There was a time thirty or forty years ago where the thought of paying for a car with anything other than cash was an illusion. As the Japanese dumped their Datsuns and Hondas into the U.S. in the ’70s and ’80s, American manufacturers had to innovate. Not only with design, style and gas efficiency but making their brands financially affordable. In steps the great American marketing machine with its television ads.

We were convinced that we needed a shiny new Ford or Buick and once hooked, the finance departments were created and creative in extending loans on cars to consumers. Remember, before this, loans were solely the domain of housing, and even those, of course, we’re nowhere near the stretch in length they are today. Fast forward to 2019, and when you walk into an auto dealership you might walk out with a seven-year car loan. That’s correct. Not three, not five, but seven-year debt and higher. The average American doesn’t understand the nomenclature of financing in the auto industry. Terms like dealer price, sticker price, APR, taxes, title, etc. are foreign and intimidating. It is much easier when the sales guy comes out of the backroom, stating he just spoke with his manager and you can have that 2018 Cadillac Escalade for only $699 a month. That sounds great you reply. You get home and wonder how that happened. That $50,000 car will cost you almost $60,000 when the loan is up with an 8% interest rate. Just about the only thing that won’t break on that car during those 84 long months will be the interest on your loan.

According to Bronson Argyle, a professor at Brigham Young University, “People can get into very expensive cars. Households are taking on, on average, more risk.” Only 18% of U.S. households had enough liquid assets to cover the cost of a new car, according to 2016 data from the Federal Reserve. Another typical scenario was run by Bankrate.com on purchasing a car with a loan. The median-income U.S. household with a four-year loan, 20% down and a payment under 10% of gross income, a standard budget, could afford a car worth $18,390. Now you see why new car dealers have lengthened the maturity to seven years. These loans are bought by banks and hedge funds on Wall Street enabling liquidity in the market, while allowing the auto dealers to make more money on their loans than on the cars they sell. Unbelievable.

It gets better. Not for you of course, but the dealer. When you decide after five years you want a new car, but still have two years left on your loan, the dealer welcomes you back with open arms, and wraps your old loan into another bright, shiny new one. This is called being upside down.