Mr. Kim, a 37-year-old salary man, recently bought a BMW model which costs around $40,000. Paying $10,000 in advance, he was to make the monthly interest payment with 3 years maturity. However, after 3 years, he found himself unaffordable to pay both the principal and interest so that decided to resell his car. Although he gets the maximum price from the dealer, it is still far too little to pay the balance. He was satisfied with his purchase at first, since he could enjoy good quality of car at low price. However, it came as a burden as he cannot afford the remaining cost.
Nowadays, there is a growing trend among people, especially in their 20s and 30s, of buying cars with an exorbitant price through a program which is now greatly promoted by automobile companies. This program allows consumers to pay a bit of the total cost at first and pay only the interest for several years, which lessens their burden. After the maturity ends, consumers then cover both the principal and the interest. The period and installment payment are slightly different depending on what option they choose. This surely is a legitimate sales strategy; however, it is criticized for encouraging young people to make impulse buys.
The above graph shows that the market share of imported car in domestic car market has increased since the program was introduced. The problem is that consumers are now facing the difficulty of repaying the rest of the cost after the maturity is over. On top of that, warranty services expire, making the price of the car fall under 50% of its original price. Consequently, consumers cannot raise enough funds to pay back the cost by reselling the car. As a whole, those car poor, trapped by this program, may incur household debt which triggers another social problem.
To avoid being a car poor, it is desirable to reconsider whether this purchase is right for your economic situation. If so, use regular installment plan rather than this program. Or if you happen to buy a car through the program, delve into the current status of the used car market before making a purchase so that you don’t make a loss when reselling the car. However, the most important thing is that you are responsible for making the final decision. So, be sure to be well-informed of all the conditions and make a sound consumption.
By Seunghye Shin(email@example.com)