$9000 upside-down

[MostlyCloudy]

I'm currently $9000 upside-down on an expensive sports car that is starting to near the end of its bumper to bumper warranty and has already exhibited some major mechanical problems (oil leaks, etc). After researching it seems the best way to get out of an upside-down loan without eating the cost yourself is to find car sales that have the biggest cash back incentives to help pay off the negative equity. Well it just so happens that if you buy an electric car like the Nissan Leaf or Chevy Volt, you will get $7500 rebate from the gov't and $2000 rebate from the state. Thats $9500 cash back, which you can sign over to the dealership thus allowing them to strike $9500 off the sticker price on the car. Poof, thats all my negative equity. Now technically I'm sure these rebates are having some sort of impact on the resale value of the car too, but this will correct itself once the rebates expire and the gov't stops handing them out. 

Since an EV retails for what I currently owe ($38,000), I will in effect just be trading cars and losing the last 3 years worth of payments I made. But at least I get a new warranty with a new car that hopefully wont be a lemon like my current one. I still owe 72 months on my current car, which means this even trade will also have an even maturity date. 

I've already researched the merits of an EV and how practical it is for me, I just feel like I might be overlooking something here with this otherworldy equity dump. I mean usually the biggest rebates you ever hear about from a manufacturer are maybe $4000 or $6000 every few years during some sort of firestorm sales event. Well it looks like my time has come and I should seize this moment. Thoughts?

[ForceMd]

You say that you owe $38k, and you are $9k upside down. Where did you get the $9k figure from? is that how much a dealer is willing to give you as a trade in? If so, does that take inti account the mechanical issues that you mentioned? Those numbers do look tempting, but I cannot think of any good that can come from trading into an upside-down loan. I have the feeling you are missing something. If you can get $29k for your current car as a trade in ($38k - $9k) then either the mechanical problems you mentioned are not as bad as you are making them out to be, or you are not going to get as much as you think for your trade in ( or you have one sweet ride that is mostly paid for).

[MostlyCloudy]

You are right, I am still trading into an upside-down loan. The difference is I am making an equal trade, keeping my payment the same for the same duration, just getting a brand new car with new warranty so I can get rid of this lemon. This car also happens to be fuel efficient which will save me some money. 

Here's the breakdown:

1. Current car's private party value - $28,000

2. Refinanced through bank at - $37,000

3. Dealer offer - $26,000

4. Negative equity - $11,000

5. $9500 gov't rebate/subsidy

6. Negative equity reduced - $1,500

7. New car out the door price - $35,000

8. New car total financed amount with $1,500 negative equity - $36,500

I might also investigate leasing options just to be able to dump it completely in 3 years. But I figure if I can make the payment for 3 years I can make it for 6. And I might really want to keep this car. If not then it doesnt matter, it will have depreciated by the same amount in the same amount of time so I can eat the 11k negative equity then out of pocket. 

[awp317]

Why not try and sell the car private sale. That way you go in to the new car scott free and apply the rebates to the new car to reduce the payment. 

I ran in to this problem with my bmw, My lease buy out on it as 56k, THe highest I was offered for it was 50k and it was on a vehicle I really didnt want. I ended up selling it in 21 days for 58k to someone who bought it with a loan check from me. The only thing was I had to buy out the lease with my cash reserves to free up the title, then replace it when I sold the car. This may or may not work for you. 

[MostlyCloudy]

I'd have to let all the bills ride on  my credit card for a couple of months to save $9000 in cash to pay off the balance on this car. Since that 9k would be accruing interest at 17% it seems like this is probably not a good idea. I might see if my bank will just give me a personal loan at a much lower rate, and then hopefully I'm not stuck with a compounded payment plan for too long (paying both a loan and car note at the same time together). 

[pizzadude]

One thing to look at is the timing of when the state / fed rebates occur ~ are these tax credits which would be applied to 2014 taxes?   If so you'll need to look at your tax situation to determine exactly how much / when the money will finally get to you.

[mathman]

The problem you're facing is that this is a $7500 tax credit.  So first of all, you will not see this money until you get your refund for 2014, which will be February/March of 2015. Additionally, you have to make enough income to have $7500 or greater in actual owed taxes,  If you don't, you don't get the full amount in a credit, which can be deceiving.  I own a Volt and went through this.  I've also never heard of a dealer taking the tax credit off the price because YOU get that tax credit, not them (unless you lease).

So be careful - there are a lot of complicated implications here.  Good luck to you.

[awp317]

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@mathman wrote:

The problem you're facing is that this is a $7500 tax credit.  So first of all, you will not see this money until you get your refund for 2014, which will be February/March of 2015. Additionally, you have to make enough income to have $7500 or greater in actual owed taxes,  If you don't, you don't get the full amount in a credit, which can be deceiving.  I own a Volt and went through this.  I've also never heard of a dealer taking the tax credit off the price because YOU get that tax credit, not them (unless you lease).

So be careful - there are a lot of complicated implications here.  Good luck to you.

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That depends on where you are, A lot of dealers here to move the widly unpopular electric vehicles are saying they will give the rebate upfront and take the government rebate when the time comes. 

[Creditaddict]

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@MostlyCloudy wrote:

You are right, I am still trading into an upside-down loan. The difference is I am making an equal trade, keeping my payment the same for the same duration, just getting a brand new car with new warranty so I can get rid of this lemon. This car also happens to be fuel efficient which will save me some money. 

Here's the breakdown:

1. Current car's private party value - $28,000

2. Refinanced through bank at - $37,000

3. Dealer offer - $26,000

4. Negative equity - $11,000

5. $9500 gov't rebate/subsidy

6. Negative equity reduced - $1,500

7. New car out the door price - $35,000

8. New car total financed amount with $1,500 negative equity - $36,500

I might also investigate leasing options just to be able to dump it completely in 3 years. But I figure if I can make the payment for 3 years I can make it for 6. And I might really want to keep this car. If not then it doesnt matter, it will have depreciated by the same amount in the same amount of time so I can eat the 11k negative equity then out of pocket. 

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Did you do a refi cash out on this car?

How do you still have 72 months left on it?

What is the sports car?

[MostlyCloudy]

Yes I refi'd for cash back on this car, which extended the duration of the loan. The bank screwed up and refi'd the wrong car. I knew something was up because there's no way I had 10k equity at the time but I thought maybe they know something I dont and that this is how refinance is done. After I realized their mistake I figured what they dont know wont hurt them as long as I keep up with the payments. I used the 10k to pay off a credit card which was nice. I'm still doing fine economically, I just decided it's time to dump the car because it's having all these problems, and of course now I'm stuck with it so I'm so far upside-down dealers dont really want to take it.