I feel horrible. Like I have been scammed or something. What can I do if anything? I still owe $130,000 on the car and can’t even sell it because I would then owe around $60,000 to pay off the loan compared to what I can sell it for.
I love the car, I really do but having a hard time getting over this horrible feeling of being taken advantage of.
and the punchline:
Hol up, you bought a $155k car a year ago, and you still owe $130k on it? How small was your down payment? You are what’s called “upside down” on your own loan: you owe more than the value of the thing you took out the loan on.
If you’re asking what financially you can do, the answer is nothing; you took out a very large loan with a very small down payment on a depreciating asset. Take this as a lesson about why you don’t do that, particularly when said asset can be crashed. All cars depreciate in value. Electric luxury sports cars from a relatively small company depreciate very, very quickly. Never trick yourself into thinking that your agreement to buy that car was ever anything but an agreement to light $155k on fire. In the future, if that’s not something you can afford to do, do not buy the car.
If you’re asking what you can do to make yourself feel better about your choice, my suggestion would be to try to focus on why you made the decision in the first place. You didn’t buy a $155k luxury car with a zillion horsepower because it was a sound financial decision; you bought it because it was fun. Nothing has changed about the car between now and a year ago; it’s still just as comfy, and it still rips your dick off when you hit the skinny pedal. The value of the car to you was never momentary, and that value hasn’t changed. What can you do? The same thing you were going to do before; out make your payments, and you keep enjoying your car. Don’t think about the financial value of the car; think about the value it has to you.
If you are in a situation where you can’t afford the loan payments anymore, you’re in a much tougher spot. I would talk to a financial planner, cuz you’re gonna need to do some clever maneuvering to dig yourself out of that hole. I’m guessing your best bet would be to sell the car for whatever you can get for it, pay off as much of the loan as you can with that lump sum, and try to refinance the remaining $60k or so at a better interest rate. You’d basically be making payments on a $60k loan rather than a $155k loan, which should at least be an easier hit to take each month. If you need a car, buy a reliable used one in cash, and pay off that $60k loan as fast as you can. Swallow your pride and buy an older Prius or something for $10k.
And for the love of god, don’t crash the Tesla; the max you’re going to get out of your insurance is the cost to replace the vehicle (unless you have gap insurance, which I really, really hope you do). If you total the car tomorrow, the max you’re going to get is $86k, and you’ll still owe $60k.
Tbf that’s not really true since covid hit. New car my parents bought in 2019 only went down a a few thousand because of how long you still wait for a new car, it’s sort-of normalizing though.
Car thefts are a huge thing where I live now, because luxury cars retain a lot more of their value in the first few years now. Meanwhile before a 2 year old luxury car was worth less than a new normal brand car usually.
This is a self-correcting loop though. If residual values remain high for 2-3 years after purchase, that makes Leasing extremely attractive and almost free. More people will lease than buy because of the very low monthly payments, which will then drive up demand for new cars and lower demand for used cars. This will then cause values to again drop when driving a new vehicle off the lot
(Leasing prices are calculated by taking purchase cost - residual value (the depreciation over the term of the lease) / term in months. Therefore the more cars retain their value, the cheaper leases get and the less people will want used cars)
Comparing to financial derivatives, a lease has a built-in call option that you also pay a premium for (being able to buy the lease out at the end). You also pay for the depreciation of the car (as you say). And there’s also interest you pay on each year of depreciation (so if car is expected to depreciate 8 grand in 4 years, you pay interest on that 8 grand).
Even though as you said, the gap should get bigger between used and new cars, I don’t think the loop will fully self correct. Car prices rose like everything else, and I don’t think the demand for used cars is really going down because if you’re poor you still need a car in North America.
Covid disrupting the car supply lowered the total amount of cars available, and now the price floor for a used car is still pretty high. Old cars still broke down at almost the same rate, and the amount of new cars didn’t keep up in replacing it. So now you also pay a premium on being able to buy a used car tomorrow vs waiting months for the new car to get to you eventually.
Idk if car companies actually care about having the same supply/demand balance as before and increasing production. I think they’d rather make more per car, and then invest in the stock market than invest in making stuff. The investment arm of Ford is worth more than the car-making and selling arm.
Your mechanism you talk about is more about the price gap between new and used. Which is effected by what you said (people buying new because used is not worth it), interest rates, inflation, and used car supply.
Admittedly I haven’t really taken a good look at the leasing market because I was taught that it’s always stupid to carry that much credit on a luxury good that depreciates (parents always told me put money into your own house, or stonks, and drive a beater until you have money to burn).
Yes there’s also a rent charge and fees, I took that as a given. Of course the lessor isn’t operating a charity and seeks to make a profit. Those are also present on retails, and much greater. You can pay all monthly payments upfront in a lump sum to reduce it to a negligible amount. It all multiplies off the base amount provided by the depreciation though, so that’s the primary consideration.
There are certain situations where leasing a new car is a very good deal, better than buying new and better than buying even somewhat new. It’s usually when conditions align just right with rebates, clearance of soon to be old model year cars & high residual values. Back when I worked in the industry I saw many leases for cheap cars like Corollas or Jettas that were for around $190/month, and some for electric vehicles that were around $100/month (this was around 2016 when there were cheap rates and big electric rebates)
This makes sense abstractly and yet I don’t really believe there would be a major decrease in the lease cost, I just see the dealership profitting more.
Dealerships get rate binders from the financiers with set RVs. They don’t get to chose. They can mark up the rent charge and purchase cost within certain limits, but not the RV. Financiers don’t want to fund underwater loans because it’s more risk for them.