Vehicle Loan News
Cleveland Scrap Cars is an auto scrap outfit who buys old cars 6 days a week, paying you cash for the value of a scrap car. When you sell a junk car to CSC, from the point of vehicle removal you can rest-assured that the car will be recycled in a manner that is friendly to the environment. The majority of auto scrap is able to contribute to the ongoing usage of existing cars on the road or toward the betterment of new vehicles or other products. A November 28, 2015 article posted on gazette.com composed by Jim Flynn titled ‘Avoid going upside down on car loan’ informed us of the following: “New car sales have been hot the past couple of years, in large part due to increased competition in the auto finance market. Lenders have found auto finance to be one of the few ways available to earn a decent return. Heightened auto finance competition has had a couple of notable concerns. First, subprime auto loans have increased greatly. (This may not be as risky as it sounds since, in hard times, people are less likely to default on an auto loan than a home loan) Second, auto finance competition has resulted in extended loan terms.
Not long ago, a three-year term was the norm. Now, it’s common to see auto loans with terms of 5 to 7 years, which reduces monthly payments. Usually the value of a financed auto will go down much faster than the loan against it will be repaid. To illustrate, assume you buy a 2015 Mustang for $45,000. You put $5,000 down and finance $40,000 on a 6% loan. If the loan term is 3 years, your monthly payment will be $1,217 and the loan will be fully paid at the end of 3 years. If the loan term is 7 years, your monthly payment will be $584. However, at the end of 3 years, you’ll still owe $24,881 – and your car will likely be worth around $17,000. Now, if your car is stolen at 36 months, never to be seen again, your insurance company will, under your comprehensive coverage, pay you $17,000 (less your deductible) – meaning you’ll have to scrape up roughly $8,000 more to pay off your loan.
This problem also referred to as being “upside down on your loan” (aka: under water). Gap insurance comes to your rescue when your auto is a total loss due to theft, an accident etc., and its value is less than what you owe against it. Some auto lenders will also require gap coverage, especially for a long-term loan with a small down payment. Although the concept of gap insurance is simple enough, it can get complicated when you look at the details and your options for coverage. Gap coverage might just be a simple contract, in which event the solvency of the company providing the coverage becomes a more important issue. If your own insurance company doesn’t offer gap insurance, your lender or auto dealership most likely will. In all events, you need to compare terms of coverage and cost before you buy. You’re likely to find major differences from one product to the next.” The full article is available here.
This scenario is so inherently flawed it is ridiculous. I will explain why in the following points:
- Why is someone who only has $5,000 cash down buying a $45,000 car in the first place?
- If you are illogical enough to think this makes sense, consider that 4 years from now, likely you will have an “itch” for a nicer car anyway and be strapped with 3 more years of nearly $600/month payments.
- Why would you knowingly do a loan where you know the value of the car will have you “under-water” soon?
- The dealer & lender know the whole situation is flawed and that is why they are selling you “gap” coverage!
Back to Auto Scrap
Hopefully those who took the time to read the above analysis take it to heart. Anyhow, the value of a scrap car is influenced by several factors including the current per ton auto scrap price, the age and condition of the vehicle and the costs incurred by the guy who buys old cars in retrieving the car. Are you wondering who buys old cars in the greater Cleveland area? To determine the value of a scrap car simply call us at (216) 282-JUNK today.