There are quite a few car dealers in my area advertising that even if you are upside down in your car loan they can still get you into a new car. But what if you want to bring your own financing to the dealer? When your own credit union or bank approves you for a specific loan amount, can it be used towards the purchase price ONLY or can it be used towards purchase price AND any negative equity? How does that work?
Dont do it! Just take a deep breath and tell yourself that this is a really bad idea. More than likely the only reason why you are looking at negative equity is because you want the car so bad you are focused only on what the dealer can offer in trade which will amount to wholesale values not retail! If you can step back from the barganing table and invest some time/energy (30-45 days) in selling the car yourself, you should easily reduce the amount of negative equity (maybe even make a profit to use as a down payment) on your current vehicle. Take some time to do some research on sites like Kelly Blue Book (http://www.kbb.com/) and Edmonds (http://www.edmunds.com) to find out what your car is worth as a trade-in, retail, and private party sale. It sure would suck to find out that your so called 'negative equity' is more than likely going to be turned into a $2,500-$3,000 profit for a used car dealer down the road. Also, what kind of math are you doing here? In my opnion (and yes, I have been there and done that by the way), you are simply digging a deeper hole for yourself by applying negative equity to a new car purchase. Supose that your new car purchase is going to cost $15,000 drive out and that your current car has a $2,000 negative equity, then you are spending $17,000 for a car that is really only worth $15,000 to start with. I dont think there is anyone here who will object when I say that as soon as you drive off the lot, your car is no longer worth $15,000 as depreciation will effect its resale value and you are now even more upside down (owe more than car is worth) than when you started. Two years from now (2005), Gm (Audi, Ford, Saab, Volvo, etc) come out with some new, and improved car that you just gotta have. You go down to the dealership and take a look and are hooked. But wait, in your hurry to be driving the latest and greatest iback in 2003, you decided it was okay to add that $2,000 negative equity to the purchase. That means that your negative equity in the car you bought in '2003' is even greater, unless of course by some miracle you have purchased a car that has appreciated in value in the two years since you bought it (are you looking at a 59' Mercedes w/gull wing doors?)! Bottom line, when was the last time you saw a late model used car that was legitametely selling for more than the original purchase price? Now, after that long-winded admonition, if you still feel like spending too much money for a new car, then you should really be asking these questions at your credit union. I imagine that your credit union will only be able to offer financing for a specified percentage over the retail value of the car in question as determined by various purchasing guides they may use (like NADA). If the negotiated price of your anticipated new car purchase plus the negative equity of your current car are below this amount, then you are probably in good shape. Finally, this is going to be brutal but since I have been there to, I feel comfortable in saying that it seems to me that you are in way too big a hurry to purchase this car which will only result in you being deeper in debt and further behind the equity power curve when it comes time to purchase a new vehicle.
These are the perks that I am looking at: My car needs work. I would rather get a new one than invest in my current one. My monthly note lowered despite the neg equity. I get the vehicle I really want. Thanks for your insight. Please comment on this as well.
Everything that you have mentioned thus far simply afirms that you are looking at the here and now and not long term! Sure it is gratifying to have a brand new car but why not avoid the depreciation and find a 6month to 1 year old used version of the same car. Your payments should then be much less and you are not going to have to absorb as much in the cost of depreciation. Also, more than likely, this used car will still carry the balance of the factory warranty for at least 12-24 months unless the previous owner was on the road all the time. So of course this purhcase is going to lower your monthly payment - or at least that is what the dealer is telling you today! Unless you are able to finance at a significant interest rate reduction, generally the only way for negative equity to come out to a equal or lower monthly payment is with a longer finance term - say 60 months versus 48! Now that is some Enron style accounting there. Having done this once in my life, I can now honestly say that there is no logical reason to finance a car for 5-years that more than likley does not have a matching 5-year warranty. If you have already negotiated with a dealer who you told up front that you were wanting to trade in, you were already digging the hole. I would suggest that you consider shopping at another dealer for the car you want. Dob't even think about mentioning trade-in. negotiate the best drive out price for the car (both the bottom line price before sales tax and drive out). Once you have this amount settled upon, that is when you talk trade in and negative equity. Only in this manner are you truly going to be able to see what this deal is actually going to cost. Otherwise the dealer will massage numbers to meeet price, payment, or any number of other factors yet you will still not know exactly what your trade is bringing into the deal. As for your current car - what kind of work does it need? Are you saying it needs work based on the assumption or the estimate of a trusted mechanic? How about trying to put some elbow grease into it and repairing the minor things (or maybe you know someone who can help)?
ms6073, I will take you advice and keep the car, and repair it. Its a good car, just needs some cosmetic work. Thanks, you have been a great help.
Re: Re: NewCarLoan: price + negative equity Cool... So what kind of 'cosmetic work' are we talking about, door dings and such? Check around your area for some 'paintless' dent repair technicians. These guys can do some minor miracles in most case for around $20-40 per dent. As for cosmetic appearance, if you got time on weekends, it does not take much to learn how to 'detail' your car so that it looks good as new. Here are a couple of sites where you can find tips and ticks on how to 'detail' your car: http://www.3si.org/carcare.html http://www.detailcity.com/ http://www.miataforum.com/ubb/ultimatebb.php?ubb=forum;f=9
Re: Re: NewCarLoan: price + negative equity If you do decide to buy, think about leasing. I know your credit score has to be over 620 to get it, but they roll neg. equity into a lease as well. My hubby said that leasing lets you get the same vehicle (in comparison to buying it) for $75-$100 a month less. So maybe your rolled in equity would be covered by this gap. Not to mention, that by the time your lease ends, your neg. equity is gone..so If you do see that newer model car a couple years down the road you can start clean. Another question to ask yourself is if you have GAP insurance--you know the insurance that covers what your standard full coverage doesn't--and pays off the loan (The LOAN amount, not the car's worth)--on your old car. If you wreck it tommorrow, and don't have that, then your screwed anyways. With a lease it is automatic Not trying to sound like an auto salesman, just giving you a different opinion and option...
Sorry, but I think that is an even worse idea (been there, done that also!) than rolling negative equity into a car purchase! Sure your husband has some good points, but the problem is that the lease solution is the wrong solution for most people! As I said before, cars rarely appreciate in value but even so you do build equity in them in relation to their resale value as you pay off an auto loan. Once the note is paid off, a person is then free to keep/sell/trade the car and the equity will help towards the purchase of another car - notice I am avoiding the word 'new'. Furthermore, if you roll negative equity into a lease (again, been there, done that), you are once again increasing the intial amount that is being capitalized (the amount that you pay what effectively amounts to interest on). This means that if you are fortunate enough to find a lease with liberal liquidation/early termination clauses and find that you are unhappy with a leased vehicle 24-months down the road, then the amount you will have to pay to terminate the lease (in addtion to often hefty early termination fees) is also going to be higher because you rolled in the negative equity. But I will be keeping the car until the end of the lease - no, the person who started this thread wanted to roll negative equity from a car that is still being paid for into the purchase of a new vehicle. So why should we then assume that the same thing is not going to happen in the middle of the lease? Leases are ideal for people who are in a professional position and the business use of a vehicle is deductible, since entering into a lease agreement is more or less a long term rental agreement. In this light it would be easy to justify since a businessman/woman would be able to deduct the % of auto expenses related to the business or profession that the person is in. Simply opting to lease instead of purchasing because it affords a person the opportunity to drive a more expensive automobile than they otherwise could afford due to the rationale of lower payments, is simply a way of rationalizing the fact that a person can not afford that car! Finally, how many times are we seeing posts from people on this board who are dealing with derogatory remarks from companies trying to collect a sum of money (usually quite large) related to the termination of a lease for a vehicle? Unless you baby a lease car and are careful not to exceed the annual mileage allowance, you are still in a negative equity position since the leasing company/dealer can and will hit you up for the difference between the residual and what the car brings in resale (usually sold at auction or other wholesale venue). Furthermore, since there is no equity to gain in the car, you are going to lose money in the long term unless you can either bank the money saved on lease payments each month during the course of the lease (unlikley for many people) or 'retail' the car privately for a profit then pay off the residual out of the proceeds. Instead of rationalizing how to deal with a negative equity situation, which is simply a way of bowing to the pressure that our inner child is exerting on us to buy new 'stuff', lets exercise some fiscal responsibility. There is nothing wrong with owning a car that is older than 3-years old. Lets ask ourselves a question here, doesnt it mean anything that the majority of the particpants/threads found here are due to the fact that at some point in time, we(myself included) were unable to effectively manage our personal finances?
