As bad as the whole sub-prime loan fiasco has been in the mortgage industry, there was at least some rationale to it. Over time the value of real estate generally increases and if someone buys a house they have a reasonable expectation of being able to sell it for more than they paid. Of course that presumes you don't ridiculously over-pay in the first place. However, aside from some rare classic cars, no car ever goes up in value. In fact, many people refuse to buy new cars for the very reason that they depreciate as soon as you drive them off the lot.

Given that, how could anyone who owes more on a car loan than the car is worth ever expect to rollover the extra debt to a new loan and ever get ahead? How could any bank or credit company ever expect such a deal to be a good idea? Apparently, such deals where people apply the upside down difference on a loan toward a subsequent loan have become common in recent years. Even if the real estate market weren't in the process of imploding such deals would inevitably lead to a situation where the buyer could no longer afford to keep buying. If carmakers have kept their sales volumes going on this kind of financing, sales that have already been sagging could go into complete free fall.

[Source: Detroit News]

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