Car repossession question

[Derek Sutton]

I've worked in the industry for a few years now and I'm happy to say I work and one of the most reputable dealerships in Southern Alberta. To clear a few things up about some of the opinions, information/ misinformation.
Difference between $8000 rebate (which is incentive from the manufacturer and deducted from the price of the vehicle) and $8000 cash back, which is tacked on to the loan. People often do this as the rate of your car loan is usually much lower then the credit card debt "they are using the money to pay down". Another reason is because they may not have an approval due to revolving credit, so take the $8000 to pay off the revolving credit and you're approved.

Manufactures have a limit to what can be loaned based on MSRP. At GM it is 120% of MSRP so a $50,000 can carry a loan of $60,000, which could be cash back, trade inequity etc... Now keep oin mind that is 120% of MSRP, NOT selling price. So if there's $5000 off you can now borrow up to $60,000 on a $45,000 loan. Now GM is the most conservative at 120%, Chrysler goes to 175% on Ram trucks, and every other manufacturer falls in between there somewhere. The thing is this money is often loaned at 0% to 2% interest and so many customers fall into this trap, dealers will push it as well. It's no totally bad, if you are using the 0% money to pay off 22% credit cards, but isn't the ideal scenario either.

As for Used vehicles, it is a totally different ball game. Any cash back is wholly on the loan, at the approved bank rate, most start at 6% and go up from there. On the used side prices of trades and selling price can be adjusted in order for approvals to be achieved. Based on banks, some loan conditions require proof of income while others do not. Again the borrowing "a little extra" at 7% to pay off some (22%) debt makes sense to some people...

The biggest problems come from 1) vehicle wright off's as you only get the current market value of your vehicle, not the loan value (buy gap protection). 2)wanting to trade in again in two years when you've barely paid back the $8000 you tacked on to the loan yet, never mind anything towards the actual vehicle itself. 3) People don't use the money to pay down any outstanding debt and instead use the money to go on vacation, or simply spend it away.

Dealers will push the heck out of this concept too, especially this timw of the year. "Christmas Bills" and "Take the Vacation you Deserve" ate two adds that are currently running from Dodge dealers on the Fan 960 right now. Someone earlier mentioned barrowing extra on a depreciating asset and hit the nail on the head, sadly though many customers see this as a financial opportunity, you know they cant come up with $5000 to pay off debts but can go from a $500/ month payment to a $800/ month payment and have more money in their pocket.... Because theres no such thing as a credit cycle...

Anyways I lost a number of deals last year (and will again this year) because a strongly advise people to NOT do this, even though I know some have gone across the street to another dealer and did exactly this. Salesman, Sales Manager and Finance Managers are not financial planners, in fact a great deal of them have worse credit then the customers they are trying to "help".

[Fuzz]

Originally Posted by blankall

If it was just a straight line of credit with the bank then they wouldn't be a able to repossess without security. Pretty sure the seizure or sue rules would apply as it will fall under the PPSA.

I don't get how they couldn't find a way to make a few more payments on the car but can make payments on the new car?

Well, you get a new loan with cash back, then blamo, you have another $8k for monthly payments. It's a flawless plan.

[bagofpucks]

True story...before this all happened I booked some time to show them a few vehicles on kijiji in the $3-$5K range, but they said they couldn’t afford that and would never drive one of the vehicles I showed them.

Oh well, I tried to help!

[Derek Sutton]

Originally Posted by blankall

In their defence the cash back is typically not part of the loan. It comes from the manufacturer, and you don't have to put it towards the vehicle, although it's typically a good idea.

Originally Posted by Fuzz

Is this a thing people do? Roll an $8000 cash loan into a depreciating car loan? No wonder there a debt problems...

Originally Posted by llwhiteoutll

Not only that, but they roll negative equity in a car into a new car loan. Sometimes more than once.

Yes and Yes!!! Obviously both horrible decisions but I see people, often times several per week, wanting to trade in their truck owing much then it was new, meaning they haven't paid off the vehicle(s) they previously owned before wanting to trade in their current truck (of course when you trad ein your old one the lien is paid out by the new loan, however you are still paying for it). Some of the verbiage you hear is priceless; "Well the last dealer said they would take care of my whole loan" well they took care of it by adding it to your current loan. "They paid off the whole loan when I bought this truck", yes they loan was paid off and added to this one, thats why your lien is currently $55,000 when this car brand new was $42000.

The cash back scenarios are worse. "they gave me $10,000 cash back....." No sorry they added $10,000 to your loan and you are paying it back at 8% over the next 7 years, "but they said it was included..." Yes included on the loan, I hope you plan on driving this 2015 Ram Quad Cab 2wd with 189,000 km on it for the next 6 years because that's what you'll be doing.

[burn_this_city]

This stuff is mind blowing to me, but I've seen it personally with my friends. Just snowplowing a pile of negative equity into the next depreciating asset.

[stone hands]

Originally Posted by bagofpucks

True story...before this all happened I booked some time to show them a few vehicles on kijiji in the $3-$5K range, but they said they couldn’t afford that and would never drive one of the vehicles I showed them.

Oh well, I tried to help!

normally i sympathize with financially illiterate people who have put themselves in a pickle, but the entitlement here gives me a great sense of schadenfreude for your friends

[Matata]

Sitting in traffic, looking at all the shiny new SUVs around me, comparing their average value to the average house hold incomes and debts, and I wonder how many people are driving the stupidest financial decision of their lives, because it must be a lot of them.

[jayswin]

Drive by a run down condo complex or low income apartment in any low income area of Calgary. It's crazy the amount of 2016-2020 SUV's and trucks you see parked in these things.

These are people/families paying like $1000/rent because they're just scraping by...except they also needed the $400/mth SUV because on the road is where you get to look like you have money, and that's the most important thing.

[Derek Sutton]

Originally Posted by burn_this_city

This stuff is mind blowing to me, but I've seen it personally with my friends. Just snowplowing a pile of negative equity into the next depreciating asset.

And it is going to get worse. You see it is not necessarily the "young people" doing this, many are in the 35- 50 age range, you know the ones with kids who should be teaching finance, debt and money management to their teenage kids.

The numbers from 2017 were nationally the average person has $5500 inequity in their vehicle, by 2019 the estimate, though unconfirmed is $8000....

[jayswin]

Originally Posted by Derek Sutton

And it is going to get worse. You see it is not necessarily the "young people" doing this, many are in the 35- 50 age range, you know the ones with kids who should be teaching finance, debt and money management to their teenage kids.

The numbers from 2017 were nationally the average person has $5500 inequity in their vehicle, by 2019 the estimate, though unconfirmed is $8000....

The problem is the vehicles have just been too successfully ingrained as a status symbol, combined with almost anyone being able to get approved. Also, there's a lot of justifying when it comes to leasing/financing new vs used that is true for people who can afford it, but mostly used by people who can't afford it to tell themselves "this is just the smart way to go".

[jayswin]

I mean, there was a poster on here (Oillkiller, I think) who was the epitome of this. He posted about foreclosing on his house, then losing his vehicle. His immediate strategy was to finance a $15000 used vehicle, in his words, to rebuild his credit, so that he could finance a "real vehicle" a year from then.

This is the problem. Leasing/financing a new vehicle at 0-2% is not in itself a problem, and in fact usually the way to go, If your budget actually allows for the $20-$60k vehicle. Problem is too many people can afford a $3-6k vehicle, but walk into car dealerships with the "yeah, it just makes more sense to finance a new vehicle than buy an older one that will need repairs" attitude that they hear from commercials and people who can actually afford new vehicles.

Then they get caught in the shiny world of new vehicles in a showroom and the "If I can fit $250 in monthly budget, what's $350? Or I can just tack on two more years and I'm in the fully loaded SUV for the same payment".

[blankall]

Originally Posted by jayswin

The problem is the vehicles have just been too successfully ingrained as a status symbol, combined with almost anyone being able to get approved. Also, there's a lot of justifying when it comes to leasing/financing new vs used that is true for people who can afford it, but mostly used by people who can't afford it to tell themselves "this is just the smart way to go".

It's consumerism. It's pretty crazy how easy it is to save when you accept that driving a used Toyota doesn't define you as a human being.

[bagofpucks]

Just to add on to people’s thoughts, I did a quick back of the napkin calculation for our household income compared to the friends and them buying this SUV I would be similar to us buying a Lamborghini or Ferrari.

We bought a new vehicle last year (obviously not a lambo!) and it really is crazy how car culture influences us. We bought a van, which actually was a similar price as a SUV, but it does give us a lot of added functionality. So many of our friends will not buy a van because they aren’t cool. Also, we plan to drive the van for 8-10 years and are lucky to be comfortable in our finances to take advantage of a decent finance rate from the dealership. Our family policy is to only ever have vehicle payments for one car, but I know so many people that have two nice shiny vehicles with huge payments!

[burn_this_city]

Originally Posted by jayswin

I mean, there was a poster on here (Oillkiller, I think) who was the epitome of this. He posted about foreclosing on his house, then losing his vehicle. His immediate strategy was to finance a $15000 used vehicle, in his words, to rebuild his credit, so that he could finance a "real vehicle" a year from then.

This is the problem. Leasing/financing a new vehicle at 0-2% is not in itself a problem, and in fact usually the way to go, If your budget actually allows for the $20-$60k vehicle. Problem is too many people can afford a $3-6k vehicle, but walk into car dealerships with the "yeah, it just makes more sense to finance a new vehicle than buy an older one that will need repairs" attitude that they hear from commercials and people who can actually afford new vehicles.

Then they get caught in the shiny world of new vehicles in a showroom and the "If I can fit $250 in monthly budget, what's $350? Or I can just tack on two more years and I'm in the fully loaded SUV for the same payment".

Dealers cater to this mindset. Go in look at a vehicle and the first thing they'll ask you is how much a month do you want your payment to be. Insane.

[Scroopy Noopers]

I can not say enough good things about buying a small $5000 commuter car. No need to fear future issues, as they are cheap to fix. Tires are cheap, parts are cheap. When your done with it you can sell it for ~$2500. I’ve done this 3 times.

You don’t need features. You need reliable wheels.

[jayswin]

Originally Posted by burn_this_city

Dealers cater to this mindset. Go in look at a vehicle and the first thing they'll ask you is how much a month do you want your payment to be. Insane.

They've gotten even more predatory in this approach, now asking how much bi weekly, or even how much weekly you can afford. I guess hearing "only $89 a week" actually gets a lot of people.

Psychological they just think about what they buy in a week and go "oh yeah, I could fit that $89 in". Scary stuff.

[Matata]

Originally Posted by Scroopy Noopers

I can not say enough good things about buying a small $5000 commuter car. No need to fear future issues, as they are cheap to fix. Tires are cheap, parts are cheap. When your done with it you can sell it for ~$2500. I’ve done this 3 times.

You don’t need features. You need reliable wheels.

Plus these vehicles are simple enough that most repair work outside of the drive train can be done dirt cheap by a reasonably handy person with some basic tools and access to a pick-n-pull.

[GoinAllTheWay]

This thread is what scares the eff out of me over buying a new car. I've been driving the same 05 Mazda 3 for 10 yrs, it's been paid off for 9. Still a hell of a car but it's starting to show it age. I'd love a new vehicle but don't know anywhere near enough about not getting screwed over when buying a new(er) one.

Are there any "buying a new car for dummies" kinda books out there I should be reading?

[Hockeyguy15]

Originally Posted by blankall

It's consumerism. It's pretty crazy how easy it is to save when you accept that driving a used Toyota doesn't define you as a human being.

Woah now, what’s wrong with old Toyota’s?? Am I uncool driving a 2007 Tundra and 2010 Rav?

[stone hands]

Originally Posted by GoinAllTheWay

This thread is what scares the eff out of me over buying a new car. I've been driving the same 05 Mazda 3 for 10 yrs, it's been paid off for 9. Still a hell of a car but it's starting to show it age. I'd love a new vehicle but don't know anywhere near enough about not getting screwed over when buying a new(er) one.

Are there any "buying a new car for dummies" kinda books out there I should be reading?

the book is actually called "buying a new car is for dummies"