Negative Equity Car Loans

Discussion in 'Credit Talk' started by Reshod, Aug 17, 2001.

  1. Reshod

    Reshod Well-Known Member

    If anyone is looking for a car loan and they have negative equity on their trade-in, i have posted a very detailed experience in the general chat forum.

    Good Luck
  2. roni

    roni Well-Known Member

    Thanks Reshod!
  3. Reshod

    Reshod Well-Known Member

    your welcome Roni
  4. My2kGT

    My2kGT Well-Known Member

    Can you post it here, I can't find it.


  5. Reshod

    Reshod Well-Known Member

    I just did this process last week, having 7K in negative equity.

    Try to find a car that you like, that has a lot of rebates.

    If the cost of the vehicle is not listed in the MSRP, then the dealer is trying to get extra money out of you.

    If it cant be shown to you on the vehicle, then it is something extra they have added.

    Try to get the most on the trade-in value of your car! A car that looks fresh and clean will get you more money than an average vehicle. I detailed my car before I took it to the dealership to be valued.

    It also depends on how long you have had the vehicle and the type of vehicle. I had a 2000 Galant that I traded in for a 2001 Honda Passport(SUV).

    I got more from the Honda dealer than at other dealers, even one Galant dealer.

    If you have a CarMax in your area, they are great for giving you a good buy on your vehicles.

    Remember don't pay anymore than you want. Start off small with your payments and sent a high limit prior to going to the dealership.

    I spent 7 hours in the dealership, before I got the car I wanted, with the equipment I wanted.

    Last little hint, there is something called the dealers money, every dealership has it, but doesn't tell you about it.

    Yes I put some money down(2K).

    Also think about a lease, yes there are mileage restrictions, but you can drive a 30K car for half the price. This is dependant on your credit. I got a lease from Honda with a 608 credit score.

    I threatened to walk several times, if they didn't met my requirements. Even over a couple of dollars!!!

    If you have any questions, please email me:
  6. supershawn

    supershawn Well-Known Member

    As I have said before, buying a car when you are in a severe 'negative equity' situation is a bad, bad idea.

    Think about it, you were 7k upside-down. I am sorry, but no matter how you spin the numbers, you still paid 7k more than you had to. You did not buy a car for less than it's worth. You are now 7k upside down, plus the dealers profit, plus the the difference in value of the car to what you paid, plus interest every month. You are now far worse off than you were. You put 2k down, assuming you also PAID tax and tags/title fee (PAID, not financed in) you can drop 2k off, but you are still MUCH worse off than you were. (I am not trying to be mean, I am just trying to explain)

    You mentioned 'Dealers Money'. That can be one of two things....either the 'holdback' I described before or a dealer incentive on that particular make at that time (these do not always exist and can vary). You can see the current holdback and dealer incentive at .

    As I said before, dealers make most of their money on used cars, not new ones. When a particualr car is not moving well, the factory will put a dealer 'incentive' on it, meaning the dealer gets an additional $$ to move that vehicle.

    A BIG example of dealer $$ was back when the Ford Taurus was trying to overtake the Honda car as 'the number one selling car in america'...this was back in 93 or 94 or so. Ford put a 6k dealer incentive on TOP OF the 2k rebate. They were losing $$ on every sale (the factory,not the dealer). Essentially, they were 'buying' the title away from Honda who had had it for several years.

    We ran a 'Buy one get on free' deal...If you bought a Taurus, you got a Ford Festiva Free. People went crazy over it..we were selling 20-25 a day. They could have just gotten the taurus for 8k less, but it didn't seem like as good of a deal to them. They would rather pay 8k more and get the $7500 Festiva 'Free'.

    Now do you see why I hated the car business.

    I will go into this in more detail with you if you want, I can show you, based on your figures, what really happened.

    I am glad you are happy and that you have a new car, I just hope you realize that you would have been MUCH better off paying it down first.

    (Weren't you one of the people that emiled me? I think we discussed this before, it sounds familiar)

  7. akg

    akg Well-Known Member

    There are a dozen or more ways that car dealers make profit from an automobile sale. One key method is the difference between the 'buy rate' and the 'sell rate' on your bank loan. It's invisible to the buyer, but a dealer may offer you 10% financing on a car loan, and then turn around, shop it to several lending sources and take the best "buy rate" for the loan which might be 8%. The dealer pockets the differential.

    Credit life insurance is another almost pure-profit scenario for the dealer. Extended warranty plans...ancillary charges...etc.

    The best strategy when buying a car is to be educated and to always be prepared to walk.
  8. Reshod

    Reshod Well-Known Member

    Great Points Shawn,

    however, the 7K was significantly REDUCED by the Rebates, along with the Dealers Money, the increased value of the trade-in, and my 2K. Which only brought the negative equity to around 2K.

    I would proudly pay an extra 2K for a newer vehicle when my 2000 Galant was approaching 40K in mileage.

    So, not only am I better off, I resolved some of the negative equity and I have a new SUV.

    Thank You,

    and no i did not email you about this prior.
  9. amaineman

    amaineman Well-Known Member

    Congratulations Reshod, getting out of an upside down situation is always tricky.

    We hung onto one too long a 1990 in hopes of breaking even (sold in 1996), it never happened. Repairs offset all the gains. Wound up $4,00 upside down. I passed on a much better option.

    Between November of 1999 and groundhogs day of 2001 we have lost three vans to accidents, two of them the other driver was at fault and one to a guard rail following equipment failure.

    All with minor or moderate injuries. We were very blessed in that it could have been much worse.

    July 4th we bought a 1999 Chrysler town and country AWD limited for $5,000 below bluebook from a dealer. My wife spent 5 hours going over the details.

    Vehicle sold new for $37,500 in 1999, used for $15,800 with 70,000 miles.

    The dealer wanted a final holiday sale and the lady who traded it earlier in the week must not have gotten a very good deal.

    It pays to take your time, know the numbers and be willing to walk away, or if necessary run.
  10. Reshod

    Reshod Well-Known Member

    Thanks Dean
  11. supershawn

    supershawn Well-Known Member

    Again, I hope you undersand that I was not trying to say anything bad. I really am glad that you are happy with the deal you got. A true 'Good Deal' depends on you, not what you paid.

    I just wanted you to see that, no matter how you spin the numbers, you still ended up 7k+ upside down.

    For example....

    Say the SUV was 32,000. After rebates, Dealer Incentive, etc, the price was 23,000. Add your 7k negative equity and you are at 30, it seems like you are 2k in the 'good'. HOWEVER, don't forget that you stil could have bought that SUV for 23k. If you were to take it back to the dealer to trade it in today, he would not give you 30k for it...he would give you the 23,000 you could have bought it for minus the depreciated value. The 7k did not dissapear.

    Again, please understand I am not trying to take anything away from you. I grew up in the car business, my family owns several (13 new plus used) dealerships and I have seen a lot of 'new math'. I just want people to understand the bad in negative equity.

    You bought a 2001 Passport.....there is approx a 11% markup from invoice to sticker on this vehicle. The holdback right now is 2%, and then there is a 2-3k dealer incentive (depending on 2wd or 4wd).

    I don't know which model you bought, but let's just say it was a 2wd 2001 Passport with sticker of 28,490 (base sticker on this model). Ok, Invoice is 25,931.00. Now, take away 2% dealer holdback (570.00) and you are at 25361.00. Now, subtract the 2k incentive and you are at 23361.00. This is the price (lowest) you 'could' have paid for this vehicle. If you were 7k upside-down, you are now at 30361.00, minus your 2k down puts you financing 28,361.00. I don't know your tax/tags situation as I don't know the state you are in.

    28,361.00 sounds like a GREAT were 7k upside down yet you still end up under sticker price. BUT, you still paid 7k more than you had too. The value of the vehicle is still at least 7k less than you paid.

    FYI- 'Blue' Book is based on loan value, the max value a bank will loan on the vehicle. It has the highest values for a car, it is not true ACV (actual cost of vehicle)

    'Yellow' Book, or the NADA book you see in stores, is the retail guide. This is the second highest value and is based on the retail value of a car.

    Dealers actually go by the 'black' book, it is also puvlished by NADA but is for subscription purchase for dealers only. It comes out weekly and posts the wholesale value of a vehicle based on the previous weeks dealer auctions.

    No matter what a dealer tells you, every sale is based on the wholesale value of your trade vs the wholesale value (or invoice) of the car you are buying.

    Reshod, if you search back on my posts on the subjuect, you will see that I am in no way 'picking' on you...I have posted many times on 'negative equity' and several people have emailed me concering their situations. I don't want you to think I am pulling a 'Greg' on you (LOL).

    I hope this helps...

  12. Shantel

    Shantel Well-Known Member

    Great topic! For the great person who asked me about it in chat the other's your answer! <smile>

    As for me, I went to the Acura dealership today to finalize the deal. I went ahead and tried their financing and was approved by Chase (go figure right?)

    Anyhow, because I'm leasing, I was not prepared. I didn't have any info. I told them we could do the deal money (after I have the weekend to do my homework).

    Anyhow, they looked at my car and I'll have 2k negative equity. DAMN DAMN DAMN! The fight my Accord had with the Uhaul a few months ago really killed me! 2k worth of damage!

    So I decided I'd pay the negative equity out of pocket and put no money down. Them folks were gonna tack the negative equity on the sales price and THAT'S how they were going to determine my payment...even though, I was STILL going to come out of my pocket. The difference per month? $15 but when you multiply that by 36 or 48, that's outrageous! So, I'm taking it to Carmax (who quoted me $30 less, but over the long run, it's best.

    And Shawn said, no matter what, you paid $7k more for your car than you had to. BUT, as long as you're cool with it...that's all that matters.
    Hell, I'm paying sticker for my SUV....I've had more folks snare at me when I say that, but hey, I'm the one that's gonna have to live with it.
  13. supershawn

    supershawn Well-Known Member

    Shantel- great post!

    You are 100% right...a good deal is what you consider a good deal. That sounds silly but it's the truth. The world is a rough place and sometimes 'you gotta do what you gotta do' to make yourself happy.

    Honda/Acura dealers are notorious for no rebates/discounts, but it looks like things are changing. Reshod got a good deal on hers (neg equity aside) and the Honda dealer by me has 6000 OFF printed in huge green letters on the windows of their Passports. Sounds like a good time to buy one.

    And Shantel...that MDX is a hot looking beast. As the previous owner of 3 Acura Integra's (and we all know an Acura is a Honda that 'knows someone' LOL, all made by the same people) I can say that I NEVER had a problem any with them....and I took them all to over 150k. My last one, a 95, was bought off me by my best friend who still drives it daily- it has almost 200k miles and has only 'cost' tires, brakes, and oil changes! Thats awesome!!!!!

    Have Fun!

  14. Shantel

    Shantel Well-Known Member


    I gotta tell you...I'm notorious for emotional purchases. And that's what car sales are. They showboat this shiny things at you, get you all happy with the new car scent (I think that scent is drugged to put you in a trance) and BAM, when it's over you're at home that night thinking, "WTF did I just do?". Having said that, he took me out to see if. And GOD did I wanna jump in and drive off. My heart was racing, etc. I didn't get too close because I KNEW I was weak. LOL

    When I decided to leave and take my current car to CarMax for the appraisal, that gave me time to think and get my head together, but I still wanted it TODAY. Thank goodness my head won out this time!!

    I've waited for MONTHS for this vehicle and I want to enjoy it today AND tomorrow...when those payments start.

    Oh yeah Shawn, I checked Edmunds and Acura has no rebates or incentives in my area. The salesman told me they have a 2 or 3 month wait list for the TL and a 4 to 6 month wait list for the MDX.

    A guy came by today to look at one and the salesman was like, "I was afraid you were going to ask me about that one"...he went on to say there's a wait list and I said, "Hey...get in line!". While I was there, 4 people called about it.

    It is DEFINATELY a sharp looking vehicle and it's rating high in every category imaginable. I don't think I'll be disappointed at all. And I've had 2 Hondas and never a problem! I love them.
  15. supershawn

    supershawn Well-Known Member

    When I was in the car business, they called it 'Show Room Feeling'....meaning get the buyer THEN because if they went home they would change their mind.

    If the people were absolutely saying 'no', we would send them home in the car...we would say 'just try it out'. The real purpose of this was to let them put it in the driveway...their friends and neighbors would see it...everyone would say 'your new car is sooo nice', then the COULDN'T say no. Slimy....I know.

    Buying a car is a very emotional event....most people are soo excited at first...then they get that buyers remorse. I remember the first few days after the sale, you would almost always get a few calls from the buyer- I think I found a scratch here, can you look at this, I heard a squeak- and the worst call- I changed my mind!

    The main thing is to try and use your head...think about your purchase and don't get too caught up. If you even have to think about whether or not you can afford it then you probably can't. The dealer is your 'best friend' while you are there...he will say things like 'it's only a dollar more a day' and 'you are always going to have a car payment anyway'. I know I said those things (cringe).

    But there really is nothing like those first few mornings in your new car..the smell..the feel...I understand completely!


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