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Something to think about when considering competing makes/models. Not saying this should be the primary reason for anyone to buy a TSX or any Honda product, but it does make a compelling case against other brands that don't hold their resale as well.

Auto loans putting buyers upside down
Sean Wood
Knight Ridder Newspapers
Jun. 6, 2004 12:00 AM

FORT WORTH - Dick Adams remembers when 18 months was a long-term car loan. But that was the 1950s, when cars cost only $2,000.

"We've gone from 18 months to some companies doing 96 months," said Adams, chairman of the board of Longhorn Dodge in Fort Worth.

After three years and 75,000 miles, many people are ready for a trade-in. But many still owe more than their cars are worth. Consumers have found it easy to dump one car for the next, thanks to fat rebates and sweet deals from manufacturers trying to sell as many as 17 million vehicles a year.

"You'll finance a car this long, and you don't pay fast enough to keep up with what it's worth," Adams said. "The manufacturers know that, so they give rebates. They'll offer $2,500 or $3,000 to buy down that credit situation and put you in another car. It's put you in another car for 72 months."

Power Information Network, a subsidiary of J.D. Power and Associates, found that 38 percent of cars traded in aren't worth what people owe on them. That is up from 25 percent in 2001. Owners in this predicament are called upside down.

Also, the average length of a new-vehicle loan is up to 58 months, compared with 53 months in 2001. That means many people are taking more time to pay off cars that cost $35,000 or less.

Adams said that people who get upside down on their car loans don't necessarily have bad credit. In fact, most people are upside down as soon as they drive off the lot because of depreciation.

The trouble comes when they want to buy a new car. Some, Adams said, become special finance customers and face a higher interest rate. The terms of that loan will definitely be long. And they may not be able to afford a car as nice as they want.

Tom Libby, director of industry analysis for Power Information, said it's not the manufacturers' doing.

"The consumer is conditioned to think of the monthly payment only," he said. "The monthly payment stays the same, and everything is fine."

But manufacturers and lenders are starting to tap the brakes on car loans that begin to rival the size of home mortgages. Libby said he found that banks are not writing as many loans for the new car while adding what was owed on the old car.

Mary Bell, community bank president for Wells Fargo in Fort Worth, said a customer has to have exceptional credit to qualify for a 72-month loan. And there are rare instances in which Wells Fargo will write a loan for more than the value of a car.

"We take great care not to get that customer in that position," Bell said. "We make sure that based on their income, they can afford the payment and that the term is right for them."

Manufacturers have started considering special circumstances for long-term car loans.

"Our limit on a new-car loan is 72 months, and a lease is 60 months," said Kerry Rivera, senior corporate communications specialist for Toyota Financial Services.

There are exceptions, she said, when it comes to helping people with mobility issues. Vans that need conversions like wheelchair lifts or other accessories can be financed for as long as 96 months, she said.

Staying on top

Ways to avoid becoming upside down - owing more on your car than it's worth:

• Pay at least 20 percent down.

• Pay a little extra with each car payment.

• Don't finance for more than 60 months.

• Don't roll old car debt into a new loan.

• Keep your car if it gets you where you want to go.

Source: Knight Ridder Newspapers

http://www.azcentral.com/arizonarepublic/business/articles/0606upsidedown06.html#
 

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Good article! Debt the America way of life...at least for me. hehe I plan on keeping my TSX for longer than 5 years, so a long loan is fine by me. :)
 

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TSX and Camaro SS Owner
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HondaMan said:
Good article! Debt the America way of life...at least for me. hehe I plan on keeping my TSX for longer than 5 years, so a long loan is fine by me. :)

Im with honda man!!! :thumbsup:
 

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Just a little nutty
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Great article.

Little over $2,500 more to pay off on my TSX and it's all mine!!! :jump:

(I don't like to think of it as mine until the last payment has been made).
 

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Whatchamacallit said:
Great article.

Little over $2,500 more to pay off on my TSX and it's all mine!!! :jump:

(I don't like to think of it as mine until the last payment has been made).
You lucky dog! :p
 
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