Car debt up more and more

CNN/Money published an article in January 2004, indicating nearly three in 10 car owners are discovering they are "upside down." They owe more money on their current cars than they are worth in trade.

Buyers are putting less money down and taking longer-term loans to get classier cars. That move is not all bad, but if you have had the car for just a little while and want the newer or fancier model, then you have little built up in real equity. That means you simply roll the outstanding debt into another car loan.

Used-car values do play a role in all this. They are below traditional levels and remain critical in figuring long-term ownership costs.

So pay off the loan, regardless of the model. No debt. An asset owned in full.

Upside-down buyers are rolling an average of $3,700 in old debt into their new car. In California, where even the pool boys drive BMWs, 40 percent are upside down and by an average of $4,700.

Small down payments make the picture worse. Historically, car buyers would put down 10 to 15 percent. Now the "down" averages five percent.

Big incentives and endless loans helped cut the average monthly payment to $453 last November, down from $470 a year earlier, even as the price of the average car rose slightly to $25,523.

Bob Kurilko of the auto web site Edmunds.com, said "Consumers are just delaying the time bomb for a couple of years. This bomb has one long fuse. Nearly 40 percent of new-car buyers took loans longer than 60 months last fall, up from 24 percent the year before. The average term now stands at 63 months, but almost 30 percent opt for 72 months. Some banks are floating 96-month car loans!"