Cars Worth Less Than the Loans

The same factors that are pushing subprime homeowners into foreclosure -- rising interest rates on credit cards and home loans -- could cause subprime car owners to default on their vehicle loans, said David McKay, senior director of auto finance and insurance at J.D. Power.

Let's say you push your budget and purchase that pricey car. Then something changes -- your income drops or your mortgage increases. You can no longer afford the car. However, because you took out a long loan with little money down, you owe more on the car than it is worth. You end up putting yourself in a situation that results in negative equity.

To stop this madness and avoid being upside down on your vehicle or rolling debt into another loan, there are at least two things you should do.

First, use a 48-month car loan as a benchmark for affordability. If you can't handle the monthly payments with a four-year loan, you probably can't afford the vehicle you'd like to buy. Keeping the loan to 48 months or less also reduces the chance that you'll be upside down on your car should you need to trade it or sell it.

Next, you should research the resale value of the car you're interested in purchasing. This will help you see that getting a long loan on a particular model could be trouble, especially if you tend to trade in and out of cars. Kelley Blue Book now provides a depreciation chart on its Web site ( http://www.kbb.com) that shows projected resale values for all new vehicles. On the Kelley Web site, as well as at http://www.edmunds.com and http://www.consumerreports.org, you can find lists of the best and worst vehicles for depreciation.

But even if the car you select has a good resale rating, it's still a depreciating asset. What I'm asking is that you change your thinking about what a car is worth. And I'm not quibbling over semantics. There is a substantial difference between assets that have the potential to appreciate or that truly hold their value vs. those that depreciate year after year. Your goal should be to put more of your money in appreciating assets.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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