"One of the most aggravating aspects of buying a new car is that almost immediately after you drive it off a dealer's lot, its value drops. There is virtually no exception to this, no matter the brand name or the dollar value of the car, it drops as soon as you drive away. Unfortunately, this Redditor is in a difficult situation with a high-interest rate on a car loan they can't get out of."
"In many ways, this is just the nature of the beast that is the automobile industry, and it's what is more commonly known as having "negative equity." Anyone with negative equity is essentially in the same position as this Redditor, owing more on a car than it's worth. In this Redditor's position, they have a monthly payment of around $886 plus an additional $200 for insurance, so they feel as if they are paying "rent" on the car, given the price tag."
New vehicles lose value immediately once driven off a dealer's lot. High interest rates combined with rapid depreciation can create negative equity, where loan balances exceed market value. One borrower owes about $30,000 on a vehicle worth roughly $20,000, with monthly payments of about $886 plus $200 for insurance. Inability to refinance limits options. Selling and rolling negative equity into a cheaper vehicle can still leave the borrower underwater. The most practical strategy is accelerating loan payoff by making larger or additional payments. The auto financing model and dealer practices contribute to widespread consumer vulnerability.
Read at 24/7 Wall St.
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