The pain of being upside down

[Mr Sunshine]

An RV friend told me that he got a 20 year loan on his coach at age 78!

He could easily be upside down on that loan, meaning he owes more than the coach is worth. Had he put down the minimum required, he would be writing a big check to pay off the bank when he sells his coach.

Here's a great article with a shocking survey on this topic: https://rvtravel.com/shocking-many-r...n-on-rv-loans/ They found that almost half of 650 respondents owed more than their RV was worth!

I had to swallow this bitter pill once, and vowed to never fall into that trap again. "Lessons are repeated until learned!"

[Bob Denman]

I owe; I owe. It's off to work I go...

[Diemaster]

Originally Posted by Bob Denman

I owe; I owe. It's off to work I go...

thanks bob. now im never going to hear the song the same again.

[Elite Washington]

So as a banker for over 20 years of my life this article is pretty one sided. With the exception of a house anything you finance will depreciate in value it’s all about leveraging risk. If I buy a 100k coach and put 10k down even though I could afford 50k that in many cases is the best option. Cash is king as long as I don’t waste that money. If I lose my job I still have reserves to pay my bills versus trying to sell the coach and hoping I get money in return. Anytime you add debt you should be adding life insurance to cover the new debt so in the case of the woman in the article they should have added more insurance in case something happened. It’s true people are taking advantage of but like it our not we are a debt society and that’s what makes our economy work.

[Lt Keefer]

My thought is almost everything you buy is worth less after you open the package. That being said, If a bank wants to loan me money for 20 years on a depreciating asset that's their problem, not mine. And frankly, I can walk away at any time from my RV loan. Sure it would be a hit on my credit, but so what.

[Elite Washington]

Originally Posted by Lt Keefer

My thought is almost everything you buy is worth less after you open the package. That being said, If a bank wants to loan me money for 20 years on a depreciating asset that's their problem, not mine. And frankly, I can walk away at any time from my RV loan. Sure it would be a hit on my credit, but so what.

That’s exactly true and the right way to look at it. If you can finance it at a low rate you are better using someone else’s money. Sure like you side your credit will take a hit but most likely at that point that’s the last thing you are thinking about. Keeping a roof over your head and food at the table is more important then a luxury.

[Bob Denman]

Originally Posted by Diemaster

thanks bob. now im never going to hear the song the same again.

I'll bet that you were thinking of another song...

https://www.youtube.com/watch?v=SEMewmRScWM

[Diemaster]

Originally Posted by Bob Denman

I'll bet that you were thinking of another song...

yes. i was thinking of another *cough*disney*cough* song.

[TurnerFam]

I understand the idea of being 'upside down', but that really only matters if you DON'T pay off the loan...

the reality is, whether you paid a big down payment to start with, or you have 'more' to pay than the vehicle's ACV during the loan, you're still in the same place...

Depreciation is Depreciation - whether you paid cash on the spot, paid some cash and have a loan, or the whole purchase was loaned to you, the 25% depreciation once you drive it off the lot is the same, no matter.

The only true monetary difference between paying cash and using a loan is the cost of interest...some think it's worth it for the ability to put off so much 'out of pocket' at purchase, and some would rather not pay it, period.

[dkoldman]

I don't think "depreciation" is the sole problem to cause one to go upside down, rather the sales price should be focus. If you are paying MSRP, or anywhere close to it; you do not have a fighting chance.

Fact: Paying cash is best if you can afford it
Fact 2: A low interest loan even at 20 years is very good, as long as they allow you to pay early to reduce the principle balance.

But the key and most important thing, REGARDLESS to what your bank will allow. Check the NADA book values. NEVER PAY MORE THAN NADA. If you look at NADA values for same unit brand new versus 1 year older, it is very reasonable and on par with cars, boats etc.

If you don't like to crunch the numbers, easy way to avoid all concerns with being upside down is to buy a new model at the end of its season when dealers are trying to move them off the lot.

At the end of the day, do what makes you happy, after all it is recreational vehicle so it is kind of like telling someone how much they gamble with at a casino. To each his/her own.

[TurnerFam]

no one pays MSRP... no lender would provide a loan on that - they’re already smart enough to know that a loan is only against the book value, to cover their own collateral risk.
Market flucuations in value is the only factor that will cause an ‘upside down’ effect - which is the exact definition of Depreciation.

[dkoldman]

Originally Posted by TurnerFam

no one pays MSRP... no lender would provide a loan on that - they’re already smart enough to know that a loan is only against the book value, to cover their own collateral risk.
Market fluctuations in value is the only factor that will cause an ‘upside down’ effect - which is the exact definition of Depreciation.

I think supply & demand dictates how close some are forced to pay toward the MSRP. For example, everyone I know that have been upside in an auto loan was due to paying a higher than normal price that the bank either ignored. I agree that market fluctuation could also effect (like major recall, safety advisory etc that spooks the market). If you look at the new 2019 Lincoln Navigators, they are selling right at MSRP. If you want one bad enough you will pay that, but if you look at the NADA value for the 2018s it is big drop off. NADA when current is reflecting the market conditions. I get what you saying though. I stop doing loans for anything other than a house a long time ago. It is a cycle that if you are ever fortunate to get out of, you actually earn money with your own money to pay cash for autos & big ticket vehicles etc.

In fact, all of the above is why I am Looking and do NOT own a RV. today. I know what I want, and what I am willing to invest for it. The dealers don't agree with me yet

[VegasBaby!!!]

If I was 78 and wanted save my cash to travel in a new financed RV that I most likely will never payoff, maybe not come close to paying off, I WIN

[Elite Washington]

Originally Posted by VegasBaby!!!

If I was 78 and wanted save my cash to travel in a new financed RV that I most likely will never payoff, maybe not come close to paying off, I WIN

Exactly if you die while money is still owed you aren’t out anything. Your spouse is and maybe your estate are the only ones that have to pay off the loan. But if you don’t have a spouse and you spend every dime then oh well.

[VegasBaby!!!]

I bet a dollar to a donut that the lending company had to have him add a life insurance policy of at least 50k to be able for them to loan to him. This actually happened to my mother in law and was $15 a month.

[Porkchop]

A friend of mine from Portland did the same thing. Over 70, He bought a big bus for over 500k with only 10k down and financed the rest for 10 years. He said his kids, no wife, are not interested in rving so when he dies the plan is to let the bank have it back. The kids will inherit the cash and the bank will spend a lot of money for lawyers. The kids will still win. Not my plan, but it may work. Either way he is enjoying himself on the banks money. When he's dead he won't care.

Bill

[Bob Denman]

You have to remember this:
"The one who dies with the most toys wins! But the one who dies owing the most money on them: World Class! "

[Elite Washington]

Originally Posted by VegasBaby!!!

I bet a dollar to a donut that the lending company had to have him add a life insurance policy of at least 50k to be able for them to loan to him. This actually happened to my mother in law and was $15 a month.

If they did require him to have life insurance because of his age that is highly illegal and violation of the fair lending act. If someone that is 100 years old walks to a branch and asks for a loan and they are qualified you have to provide that loan at the same terms as someone that’s 25. Really simple question, do you know when they are going to die? You don’t know for anyone no matter their age. If you have to buy the lenders insurance plan on top of that, then they are breaking more laws.

[The Gritz Carlton]

Sorry guys...it's not my plan to "dump" my responsibility on someone else...you guys sound like college kids!!! No one walks away from anything...future borrowers will pay for your ignorance and entitlement and banks nowadays will come after your wife, kids and everything else you leave behind. This is exactly what caused the 2008 collapse in the real estate market...and everything that followed...people borrowing money for houses they knew they could not afford. Who in here was NOT affected by their ignorance and greed? Don't buy what you can't afford. Pay cash or borrow from yourself for those things you do not need but can't live without...or just don't buy them to begin with!!

[Bob Denman]

As much as it's no fun: Gritz is right.