Oppressive Car Loans
The Never-ending Sinkhole
By Daniel Muniz

For an increasing number of consumers, their cars are becoming never-ending financial sinkholes that drown them in debt. The statistics are grim. Today, the lengths of car loans are now exceedingly long, especially since that is the best way to make an expensive car affordable. Also, down payments are now minuscule or non-existent. And to add insult to injury, many trade-ins still have negative equity which is then tacked on the loan of the new vehicle. Accordingly, an oppressive car loan makes a consumer’s debt even more burdensome and ominous.

As a result, it is starting to become increasingly commonplace for a number of people to have never owned their car outright even though they may have gone through several vehicles and have made consecutive monthly payments for more than a decade or longer.

But it didn’t used to be that way.

It was once common for auto loans to be four years long but according to a study commissioned by the Consumer Bankers Association, a slight majority of car buyers (60%) now have terms that are longer than five years. And there appears to be no end in sight to stretching out the life of these loans even longer. Unfortunately, a very long loan is the price to pay for having lower monthly payments.

It was also commonplace for people to save money for a sizable down payment for a new car which tremendously helped in keeping the longevity of a loan down to a bare minimum. In fact, the industry standard for a down payment used to be a whopping 20%. Of course, that was done at a time when people used to have savings accounts.

But today, the average size of a down payment has fallen from anywhere to 5% to all the way down to 1% of the purchase price. And not surprisingly, there has been a huge increase of financial institutions that are willing to finance 100% of a loan including the negative equity that piggybacks on top of it. Consequently, there are plenty of people who are driving off dealerships owning far more than what their car is worth.

And in the past, people used to actually own their cars. That meant paying it all off and going years without having a car payment. It also meant having something of value to trade in or sell. But selling a car with negative equity in order to get a new one becomes a vicious cycle because more debt is piled on top of a new loan.

For consumers to escape these oppressive car loans, a few factors have to be overcome.

One factor is a fear of maintenance. If a car is properly maintained, then it can last for a very long time. Understandably, there is an inordinate fear of fixing your car because most auto mechanics are shysters who will rip you off. There are a lot of people who dread the experience and avoid it for as along as possible because not only will mechanics try to fix things that aren’t broken, some will brazenly break something that already works. One doesn’t have to look very hard to find these kinds of horror stories.

Although it is easier said than done, it is imperative to find honest mechanics. Due to wear and tear from years of use, there are many things in your car that has to be serviced or replaced. That is normal but it is only cost-effective if you can find an honest mechanic to do it.

It is also incumbent for consumers to become knowledgeable about their vehicles. Simple knowledge of routine maintenance and servicing will go a long way to extending the life of your vehicle. And the longer your car runs, then the longer that you won’t need to replace it.

Another factor is impulse buying. There are so many people who have the “I gotta have it” mentality when it comes to a new car that they forgo all common sense. For some, it is totally irrelevant if their car already runs fine or if they have negative equity, they got to be inside a sleek new vehicle. Plenty of dealerships cater to impulse buyers with flashy showmanship and saturating ad campaigns.

The only remedy for the impulse buyer is a dose of stark reality. “Do you really need it” is the brutally honest question that has to be asked with the key word being “need.” Wanting something is totally different than actually needing it although auto manufacturers have exploited our instant gratification society with their mesmerizing marketing. Impulse buyers need to evaluate their needs and their current financial picture instead of succumbing to their impulses.

And finally, the most pernicious factor is simple materialism. “Do you really need a car that is that expensive” is another brutally honest question that a lot of people avoid answering because they are afraid of the answer. Auto manufacturers and car dealerships know exactly how to push your buttons with plush upgrades and enhanced performance engines. And they also know how to exploit your desires for maximum profit.

That is why the same car model comes in so many different variants and upgrades with terms that can be extended to an outrageous length of time like six years.

In summary, the average consumer actually has a lot of leverage if he or she decides to exercise it. Unless it is an emergency, you shouldn’t be shopping for a new car when there already is negative equity on the one that you have. Pay it off and properly maintain it for years to come so that you are not in the position of being forced into an oppressive loan.

Next, consumers have to reign in their own impulse buying and materialism by examining their true financial picture.

And finally, car purchases need real down payments in order to keep the monthly payments and the length of a loan reasonable. Perhaps the best way to curtail impulse buying and materialism is to save up for a 20% down payment which is a monumental task in itself.

You don’t have to be financially overextended with needless car loan debt. And for a lot of us who are living paycheck to paycheck, it is not an easy task.

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