People who rollover negative equity on cars

In My Humble Opinion
1

I am getting interested in the psychology of people who roll over large amounts of negative equity from car to car. He is what I have observed and I’m hoping in addition to others’ observations that we have some posters with a background in psych to tell us the whys. Add your own ideas and critique mine.

Lack of finance management: This goes on even before the rollover. They have made bad financial decisions and are thus having to borrow at high interest rates. Maybe a repo in the past and the car they currently have they cannot afford, hence the trade in.
Victim Mentality: So often they say the HAD to by that car - forced into it by circumstances. Also, very often their claim is that by the salesmen letting them sign the paperwork with full disclosures (cost, interest rates, payments, &c.) they were scammed. Especially bad is when women claim they were using “girl math” whatever the F that is.
Willful(?) Ignorance. They say they didn’t know how to buy a car or how the financing works or what add-ons they should get. Dudes! This is 2025! I can pull up numerous channels that discuss all of this on YouTube. I don’t think that in 2025 anyone with internet access should be able to claim ignorance on how to do a car purchase or maintenance.
Wrong reasons for buying: Would you buy a new car to do Grubhub or Turo? People do then try to trade them in after a year. And speaking of that, I have heard the average is buying a car every 3 years. These people are taking 7 year terms and rolling the car over after a year. And some people just want the latest and greatest to impress everyone so they have negative equity but after a couple of years want and even bigger and better car. Isn’t that what a lease is for.

2

This is really no different than people making any other bad financial decisions and I suspect the reasons/causes are the same, i.e. some combination of stupidity, lack of interest in the financial aspects of decisions, poor planning, lack of financial education (whether the fault of parents/schools/society or whoever else you want to blame), and/or laziness. There is nothing special or unique about car purchases in the pantheon of bad financial decisions.

3

The son of a friend once refinanced his truck (at the time, I didn’t know you could refinance a vehicle) to extend the term by a couple of years, but at a relatively high rate. Why? He said it lowered his monthly payment. He knew he was agreeing to pay more over the long haul, but he wanted the extra cash in his pocket on a daily (well, monthly) basis. I’m sure there’s a name for this, but I don’t know what it is. I just called it stupid and short-sighted. My friend agreed, but stupid and short-sighted kind of described her son in a nutshell.

4

Throwing good money after bad?

Sunk cost fallacy?

5

Any idea how common this is? I’m sure it happens, but I wonder if it’s very rare or not?

6

Don’t know if your example qualifies, but if someone is underwater month-to-month and needs to reduce their bills or else go homeless/hungry/unmedicated/etc., then they may not have the luxury to choose long-term financial interests over short-term needs.

One of the many costs of being poor.

7

According to this, it’s very common – over 1/4 of all car loans.

8

I understand that poverty can really fuck with people’s lives, but Duane was definitely not living in poverty. He made decent money. He just liked spending money, too. To his credit, his kids always had a roof over their heads and food on the table, so he knew to prioritize, but once the bills were paid, instead of saving, he spent on toys and crap for himself.

9

Penny wise and pound foolish? That’s part of what I teach my students; saving money month-to-month costs you by charging more interest so make an informed decision.

10

Girl math? Never heard of it before.

11

It is the most annoying thing. “How can you have a rent of $2500 per month when you only take home $2700 per month?” “Girl math!” followed by a little laugh like isn’t what I said so funny. Basically not my fault because reasons which I include in the victim category. Oh I don’t know how basic numbers work because I have two X chromosomes. AKA just an excuse to do stupid things.

12

ISTM there’s a natural limit to rolling over negative equity. The new loan is secured by the new car. That loan balance can’t be (much) bigger than the value of the new car. Which value famously plummets the moment it’s driven off the lot.

Yes, lenders can always be found who’ll give you all the rope you need to hang yourself. But I’d be hard pressed to imagine a $40K loan secured only by a $20K car with the other $20K being negative equity from their old car & loan trade-in.


It was always the case that many people are real bad at separating what they want from what they can afford. And all of marketing / advertising is about amplifying the “want” while actively sweeping the “afford” under the rug.

The widespread advent of consumer credit is what has allowed now 3 or 4 generations of such folks to act on that inherent confusion.

13

But even if that is true, the topic still is applicable. What is the psychology of someone walking in with $40,000 in negative equity on their 2025 Audi Q7 expecting (even if the deal doesn’t happen) to roll it over into a 2026 Ford Raptor?

14

The psychology is simple: Cars don’t have prices. Cars have monthly payments. I can afford $X per month for my car. As long as a loan can be arranged where the payment is less than $X I’m getting the car.

In effect they’re thinking of the car as a rental, not a purchase.

The truth is that someone who has no debt and $Y of monthly take-home income can amplify their standard of living massively by simply borrowing money until the monthly payments on all the loans add up to $Y. As long as they’re still adding to the borrowing, they have the magic of an improving standard of living every month. It’s like getting a raise.

That process can continue for a year or three before they finally borrow themselves all the way up to Y. Then suddenly there’s no more improvements to be had, and all other spending has to stop. And about then whatever they bought first, be it a car or a TV, is looking kind of old and used. So now they want new but have nowhere to go for more money to pay for it. Oops.

But it was a fun ride while it lasted.

That’s how they’re thinking. Plus some assuming they’ll win the Powerball, get a better job, find a rich SO, etc.

15

It’s one of those internet memes poking fun at women who use irrational logic to make a purchase. I remember a skit on You Can’t Do That on Television where the mother brought home a ton of a particular food item that the kids thought was gross. When her son asked why she bought so much of it, she replied that it was on sale so she saved the family a lot of money. The son pointed out she could have saved even more money by not buying the gross food. That’s girl math.

There’s also girl lunch/dinner which is a low effort meal preparation gathering what we might otherwise think of as snacks and calling it dinner.

16

I’ve heard females use it about themselves when making bad financial decisions too. So it is not only a point an laugh at someone else meme.

17

I did write “poke fun” which I’d hoped would differentiate it from mean spirited insults. For the most part, I’ve seen girl math/dinner applied in a self deprecating manner. Though I have to admit that while I’m aware of the trend it isn’t something I come across very often.

18

Heh, that’s the Mermaids meal!

19

Part of the problem is that like everything else, car prices have gone up while wages/salaries have not.

So the net result of that with car buying is that unless you get a ridiculously long-period loan, the monthly payments are going to be unsupportable by the majority of people.

Look at it this way- a $35k car is pretty midrange. But if you finance that 35k car at 5% for four years, with 7000 down/trade, you’re still looking at a $645 monthly payment. Which is a lot of money for just about anyone. Many can’t put 7k down toward a new car, even with the value of their trade-in. That makes the monthly payment $806.

Stretch that out to five years, and it becomes more manageable- $660, which is back in the same realm as putting 7k down and paying over 4 years. According to Google, most are six or even seven year loans these days. Which is terrible for actual interest paying, but keeps the monthly payment in a manageable realm. And it also runs a pretty high risk of becoming underwater if your car loses significant resale value for some reason.

20

First, I agree it’s often penny-wise, pound foolish. I’ve never been cripplingly poor thanks to circumstances and help from others, but I’ve had more debt (still do technically) that I like.

But I do think we’re underestimating how skilled some dealers are on selling the sizzle, and handwaving away/not even explaining how much debt they’ll helping to pile on the customer. I’ve lost track of how many TV commercials I’ve seen where they talk ONLY about a low, low payment, but all the small print is saying something horrifying at the bottom. Or how a lot of people see that payment, but don’t realize it’s a lease, NOT a loan, or that there’s a difference.

Once you’re in a dealership, they’ll sell that sizzle hard, and “appear” to work their butts off for you to get the payment (down/month) you want, but most people’s eyes glaze over when they start signing the next hundred documents, and they miss what they’re getting into.

Saying this as someone who was paying attention, and who (along with the wife) bought a total of two new cars in the last 14 months.

NOW, TBC, I’m not excusing the ignorance or ignoring the foolishness of those who are in a serial situation - anyone can get suckered in that moment of weakness, especially when they’re faced with a professional salesmen who know all the techniques. We of the board wouldn’t be immune under the right circumstances, and we’re far more rational (on the whole), educated, and careful than the targets of this advertising.

Once you find yourself doing this multiple times, I suspect you’re either resigned, willing to keep blowing into the credit bubble until your “ship comes in” (see our federal government!), or you are so ignorant/uneducated that it never crosses your mind.

ETA - another problem that we may be overlooking is that a lot of people falling into the trap DON’T have the options to consolidate their debt, and may be in fact doomed from a certain POV. Having a home gives you an asset to consolidate, and qualify for reasonable interest rates. But if you’re already living month-to-month, and have substantial debt, well, you probably don’t have much in the way of assets to borrow against, and that degree of debt makes it ever-harder to borrow at a decent interest rate. So that’s another hell of a feedback cycle.