Negative Equity in Auto

How much negative equity are we talking?

 

Almost any dealer will gobble up the negative equity but expect about a 500 dollar per month payment. And being so far in the hole after you drive off the lot with the new SUV that you have to drill up to hit oil.

 

Okay first what you need to do is figure out how much negative equity you have in your car. The reason is, because you will be adding that to your new loan. the dealership will not eat that money. One trick is to find a car that has a huge rebate (jeeps, ford explorers) by using the rebate that will eat some of the negative equity. Also make sure you get the best possible deal on the car that you are buying. dont let them tell you that because you owe all this money for your car that you have to pay more for your new car. Also you are going to have to find a car with a big price tag. remember banks will lend you money based on the invoice price or wholesale price of a car. for example banks will usually let you borrow 120% of invoice or wholesale. that being said if you are looking at a car with a 10,000 sticker then the bank will let you borrow 12,000. understanding that you have to see how much negative equity that you are bringing over lets say you have 8,000 negative that you want to bring over to a new loan.
(please try to follow along)
MSRP 33,000
Invoice 29,000
Rebate 1,000
Negative Equity 8,000

suppose you find this car (the prices are listed above) and you agree to pay 29,200 for this car. based on the bank letting you borrow 120% of invoice the bank will let you borrow 34,800.

selling price 29,200
negative equity 8,000
sub total 37,200
the bank is willing to lend you 34,800
which is a difference of 2400
now take out the rebate from the difference -1000
which means you would need to come up 1400 as a down payment. (please note i didnt include tax, and registration or any extras that you might get).

okay lets take this same picture with a 3000 rebate. essentially you would end up with an extra 600.00 pretty much as a down payment. Just keep in mind you are still paying for that negative equity that you roll into your new loan and if you end up with a higher intrest rate then it may not be a good idea. Its almost like refinancing to get a higher rate vs a lower rate. By rolling that negative equity into your new loan you are creating the same situation in your new car, so in two or three years when you want to get out of it you will really have a lot more negative equity that you are going to have to get out of. My suggestion for you is to get into a lease for 2 year. At the end of the lease turn your car in and start over fresh. I can't offer too much advice on leases because i dont fully understand how they work. (I have a basic understanding of them) Two more things...there are a million calculators out there to figure out your payments but here is a good rule of thumb...please note this is NOT exact but for every 1000 financed for 60 months your payment is going to be 20/month. so if you borrow 10,000 then expect a payment of about 200. the intrest rate you get will play a big part in the actual payment. and lastly the best way to find out roughly how much your car is worth. go to www.kbb.com and click on the link for TRADE-IN value. fill in the blanks or drop down menus. When it asks you to rate your car click on the fair button. It dosent matter if you just purchased this car from that dealership two days prior they will almost always give you FAIR value for your car. The number that you get is pretty much what your car is worth. Depending on the condition you may get a few dollars more or less for it. but thats a pretty good number to go with.

I hope this helps.

d

 

unless you buy an awefully unwanted (incentived car) it's likely you'll repeat the same story.

few cars have decent resale value, which is the source of your negative equity (partly). Bmw 3 series is probably the wisest car for resale, otherwise i'd just lease. Leasing a highline 3 series is like 600 bux (all options) and the lowline is abit less. But all hold resale well (meaning lower lease rate).

Buying cars unless you actually are going to love the car and fix it and keep it for 10 years is a waste these days.

All cars are damn near impossible to fix yourself with the modern high tech gadgetry, and many of the fancy cars have uber-high maintenance.

my audi (26K car) had 4/50 everything but tires, but oddly all the owners had to :
1. replace timing belt 8hrs $800 job~
2. replace clutch with uprated model $1500-2000
at about 60K miles.

ouchie. no thanks. Now maybe a honda is less work these days, but this was a nice little audi I loved it, but couldn't love the known maintenance (check forums!!).

soo anyways. Maybe you should just get a line of credit or balance transfer cash, and sell the car in person. You'll get 10% more than carmax and probably 15%+ more than a trade-in.

which if the car is worth anything, is alot of dough.

then pick your route.

Maybe a low cost car makes sense for a while, till your credit and cash can put you in a car that will not be negative equity. (or no loan at all).

it's a vicious cycle unfortunately.

 

Dude pay a little of the balance down, bringing in 8000 dollars of neq eq will make you have a huge payment and you will be way way way upside down as soon as you drive off the lot. This is a poor decision unless you really really really need an SUV. And remember gas is gonan hit upwards of 2 buckss a gallon. My Trail Blazer takes 37 bucks to fill.. Grrrrrrrrr we almost have to buy a 3rd car just to stay ahead of the gas costs.