Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

This Ridiculous Trend is Driving Me Nuts!

December 15, 2016 at 5:00 AM

According to the car data experts at Edmunds.com a record number of Americans are making one of the worst financial moves ever. Edmunds.com says that nearly 1 in 3 new car buyers are paid less when they trade in their car than the remaining balance on their car loan. That’s called being “upside down” on a loan: you still owe more on the loan than the car is worth. Edmunds.com says the average car buyer is nearly $5,000 upside down on an existing loan when shopping for a new car. That means that in addition to buying a new car, they have to come up with another $5,000 to pay off their old loan.

This is also a huge problem with used-car buyers: 1 in 4 are upside down on their existing loan when they trade in and get another car.

People, this is absolutely insane. You need to stop being played by the banks and auto lenders, who have suckered many of you into thinking it is okay to take out a long-term loan to pay for a car. It wasn’t so long ago that the average car loan was for just 36 months. Then 36 became 48. And the norm of a 48-month loan soon gave way to 60-month loans being typical. And it just keeps getting worse. These days, more than 40 % of car loans are for more than 60 months and nearly 30% are for more than 72 months. That lenders are doing this makes sense for their bottom line: They know you can’t really afford the car, so they just stretch out the loan terms to make it seem affordable.

It’s up to you not to fall into this trap. My car advice:

  1. Stick With an Upside Down Car. If you are upside down on a car loan, don’t you dare think about trading it in, unless it is no longer safe to operate. But there is likely little chance that’s the issue: if you bought a car just a few years ago, chances are pretty high it is running just fine, but you’re just itching for something new and different. Don’t scratch that itch.

     I know car dealers will tell you it’s no problem because they can simply roll over your remaining balance on your current car loan into the new car loan. Please. So you’re going to double down on what you’re shelling out each month for transportation?
     
  2. Don’t Ever Fall for the Long-Term Loan Again. When your current car has reached the end of its days, your goal should be to buy a car that you can pay off in three or four years. Not five. Not six. And certainly not seven. A car may be a necessity, but you should aim to spend as little as possible for car that meets your needs. To splurge and spend more is financially irresponsible. Every month you continue to make a payment is a month where that money could have gone toward financial goals: saving for retirement, saving for college. Paying off student loans, or paying down a mortgage. All those goals are about building financial security. Overspending on a car is a financial waste.

Tag Cloud

comparison shoppingdangerous money seasonlower premiumannual cost of living adjustmentlower mortgage interestCredit Card Interest Ratesocial workconfident of solution19 years cash flow problemdream schoolDurable Power of Attorney for Health Carephysical healthincentives for health care wellness screeningis it necessaryCory Bookerbuying car 2016Money Markethome loan credit score below 740 adjust allocations shop online guaranteed level term policypay credit debt ASAPgraduationlow down payment50 over 50Gay Rightsdon't charge a pennyPay Off Debt Before Retirementmortgage interest tax deductionrising home pricesFinancial Cliffdangerous retirement plan401(k) Contributionsbudgetalternative FICO scoresave moneyFRAGiftprotect your familyno splurge financial goal phrasestaycationlow credit scoresetup automatic savings withdrawemployer funding HSAgift grandchild IRA contributionBaby BoomersThe Suze Orman Showfederal student loan deferment retain separate credit cardsUS Tax CodeMoneyBankautomatic paymentterm insurancepay down car loangrandchild summer job IRA contributionIRA contribution gifted moneyhealthy retirement blood pressureLong Term Care Insurance do not pay allowance for good behaviorlong-term care overspend on giftsbuying a carcredit reporthome buying budgetTelepicturesmax benefit coveredhome ownershipBankruptcydepreciating asset better loan dealssave bill paying prioritiesbad decisionsUniversity of Illinois2015 financial roadmapbe kind to yourself20 year level term public service loan forgiveness programFinancial Educatorfile asapget over life insurance phobiaPrime Rate Rise 2015Post-Divorcemental healthsuccessitemized deduction10 year repayment plan community collegezero rate transfer dealsnot gender specific emergency fund savingscut monthly cable billresponsibleMother20% equityone annual feespecial saving accountEric Dodge Ashley SpringerHeartlife insuranceNewtownAccuQuote.comOverspendingAlarm Clockknow before you owemoney vowsloan big picture create new truthhome buying mistakesunder 18 financial giftfour steps to retirement savings no apologyCommunication Skills get health insurancespeak new goalcut monthly cellular bill2015 record year car saleslower overall drug costcollege studentquick closingnot enough life insuranceborrowing plan rolloverRoth 401(k)new carfinancing car no waiting periodlow-cost index mutual fundclosing costs 2% of loanretirement accountsautomate student loan paymentspeace of mindno retirement funds for down payment8 Rulesstudent loan debtlive below your meanspay interest while in schoolincreased auto insurance premiumGiftsdon't blow tax refundSuze Orman Scholarshiproth iramonthly dental insurance premiumWall Streetfocus on needsteens and moneyavoid burn outloved ones dependent on incomewives should be involved in retirementswitch to roth 401(k)secure creditMass Mutualwomen outlive meninitial tax break premiummeet monthly don't extend mortgage dental insurance Holiday Seasonsame-sex marriageStudent Debt40% toward financial goalmortgage disclosurevalue moneydeath benefit 20 to 25 times annual incomeRetirement Incomeuniversal college accessconsider roth 401(k)is it kind?Revocable Living Trustfocus on new truth closing disclosureFHA loan feesno fee transfercredit utilization rateage appropriate goalsretirementenjoy saving SatisfyingLifestyleincrease retirement savingsadult children2016 adjust withholdingrequire chore in exchange for allowanceemotional stakespermanent life insuranceLTCi ASAPexercise reguarly20% down payment avoid feesburn outno life insurance financially irresponsiblerent vs buyderailed planWashingtonSuze Orman spouse Kathy Travismarriage financial responsibilitybuy down kid borrow firstlousy investmentborrow each year, capitalization is going to pile up standard deduction bad retirement planningidentity theft740 credit score3 savings buckets buy homeno private loancompare monthly expensesSelectQuote.comsocial security never insolventbe true to yourselflong term goalcontribution car buying mistakesHDHP/HSAlow mileage discountunsubsidized Stafford loanplanhome budget after tax costno late fee Americans don't use all paid vacation timeFiscal Responsibilityretirement planTeachHoliday ShoppingHolidaymake saving a pleasurebig results pay 100% cashStudent Loan3 bucket approachLong Term Care shoppingdebt freeVeterinary SchoolCPI-WNew York Lifeholiday spendingverify wellness screening and programsCivil Rightspay more than minimum20 to 25 times annual incomeallowance taskhealthy retirement weightMarlo Thomasheartachesidelinedreduce monthly paymentlearn good financial choicesHDHP'spurely financial standpointFederal Funds Ratewomen live longerwould you decline a bonuscredit managementstudentno interestraise your deductibleiffy incomeescrowAARPCommencementkids schedule paymentsbetter termscommunity bankmax employer matched 401(k) contributionfraudulent returnritual schedulejanuary billsthree year car loanjuggle multiple financial goalsFinancial Power of AttorneyInfluentialsdoctor no longer in networkswitch to spouse coveragestudent loan repaymentopen enrollment review ultimate compounding gifthome related tax break bonus dental discount planInvest for savings growthsummer job match income only offered while employed dental savings planalways use all paid time off15-year refinance dealis it necessary?death benefit needs for familycnbc alarm clockoverspend on dining outpaid in fullearn allowancefinancial concerndebtlife insurance name trust as beneficiaryFinancial Gift Cliffdon't spend letter to suzepaid vacation4 Must Have Documents increase emergency savingsdon't use allowance as bribewomen longer life span401Ksmall changes long term care6 month waiting periodcar leasingConventional loan PMIAARP Social security calculatorfinancial fearsstudent loan repayment estimatorprotect dependent reduce interest rateLTC shoppingLong Term Care premiumshigh premiumsSuze is my biggest mentorreal estate mistakesdoctors in networkmanage student loansExhibitiondo you need life insuranceschedule vacationat worst still pay 75% benefitGay CouplesFinancial Awareness Video FestivalYoung Adult Financial Solutions For Youstrained relationshipreferrals car loanresponsible with moneyyours, mine & ourschildren under 18co-sign closing feesmax employee matchget the most out of social security only refinance if it paysLoveraise insurance deductiblepay down student loan debtloan no longer than 36monthsinterest on student loansFinancial AdvicePhyllis Shelton expert long-term careCNBCgrandparent IRA contribution origination feeslet them have 50% controltelevision hostanticipated salaryFinancialage appropriate choreForbes Top 10dear suzeEasy Life Insurance same sex marriage band end Floridahome insurancecost of capitalization calculatormultiple lenders2017 Taxescalculate dependents annual income needsBill and Pennyretirment savingsprotect loved ones housing marketno sneaking in feesFICO credit score credit card mortgage3 step financial road map20% down paymentcompare provider pricingtax ID theftproperty taxstay positiveFree Debt EliminatorUniversity of Floridaspring summer New american Dream traditional vs roth 401(k)insurance yearly reviewno tax on withdrawlswrite new goalCOLAdon't derail retirement savingsincrease retirement contribution rateteach importance of helping otherspowerfuloverspend on nights outone credit cardSuze changed my lifeloan is giftreplace permanent life insurance with termlong-term care premiumscostly insurance mistakeCiti Simplicity Card add teenbe good examplereduce withholdingpoint cost offset by savingsfull retirement agerepay student loansleave a legacyloan necessityteach your child good money habitstitle insuranceprotect and provide for minor child Jose Rodriguezno negativitytake actionEmployer Matched ContributionCredit scorebetter loan rateslowest cost fund optionFICO at least 720stretch out haircut appointmentspositivehealthy youstore credit cardsbest loan deal mobile apppush yourself to save more for retirementFundsSandy Hook Elementary Schoolgay marriage ban end Florida Stock Investmentsteensbuy home you can affordhigher insurance deductiblemortgagetaxesemployer offered life insuranceHSA tax savingskeep a scheduleETF'sallowancebalance transfer Sandy Hook Promisehome buying seasonmaintain standard of livingrefundinterest capitalizationChanging LivesForeclosureStudent Debt Crisisworkaholicchildren's bookRichMoney-SavingHow To Build Creditemergency fund required disclosureInterestsocial securityPBS Specialget credit cardnear historic lowsAmy Lacyetinsurancedebit cardUrbana-Champaignverify retirement plan with HR or plan sponsorautomatic withdraw to savings ignore 6 month grace period commitPrime Rate Increase10% donate to charityhigh down payment8 month safety netSuze approvedpaying for collegepay high rate off firstFICO Scorefinancial independence8 month emergency fundstudent loan repayment plancredit unionworst financial mistakeadvice for college graduatesFinal Goodbyehigh credit score discountpresident Obamanegotiate points with bank or sellermonthly benefit highest possible benefitCredit Card Rate IncreaseFinancial Awareness!00% tuition paidbreakdown projected monthly housing costreal estate marketsocial security not going brokeGracefinancial argumentsHDHP family save at least $100 monthlyLTCRetirement Savingshigh deductible health care planunexpected expensegift up to 14,000short term goal women long term careOne Wallet At A TimeEmergency Savingscollege graduateSuze Orman's Money WarsconfidentSave Us Moneygift not loanlower ratedon't cover cosmetic dentistryAdequate Auto and Home Insuranceterm life insurancefile taxes quicklyPersonal FinanceCollege of Veterinary MedicineMost Influential Celebrities ListMortgage Credit Availability Indexcredit cardaffordable premiumBeautyForbesbest interest ratespreexisting condition not coveredsavings2016 adjust estimated taxcharges on credit cardhealthy aging HDHP's are good for youpercentage men widowed 75-84Goodbyerefinancecouple financesdon't do five year car loanface your financial fearidentity fraudpublic service career student loan repayment Influential Celebrityraise deductiblesovercome financial fearsback door Roth IRAWarner Bros Television Groupschool tax refund fraudHDHP's are not badbecome member Financial Systemstandard ratevalentines daywaive home inspection bidmarriage inequalitymoney-aware childpercentage of women widowed 75-84approved medical 100% tax-freeinsurance mistakedon't ignore open enrollmentpay off debtcan you afford itSuze Ormandon't defer interest paymentshigh FICO scoresecured cardSpendingAuto Savings don't buy wantsback-to-school budgetsavings pleasureprovider of financial supportprescription tier3% debt transferred contribute household expenses Staffords this year have a fixed 6.8% interest ratemortgage brokerSchool of Social Workis it true?


View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel