### Navigating Financial Challenges with an Underwater Car

Your friend must sell the BMW and switch to an affordable car to escape financial struggle.

### Navigating the Challenges of Being Underwater on a Car Loan
* 🚗 A friend is currently facing financial difficulties with their BMW, which is valued at **$43,000** while their loan stands at **$58,000**, putting them **underwater**.
* 💔 Many people find themselves in similar situations, especially if they lack **financial education about car purchases** and the costs associated with **luxury vehicles**.
* 💡 It's crucial to understand that owning a luxury car comes with **high maintenance costs**, and "**only people with actual resources can afford to service a luxury car**."
* 📊 Statistics reveal that one in five vehicle trade-ins involve **negative equity**, highlighting the prevalence of this issue among car owners.
* 🕒 The recommendation is to **avoid financing a car for longer than three years** and to **put down at least 20%** to prevent being **underwater on future loans**.
* 🔧 To alleviate financial strain, transitioning to a **more affordable and reliable vehicle**, like a Honda Accord or Toyota Camry, may be necessary, even if it means accepting **some negative equity**.
* 💸 Ultimately, the goal is to **reduce ongoing maintenance costs** and focus on **paying off the existing debt**, which amounts to a significant **$155,000 mistake**.
* 🏎 The advice is to seek a **gently used vehicle** to avoid **steep depreciation costs** while regaining **financial stability**.

My friend is underwater on their BMW. They always seem to be servicing it and can't afford to maintain it anymore, but it's valued at 43k and his loan is 58k. What do you think about when deciding how to handle an underwater car?

Loan? Yeah, well, okay, so here's the first thing I want to say. I have, uh, I have a little bit of compassion here because I think a lot of folks, especially if you did not, if you, if you were not like raised in a household that talked about

money, or you never learned like the right way to go about buying an automobile, I feel like so many people, especially early on in their financial journeys, find themselves in a place where they are underwater on a vehicle. Brian, I think I've told you, I've got a

dear friend. Didn't know any better, financed a car for five years, got into a car wreck, was not his fault. Insurance company totaled the car when he got the insurance check. It was, it was less than what he owed on the car. He was

underwater on it and had no idea. Said, 'Bo, I didn't know this was a thing. How did this happen?' Uh, but I don't know if that's your friend's situation. I don't know if he's in that situation because he's driving a luxury

car. First, everyone should know when you step onto a dealership lot, anyone can buy a luxury car, but only people with actual resources can afford to service a luxury car. As this by way, this is a tell as old as they come when it comes to these luxury cars. I've already told you

Guys, when you buy a luxury car, it's not just the purchase price, it's the fact that the tires on the front are different than the tires on the back. So that means that you don't get to rotate them, you burn through them in a year.

They're also probably super soft, they're going to burn down even faster. You're going to have to put premium fuel in this, you're only going to be able to buy parts from the premium, meaning the manufacturer of the luxury itself, so all

these, I've covered it cuz I've fallen into this trap myself, and that's why I tell you this is a tale that is so old, but it's a problem that somehow the average American still falls into. It's because one in five vehicle trade-ins have negative

equity, meaning $10,000 they're rolling in, they're borrowing more than what they're buying the car for. When they, this is a perfect example, BMW and based upon that market value versus the value that's, that's like probably like a an X7 or or

some other thing, you know, a big SUV probably cost close to $100,000 when they bought it, and and and you know what also makes just chaps me, that has become so popular is close to 20% of loans out there on cars right now are being

financed for 84 months. Most people don't drive cars for that long, and when you show up on the dealership, they'll gladly, with a smile on their face, give you the keys so that you can drive your financial life over the cliff, and that's

why we want to tell you there's a better way to do money, and that's why, look, I have a lot of grace in my heart because I know when I started out my financial journey, I couldn't afford to buy a new car. I didn't have cash in

the bank to even finance it, but I needed a good reliable piece of transportation to get me to my first wealth-building tool, which was my job. Yep, so I remember I had to go finance, and I have a no hypocrite policy.

I'm like, whatever worked for me, and Bo, we need to be able to share, so you guys know we walk this walk with you. We eat our own cooking, and so that's why we came up with 238. If you guys cannot afford to put down 20% on your vehicle,

don't finance it longer than three years. Why is that three years so important? It's exactly what Bo talked about. You don't want to be underwater, and it also will keep your eyes in check with your wallet and your purse because when you finance it for three months,

three years versus the 84 months, three years versus the seven years that it seems like too many people are doing these days, you'll get a big wakeup call that maybe you can't afford that car anymore. And then we want to keep it just in case

those two first checks don't do it for you. We also have the guardrail saying it can't exceed 8% of your gross income. So if you will follow that, this will allow you to buy reliable transportation and without a doubt before all the haters

Jump in, we love paying cash for cars. Matter of fact, our own research shows most of our millionaire clients did have to finance their first car, but when you look at their current purchases, well over 60% of them are paying cash. We're paying cash for our cars these days, but it's

just one of those things that we want to give you a tool so you don't fall in the traps. But don't just because somebody on the dealership tells you that sexy car that you think people are going to care about, they don't, by the way. Um, just

because they can say you can afford it, doesn't mean you really can. So let's give Joe some advice. I mean, unfortunately, difficult financial positions require difficult financial decisions, and your friend has gotten them in this place where they have an incredibly expensive car that's incredibly

expensive to maintain. So if they try to just keep driving that car, keep operating that car, odds are they're going to keep spending money on repair, and the maintenance is going to be high, and the oil changes are going to be high. So one of the things I think that may be

conceivable is, okay, is there some way that I can go get into a much more affordable, much more reliable car, think Honda Accord, Toyota Camry, something like that, realistic, that will work until I can write this ship? Now, if you do that, odds are you're going to be rolling in

negative equity because it doesn't sound like you have capital to be able to buy that affordable car. But at least what you're going to do then is then you can get your maintenance cost down, get your ongoing wear and tear down, and you have to devote everything you can to getting

This debt is paid off so that you can start building future financial independence. If I don't have the numbers in front of me, was it... it's they owe 58 and it's worth 43 40? Yep, that's exactly right. Okay, look, the water's taking off the

boat's taking on water rapidly. You've got a $155,000 mistake right now to just clear the slate. You have 15,000. I think if you keep driving it, unfortunately, the maintenance is going to eat you alive. It's probably the sets of tires are several

thousand a year, um, all the other maintenance and everything else. So, I would, I would try to unload this. Then think Corolla, um, not Land Cruiser, you know, on how you get yourself out. And then you have to, you have to make those hard decisions. Because talking about you

got to quit taking on water when it comes to these bad financial decisions. So, humble yourself, get into a car that you can actually afford, and then let's get that $155,000 extinguished as fast as possible. The last little piece, somebody just commented a Toyota Camry

is $35 to $45,000 these days. Yeah, if you go buy a new one, don't, don't miss what we're saying. Don't go buy the new Camry, the new Corolla. Get one that's a couple years old that's gently used. Let someone

else pay for that depreciation. It's not about being in a nice car when you're in this kind of situation. It's about getting out of a very deep and very bad hole. Yeah, yeah. I think you can, you can get reliable transportation for under $177,000.

Underwater on a Luxury Car!

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The Money Guy Show

Friend's BMW is underwater; loan ($58k) exceeds value ($43k).

Many people, especially those without financial education, end up in similar situations.

Anecdotal example of a friend facing the same issue after a car accident.

Owning a luxury car doesn't equate to affording its maintenance.

High maintenance costs of luxury cars (tires, fuel, parts).

High percentage of trade-ins with negative equity.

Example of a BMW potentially costing $100,000 initially.

Long loan terms (84 months) contribute to the problem.

Dealerships encourage long loan terms despite risks.

Advice: Don't finance more than three years if you can't afford a 20% down payment.

Shorter loan terms provide a financial wake-up call.

Additional guardrail: Car payment shouldn't exceed 8% of gross income.

Many millionaires paid cash for later cars, despite financing their first.

Difficult financial situations require difficult decisions.

Consider trading the BMW for a more affordable, reliable car (Honda Accord, Toyota Camry).

Focus on paying off debt to achieve financial independence.

High maintenance costs will continue to drain resources.

Recommendation: Sell the BMW, buy a used, affordable car, and aggressively pay off debt.

Advice against buying a new, affordable car; suggests buying a gently used one instead.