I have been noticing that negative equity seems to be getting more common and getting rolled into the next lease (wherein the amount is financed). Might not be as bad as credit card debt where you are paying the minimum but it seems like it is going that direction. Maybe people were hoping for positive equity at the end of the lease?
How bad is negative equity compared to credit card debt? I guess it is better in the sense that the interest rate is not 25% and you are paying it off somehow in the next 24/36 months but it is similar in the sense that it basically holds you hostage for a long time.
I just mean that it “creeps” up on you and people are not as vigilant as they should be as this is happening (most people did not plan on being a slave to their credit card debt).
In the same way, negative equity kind of just collects and then 24-36 months later – it is a giant number that dealers would gladly (not all occasions) will finance for you. You would think the treadmill starts but in reality, it started a while ago
I enjoy this forum because we do promote some financial responsibility (for example: don’t lease the car if you can’t afford the MSDs – maybe this is just me) but definitely words that you won’t hear the dealer say
If I remember correctly, when my dad leased Volvo’s back in the 80 & early 90’s, leasing was something that was a niche industry or at least that is the way it felt. Now you can lease a $9000 Nissan Micra. So the trend seems to be:
More people are leasing vehicles with very low residual values
More individuals who do not own their own business are leasing above vehicles.
I have seen leases go to 60 months
Of course, if we are talking about individuals upside down in a financed vehicle, then disregard the above. In this case, financing a car should be performed with the same intensive research that one does with a lease. In both cases, residual value is crucial, but for different reasons. People need to be educated before they invest 5 years (and sometimes 8 or 9) in a vehicle. If you do the research on on a vehicles depreciation before you purchase it, you can avoid being upside down and have a pretty good idea as to where your vehicle’s sweet spot is. There are some people who will ride with the same vehicle over the entire term of a finance period, but more cases than not, they want out after 3-5 years.
I remember a friend of mine from NY (Brooklyn, to be precise) told me how he went to buy a Honda Odyssey for, say, $22,000 and the salesperson told him “Congrats, you qualify for $27,000 credit and we can cut you a check for $5,000”
