Obviously American consumers are slow learners. Many still live under the illusion that buying something on credit is owning it.
Here's what they don't want to hear;
First, the moment you drive your shinny new car off the showroom floor it "decreases" in value. The more you paid for it the more it depreciates;
Yes. The newer the car, the faster its rate of depreciation. Are you wondering, "What will my car be worth?" Consider this: The moment you drive your new car off the lot, it will depreciate by as much as 11 percent of its value.
Let that sink in a moment.
That means that if you purchase a $20,000 vehicle, it will lose as much as $2,200 in value just by the simple act of your driving it home.
Fortunately, depreciation does not continue at this rate, but it is still faster for new cars than for old ones. On average, a new car will lose as much as 19 percent of its value in its first year of ownership. That means that your $20,000 new car will be worth about $16,200 after just one year. With each successive year, the rate of depreciation decreases significantly.
Check out the car depreciation chart to see how a new car may decrease in value over the first five years. Car Depreciation: How Much Have You Lost?
What you also don't want to hear is that the loan you took out on that depreciating asset is increasing with time as the interest continues to be added to it.
So, here's the bad news;
You should factor in depreciation rates when you are calculating the actual cost of owning your new car. Also, it is extremely important that you understand how your car depreciates so that you can take steps to avoid potential problems. The main reason that depreciation can cause significant financial hardship for vehicle owners is the reality of upside down loans.
During the 3 three years of ownership, your new car is likely to depreciate at a faster rate than your car payments are able to reduce the principle. If you bought a $30,000 vehicle, it is likely to lose approximately $7,400 in value in the first year alone. If you put $1,400 down when you bought the vehicle, you will still have had to pay $500 in principal alone to keep up with the depreciation. If you financed with a 5-year loan or longer, you will not have met this burden. This means that at the end of the first year, you will own more for your vehicle than it is worth.
Now, you may be asking where is all this money going? The answer is the same as the one you got in 2008 and, as a member of the Middle Class, you have again made a very small group of people (the 1%) very rich.
Car buyers now owe $1 trillion on their car loans, the first time they've ever owed that much.
The loan balances have been driven up by a combination of three factors -- strong car sales, rising car prices and low interest rates.
Interest rates are low. Borrowers with top credit scores can get loans for less than 3%.
"There are a lot of lending choices for consumers, a lot more competition," said Jason Laky, automotive business leader at credit agency TransUnion, which reported the record level of car loans. "That's made financing more widely available and very attractive."
New car sales are up nearly 6% so far this year, according to sales tracker Autodata.
Overall, the industry is in a position to sell a record number of cars to U.S. consumers this year.
Related: Americans buying more cars than ever
But the amount owed is up 11%, a sign of the increase in the size of car loans due to rising prices.
The average amount borrowed is about $21,700, and buyers owe nearly $18,000 on average. The average new car purchase price now stands at $32,529, according to sales tracker TrueCar. The average car loan balance is rising faster than it is for mortgage loans, according to TransUnion.