Car Loans a Depreciating Business

Many people don’t realize that the second they drive that car off the lot, it depreciates. Which means that it is officially worth less than the auto loan you just signed. Some think that if they get a more expensive car that it will hold its value, and that is true of classic and rare cars. However, for all other cars, you have just lost money.

Most cars only retain about 35% of their original value five years into their auto loans. There isn’t much of a difference for luxury cars, they seem to hold their value at about 36%, and some other cars can hold as low as 21%. Literally, as soon as you walk out the door the auto loan is worth more than the car.

It is important to keep these things in mind, because many customers end up being upside down in their car loans, which means basically that they owe more than it is worth. So what do you do if you need another car loan but still owe on the old one?

Most dealerships will make you some sort of deal. Some promise to pay off the auto loan no matter what you owe – but keep in mind that you will pay for it somewhere, no one gets anything for free. Some roll the balance into their new car loan, and now they owe even more on this auto loan than the new car is worth.

More and more auto loans have been going out to people who can’t really afford them because of the negative equity they still owe in their old car loan, but dealers and manufacturers want those cars sold. Therefore, you end up with a lot of subprime car loans.

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