As many consumers have recently become aware, the practice of “Roll Over” financing has been completely abandoned by the auto finance companies around the nation. What these lenders have essentially done is stuck the consumers of this nation with the last vehicle we bought before their lending practices brought the economy to a halt.
For the better part of 30 years, they’ve “allowed” us as consumers to bring our extremely depreciated vehicles into a dealership and, although chocked full of negative equity, “done us a favor” and “paid off” our vehicle “for us” to put us in a new one.
American consumers, as a whole, can be talked into anything. And when your car is sputtering on its last cylinder and you barely make it onto the lot, you’ll do whatever it takes to drive off the lot in a different vehicle.
From our persepective as consumers, it is a systemic failure of this nation’s financial leaders to allow consumers to continue to roll debt from one vehicle to another. However, that’s not how they would describe it. No, they would call it “Return On Investment” as the continued rolling over of negative equity from one vehicle to another is a form of indentured financial servitude as the dealerships and lending institutiions in this country KNOW that as long as they can roll your negative equity from one car to another, they will always be taking a percentage of your monthly income in the form of a car payment.
It’s a behind the scenes, collusive effort and there should be no doubt that this practice is partially responsible for the current recession. For a majority of us American consumers, our vehicles are our 2nd largest monthly liability behind housing. (In many cases, it actually SURPASSES housing as some people are driving around cars with payments higher than their mortgage/rent. How ridiculous is that?)
When we buy a house, we do not willfully purchase something that we KNOW is going to depreciate the moment we are handed the keys. In fact, nowhere else in our financial lives do we stand for the brainwashing that we do when buying a car.
There isn’t a single one of us who, if we were buying a home, would go through with the purchase if the realtor told us “you’re paying $500k for this house now, but by the time you go to sleep tonight, it’s only gonna be worth $300k”. That makes no sense, yet we do it every single time we buy a car.
Additionally, the lender’s of this country have used their profits to conduct research in order to determine just how much we will stand for. And through that research they have determined that they can create lending guidelines, with high enough interest rates and lengthy enough terms which means that by the time you have finished paying off your loan, the car will have sufficiently depreciated in value that it will be worth next to nothing.
Adding to that, the automakers of the world (including GM which was bailed out & purchased by the Federal Government & stands to make HUGE returns in their upcoming IPO) have figured out ways to make that new car purchase last just about as long as the loan term at which point the car starts to breakdown and cost more to fix than it is to simply buy a new one. (Or so they want you to believe.)
THE DEPRECIATION ON A VEHICLE FAR SURPASSES THE RATE BY WHICH THE PRINCIPAL BALANCE IS PAID DOWN. So much so that the Value To Loan (”VTL“) gap actually increases from month to month by a rather significant number. For example: If you owe $15k on a vehicle in January and the value of the vehicle is $10k (150% “VTL“). After you make your payment ($500) in January, you have knocked maybe $50 off of your loan balance (depending on how far into the term of the loan you are & with the remaining amount ($450) going to interest).
However, the new value of your vehicle in February is likely to be $9500. Therefore, while the loan balance is now $14,950 (a “VTL” of 164%), you have actually INCREASED the depreciation in your vehicle by 14% just by making your payment.)
For a more clear explanation of these facts and more, call one of our Enrollment Agents at 866-237-HOPE(4673).