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I’ve seen some crazy stories on YouTube about people trading in cars they’re already underwater on just to finance an even more expensive one. I can’t understan

• ronbenton 1y ago
  Well hey it’s not like subprime loans ever got us in trouble
  • Gigachad 1y ago
    Good news is the current US government is rolling back all of the regulation to prevent these bad loans from being given out, just to keep the music going for a little longer before this all blows up.
    • johnnyanmac 1y ago
      At this point I just want it to happen. Americans won't react otherwise, as history has shown. Yes, the working class will suffer the most, but they are already doing so by default. The rich won't crash but they have a much bigger fall.
• pengaru 1y ago
  Nothing new there. My childhood friend's brother has gone through so many new cars I lost track, and never paid off a single one of those loans. We're talking a pattern that began in the late 90s with this guy. He now lives out of a truck that's.... wait for it, not paid for! "There's one born every minute"
  • foobarian 1y ago
    I mean... I guess he's been in new cars his whole life then? And he manages to come up with the money for it. Good for him? Wonder what sacrifices he made in other areas of his life as a trade.
    • bigstrat2003 1y ago
      Well, it sounds like he's living out of his truck for one. That's a pretty huge sacrifice in my book.
• toomuchtodo 1y ago
  Because it’s profitable even after losses, from some combination of origination fees and yield. (at least until the credit cycle turns)
  • smileysteve 1y ago
    And repossession is relatively easy.
    • cudgy 1y ago
      But reselling them won’t be
      • techjamie 1y ago
        It only has to sell for more than the remaining cost of the debtplus repossession and storage cost. Unless someone defaults on their payments very early into their term or totally trashes the thing, this should be achievable more often than not.
• o11c 1y ago
  It's in the bank's best interest to have constant revenue stream, even if that means destroying lives. Cars keep their value much better than, say, houses.
  • Hammershaft 1y ago
    What!? Houses degrade but the land it sits on usually appreciates faster.
    • bombcar 1y ago
      Maybe in silly-con valley. Around most places the land goes up very slowly, but the house’s depreciation is reduced by steady repairs.
      • lotsofpulp 1y ago
        I can envision a future (maybe even the present in some areas) where increasing prices of skilled labor and/or materials results in a structure’s price increasing even though it is aging.
        • binary132 1y ago
          I mean, the simple fact of inflation and urban flight during the covid spending bubble did indeed cause prices to go up quite a lot for many properties.
        • bombcar 1y ago
          We have something somewhat like that where structure prices ARE increasing for a number of reasons - including the cost to build a new one.
    • Retric 1y ago
      Think in terms of banks not borrowers. Houses are a much better long term bet for buyers, but car depreciation is more predictable. Lend someone 500k to buy a house and during a recession it might tank in value by 20-40% while a bunch of people walk away. Worse the’ll likely pull out their equity before defaulting in mass. Cars value on the other hand is more counter cyclical. When the economy is bad people still get into accidents etc but they now want to buy used cars instead of new ones. Even better it’s just less money being lent out at higher interest rates.
• giobox 1y ago
  > I’ve seen some crazy stories on YouTube about people trading in cars they’re already underwater on just to finance an even more expensive one. This has happened for as long as there has been car finance (i.e. practically since the dawn of private vehicle ownership), it's nothing new. Given most folks cannot purchase a vehicle outright, the customer only really cares about the monthly payment, a sizeable amount of whom do not even understand the concept of being "underwater" on a trade in. The industry has always preyed upon the financial stupidity of most car buyers.
  • bombcar 1y ago
    Arguably cars became “unaffordable” sometime when loans became common - what percentage of cars being bought in credit can be argued, but clearly it’s become more and more.
    • giobox 1y ago
      Loans appeared almost immediately alongside the invention of the private motor car (~1920 Ford/GM had to start offering financing on private vehicles to make them affordable), with 60-75 percent purchased this way in the 20s. Today its 85 percent - there wasn't really ever a period private car ownership didn't involve finance, at least in North America.
      • bombcar 1y ago
        Remind me if I’m wrong but didn’t something dramatic occur financially in the 20s?
        • giobox 1y ago
          If you mean the Great Depression, the invention of mass market car finance predates it by a decade.
          • bombcar 1y ago
            Let’s make it so car loans are non-recourse (they can only repossess the car) and see how it shakes out.
• intalentive 1y ago
  Moral hazard
• jncfhnb 1y ago
  Sell the loan to someone else.
• deleted 1y ago
  [deleted]
• tamimio 1y ago
  > . I can’t understand why banks keep lending money for deals like that Because that's literally the only way banks make money. Cars, houses, whatever -banks are after the interest money. The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run. In fact, this issue -the credit creation with fake digital numbers in accounts for the purpose of making profits out of the interest- is the reason why house prices are going insane beyond their actual value, it’s never demand and supply.
  • r_lee 1y ago
    I'd say the problem with house prices is that unlike with other assets, a regular person can go absolutely insane with the leverage on Real Estate because it can be used as collateral that is expected to hold value, thus interest is low and you can only put in a small down payment so mix in the "house prices always go up" and you've got a whole nation (world?) who are using housing as the ultimate get rich quick scheme all while leveraged quite a lot because hey, the prices will never go down so why not, it's a profit multiplier! And you pay the rent via the tenants who will always be out there to rent any property no matter what.. it's not like the economy will somehow suffer and people will be unable to pay that ever increasing rent right?
  • thaumasiotes 1y ago
    > Because that's literally the only way banks make money. Cars, houses, whatever -banks are after the interest money. Lending for bad investments isn't a way to make money. It can work for the banks if they resell the loan, but in that case one thing they definitely aren't after is the interest money on the loan they no longer hold. > The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run. The reason banks "refuse" to redeem all of their deposits at once isn't that this would stop them from earning interest on their loans. (This sounds like nonsense, but I don't see another way to interpret your sentences...?) It's that they can't, because they are never holding enough money to cover all deposits at once. > The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. Also, this sounds like you're describing a loan from the customer to the bank. A deposit can indeed be modeled that way, but in context you appear to be talking about loans from the bank to the customer. Can you clarify this?
• deleted 1y ago
  [deleted]
• laughing_man 1y ago
  Long ago I had a girlfriend who was still paying on a Ford Bronco which had broken down. The repair was going to cost $300, which she didn't have. She was able to trade that car in for a brand new one without spending any money. It was literally cheaper (in the short term, of course) to buy a new car than to fix the old one. It was one of the reasons we broke up -- she was the type of person who counted the amount she could borrow as an asset. Banks keep lending money for stuff like that because they can repossess your car if you stop paying.
  • potato3732842 1y ago
    >It was one of the reasons we broke up -- she was the type of person who counted the amount she could borrow as an asset. There's a joke about playing for the other team buried in there somewhere, lol.
• bb88 1y ago
  It feels like musical chairs. The banks make money as long as the music continues to play.
  • more_corn 1y ago
    When the music stops everyone rushes for a chair only to find there aren’t enough chairs for everyone. I’m starting to hear the music stutter.
• matheusmoreira 1y ago
  > I can’t understand why banks keep lending money for deals like that. Because if they ever stop lending the music just abruptly stops. The entire US economy grinds to a halt and takes the entire world down with it. Even just raising the interest rates is enough to provoke cataclysmic events that wipe out billions and billions of dollars overnight. I can't even fathom what would happen if banks stopped lending money. The US economy is so addicted to cheap credit it would rather forgive debts and bail out banks than let it all come crashing down. Debt is so pervasive, everyone is so thoroughly leveraged, that if there's too many defaults it would cause an endless cascade of further defaults that could threaten the entire economy. It'd take an act of god to fix this.
  • 0xDEAFBEAD 1y ago
    >Because if they ever stop lending the music just abruptly stops. Banks are altruistic actors who generously prop up the world economy by lending to non-creditworthy buyers? That's a new one for HN.
    • asa400 1y ago
      Where in the text of their comment did they say that? The sentence you quoted doesn't have anything to do with the point you claimed they're making. And the GP is right: banks have to lend because the system is set up to use credit for investment, personal consumption, and to balance shocks. Doesn't take anyone being altruistic.
    • matheusmoreira 1y ago
      Fractional reserve bankers? Altruistic? Hell no. They are propping up the world economy though. They're not sitting on top of their cash reserves like dragons and their hoards. They are "efficiently allocating the capital" by lending at interest. That's the number one cause of inflation. They make it so there's so much money circulating it slowly becomes worthless. Someone needs a $1,000 loan. Bank issues it against some collateral. They grab the cash and spend it. Whoever receives that money deposits it at the bank. They keep $100 and loan $900 back out. It eventually gets deposited again. A significant fraction is loaned out again! Then it gets deposited again!! Then $1,000 turns into $100,000 literally overnight! Not one cent of it real until the loans are paid back, until somebody actually goes and extracts value from this planet! Exponential growth in a linear planet, it's unsustainable. The entire global economy is leveraged this way! It's not real until the loans are paid back! If people start defaulting on these loans, it's fucking over. People depend on those payments in order to pay back their own loans. Defaults generate more defaults which generate even more defaults, like a society level stack unwinding. Next thing you know the government is "injecting liquidity" into banks. If they don't bail out the banks everything come crashing down. We live in the age of CBDCs, of programmable currency. We have governments speaking of negative interest rates and expiring money to drive consumption. People have to keep consuming, they have to keep spending money. The motor of capitalism must keep turning. Otherwise the loans go unpaid and everybody gets liquidated.
• cadamsdotcom 1y ago
  Citation needed. There is no way to prove this is true or that if true it happened more than once (people get millions of loans every day, and once in a million per day is a tiny number)