to the question. In fact, many of the first year courses at the university where I served were taught by graduate assistants or part time adjunct faculty. The qualifications of the faculty for the community college were better. Now I don’t see any difference between a car salesman attempting to sell more car than the customer really needs and university administrators hoodwinking students into taking on considerable debt for courses that would be just as well-taught at a community college. To put it another way, when I am buying a car, I am looking for reliable transportation. Why should I upgrade to a Lexus when a low mileage three or four year old Corolla will do the job? When I am seeking a college education,.why should I spend big bucks at a large university taking freshman calculus where I can learn just as much calculus in the courses taught at the community college for 1/5 the price?


#5

+1 and more to @Triedaq

We are at the pinnacle of the instant gratification society. I want it NOW, a fancy expensive NEW car, a 4 year education in a fun, but useless, field of study (with NO math - math is HARD!) at an Ivy League $chool, and a 4200 sf house right after graduation filled with a bunch of stuff bought on the easy payment plan.

Kids aren’t educated in reality, life skills or whatever you wish to call it. Learn and understand math, learn how to research your choices, learn how to do things for yourself, stop taking the advice of someone who is SELLing you stuff, ask question of people who KNOW stuff, and learn to delay gratification as it has the greatest positive affect on success as you yourself define success.


#6

Children need coaching, and that is the parents’ job. I gave my children a wide berth to make mistakes, but I did it when they didn’t have a lot to lose. They didn’t have to worry about education loans since I paid for their undergraduate degrees. Yes, they do appreciate it.

Another thing: the oldest two bought cars after graduation. One bought a Chevy Cruze LS and the other bought a Mazda CX-5 Sport. They paid them off quickly with credit union loans.


#7

You obviously did a fine job with your kids! Many parents don’t either because they, themselves, are already IN the payment trap and really don’t understand how they got there or how to get out. Heck, 26% of people have NO emergency savings at all. You can’t teach what you don’t know.

I’d like to see schools do a far better job at this. I got virtually no education about money in high school and had a one credit hour class in engineering school to learn about the time value of money, ROI’s, Interests ect… A very valuable course! My parents did a pretty decent job of teaching me but it didn’t stick at all with my sibling.


#8

One of my most interesting teaching experiences happened near the end of my career. I taught a general education computer science course. One assignment that I had the students do was to write a program that when one put, in the amount borrowed, the rate of interest, and the time period of the loan, the program calculated the actual cost of the loan. The reaction of the students was amazing. Many had a hard time believing the results. This led to a great class discussion. One student popped off, “Is that why you drive that 30 year old car?”. “You bet it ia”, I replied. “Has there been any day that ny old heap didn’t get me here so that I couldn’t load you students down with more work?”. I then said, "You’ve just suggested your next assignment: Suppose instead of buying that car for $5500 thirty years ago, I had invested that money. Write a program that, for a particular sum of money invested, for a particular rate of interest and over a specific period of time, calculate how much that initial sum of money would be worth. This project was also an eye opener for the students.


#9

One of my father’s dearest friends was a social worker

He had degrees and credentials up the wazoo

He loved his job

But it payed very badly, and he barely held his head above water

If he hadn’t inherited his mom’s house, he would have been in DEEP trouble, from a financial standpoint


#10

Again, people need to take responsibility for their own actions. Dig a hole, work to fill it in again. In high school for heavens sake, I took a general business course. Yeah it was hard fitting it in with all the other college prep courses needed but well worth it. We discussed bookkeeping, car loans, mortgages, stock markets, personal finance, banking, and on and on. I still remember Mr. Meyer showing us his little book that he used to record everything he spent and reconciled it once a month. One month he was off by 7 cents and spent the whole night finding the error. I adopted a similar system all through school and well into my working years. Now I couldn’t care less what I spend or what I spend it on. Ought to be mandatory for graduation.


#11

Triedaq wrote an excellent dissertation on what’s wrong with many areas of our economy, including both education and car sales. College recruiters are basically not much different from car salesmen, convincing as many people to buy the product as possible whether it’s appropriate for them or not, and in both industries financing is the norm.

Having retired as a member of a college administration, I could go on for hours on the problems in the postsecondary system both at the college and university levels. I eventually came to call it (never in front of students or other administrators) the “asses in the classes” approach. I’ll spare you all, this being a car forum.

As it regards cars and financing, the auto industry has always attempted to convince the customers that they absolutely need this or that new feature, or project an image of a wonderful life in a new “whatever”. None of it is true, but the approach has long worked. It was no big deal really back when the price of a new car was 12% of average gross household income and the average car loan was two years. But the average comparable sedan is now 50% of the average household income and the average car loan now is 5 years… maybe even 6. That’s the reason leases by private individuals have become commonplace… the monthly payments are low enough that people who cannot afford a new “Slickmobile” can lease one, not understanding the long term consequences.

Having been an educator for so many years, I tend to see the primary and secondary educational systems as the “root cause”. If they taught math, critical thinking, and basic thinking-disciplining subjects like science, instead of spending all their time and effort trying not to not offend the students and to teach them WHAT to think, as well as to comply with the myriad of bad federal policies, the situation might not have gotten so bad. Please do not interpret this to mean that there are not educators trying their best in impossible conditions. There absolutely are such educators, and I salute them . I see the problems as being the regulators and administrators.

Just one man’s opinion, nothing more.


#12

Reminds me of a college professor talking on student loans, If you pee in bed it is not so bad at first, but after a while you will get cold, be wet and uncomfortable.


#13

For the automotive end of it, I remember back in the late 80s I think it was that Mercedes Benz started offering 10 year auto financing. Factor in 10 years of Benz repairs and maintenance with that…

Now and then while in the car I listen to various talk radio shows. One was a financial show that involved a guy who called in looking for what I might refer to as “The Answer”.

This guy owed 500,000 grand in student loans for a PhD in History and was looking for an easy way out as he could not find a job in the school systems because they all figured he was over-qualified for the subject considering his degree.
His only hope is to maybe eventually wiggle his way into a university job and get tenure. Even at that he’s got a tough row to hoe…

Hats off to Triedaq for pointing out a very sad state of affairs in the education system.


#14

A few years ago, there was a house two doors away from me, going through the foreclosure process. In the driveway were six beautiful SUVs, shining like new. None were more than two years old. Selling just two of them may have kept these people in their home.


#15

I’m not a gambler but I would bet a dollar against a dime they owed at least twice what the SUVs would sell for.


#16

But math is hard. That’s why my first degree was in philosophy instead of econ like my dad wanted me to study. After 3 years, I couldn’t resist when another decent school offered me admission to earn a 2nd degree in mechanical engineering. That was when California public schools costed 6 grand per year. 2 degrees in 5 years wasn’t so bad.

A word about 4 year school vs community college. I took my first physics class in a 4 year school, as my high school didn’t offer physics, with calculus deeply embedded in the course. Because i was too stupid to realize that the class was not meant for engineers, but a weed out course for perspective physics majors, I struggled to earn a B while half the class was weeded out in the end. Oh, it was taught by an 80 year old emeritus prof.

When i took intro chem at a community college, I was in tears, literally bored to my tears, sitting through that long winded discussion in quadratic formula. That was the easiest A I got in college.


#17

…and, the problems with the for-profit diploma mills that are masquerading as real colleges are even more significant.

Those places dupe students (usually those from families where nobody has ever attended college) with pie-in-the-sky promises, but the reality of the situation is that they admit students who aren’t prepared for higher education, teach them very little, and provide few–if any–support services. The drop-out rate at those diploma mills is incredibly high, as is the unemployment rate of their graduates.

As a school counselor, I tried my best to convince the less-academic students that it would be in their best interests to attend the local community college–for a fraction of the cost of filling a seat at a diploma mill–but I wasn’t always successful in my attempts. When you have a high-pressure salesperson making multiple visits to a student’s home in order to hoodwink both the student and his unsophisticated parents, the efforts of a public school counselor (who is working with close to 400 students) can be futile in some cases.

:sweat:


#18

Who isn’t upside down on a financed vehicle that was recently purchased new? Unless you make a large down payment, you’re likely upside down the moment you drive it off the lot.

The best solution to solve the problem of owing more than your vehicle is worth is to keep it long enough to pay it off (and then save up a large down payment for your next vehicle).

I have zero pity for those who trade in their vehicles before it is necessary, and even less pity for those who increase their debt every time they trade in a vehicle.


#19

New article appeared just today. Average age of cars on the road is up to 11.6 years and the average ownership time is 79.3 months. Just past that 72 month financing.

Interesting. The average guy seems to be making the right choice, not so much the early traders.


#20

I can’t wait to be completely considered “the average guy”…once my wife’s Focus is paid off by the end of the year, both of our vehicles will be completely ours with no payments. I can not wait to have that chunk of money back, even if it is mostly being reallocated to repairs/replacement fund.