Re: Negative Equity
I posted a lot about this about a week ago. I will try to find the link to my old post and re-post it.
My family owns dealerships (13 new and several more used). I spent the majority of my life in that business, so I know my way around a bit.
Negative equity, being 'upside down', it's all the same thing. You owe more for your trade than it is worth. This is a common thing,most people owe more than their trade is worth, especially if they did not put money down or had a late payment or two.
The big question is just how upside down are you? What is the actual ACV (actual cost of vehicle) of your car? Can you tell me what you have and what your loan balance is? The figure that the dealer gave you is probably not the ACV, it's the 'Trade value', and it can and will vary depending on the car you are purchasing.
The '3000' more than your trade ad's are bogus. They are actually illegal in many States (including MD, where some of our delaerships are). You are not getting 3000.00 more than your car is worth. Period. Just think about that, it is not even possible.
The best thing to do when you owe more than your car is worth is to pay it down. I know thats not what you want to hear, but it's the truth. Think about it...say you owe 2000.00 more than the car is worth. You go and by a new car for 15,000. Well, you finance 17,000. If you were to sell the car the next day, it's value would only be 12-13000 due to it being 'used', etc, so you are already 4-5,000 upside down again. And, it will get worse every month. Wen you get ready for your next car you will be in an even worse situation.
PLUS, the rate and terms are VERY dependant on your equity situation since it is directly tied to the RISK. Think about it, the bank owns that car until your final payment. They want to be in a good position should they need to repo it.
Now, you may be in ok shape, I don't know yet. I really can help you out, but i am going to need to know more about your trade and exactly how much you owe, your payment amount now, etc. Feel free to email me if you don't want to post it on the board.
A few more general tips since we are on the subjeft again......
*Don't believe the '3,000.00 more than your trade is worth' ad's, they are bogus (see above)
*Every dealer pays the same amount for the same car, INVOICE. No dealer get's his cheaper than another, no matter what he says. NOW, their are times when a whole 'region' will get a special package or rebate, but that is always discosed by the manufacturer.
*Again, every delaer pays INVOICE for the car. BUT, invoice is not the 'true and final' cost to the dealer. Here's how it works....
1- Dealer orders car, car is put in 'que', que position depends on how many typoes of that car the dealer sells, time of year, and whether the car is already 'sold' or not.
2- Car arrives at dealership. Dealer actualy 'pays' invoice for car, meaning the invoice price is put on the dealers 'floorplan', or lump finance account for all the cars. This is why a dealer wants to turn over cars fast, the longer they sit, the more he pays in interest on his 'floorplan' loan.
3-Now, when the dealer sells the car, he gets a 'holdback' credit. This is an amount, usually 3-5% (more on this later) of the invoice price. This is how a dealer can sell a car for invoice and still make money, he knows he's getting his own 'rebate' in 3 months. You can see a delaers 'holdback' amount at www.edmunds.com. Remember, a dealer has to pay costs for advertising, financing, salaries, etc, so don't go in to the dealership demanding he sell it for 3% under invoice. A dealer refers to invoice cost as 'net', and invoice minus holdback as 'net net'. If you here these words, you know what they are talking about.
4- A 'Rebate', if there is one, is paid to the delaer from the factory. When you buy a car that has a 2000.00 rebate, the dealer 'LOSES' that 2000.00 until the factory pays him the rebate 3 months later.
*The best time to buy a car IS the last of the month. This is not a myth. There are many reasons for this, the dealer needs numbers to report to the factory- this is how he gets new inventory, bonuses,etc. Also, the salesman is not only working on commision but for bonuses. In most cases, the salesperson makes more on bonuses than commission, so the volume of cars is sometimes more important than the individual sale.
*Fact: Dealers will 'LOSE' money on new car sales. It's true, most of the money is derived from selling your trade. Used cars have no where near as much competition (they are not identical as new cars are) and typicaly have higher interest rates.
*Program cars, 'Previously Leased' cars, are 95% RENTAL cars. You have driven rental cars, right? You know people drive the crap out of them. Check them over CAREFULLY. There are good deals out there, but please watch yourself. You have every right to ask to see the 'COO' (certificate of origin) or title when buying a used (or previously leased)car. This will show you the previous owner, the state it was registered in, etc. This will allow you to use your own good judgement.
*Try not to buy your car in the rain or at night, if you do, have them put it in the shop so you can look at it under flourescent lighting. This type of lighting will show small dings'dents and paint defects a lot easier to the untrained eye.
Ok- thats enough car buying 101 for know...m fingers are getting tired.
Hope this helps!
Email is back on (new address). Not on CN much anymore, hit the 750+ range on all three CR's.