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AutoLoan/Trade-in ?

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Anonymous
Not applicable

AutoLoan/Trade-in ?

Hi - I have been lurking for a few weeks on this board and learning so much! I am looking to buy a car (Toyota RAV4 or Honda CR-V). I currently have a 2005 Chevy Malibu. I financed this with Nuvell at a really high interest rate (14.5%) because my credit was not so great at the time. I also rolled over WAY TOO MUCH neg. equity into the loan.
The pay-off on the Chevy is around $12,524 and KBB list the Chevy Trade-in value as $7120.
I am hoping to get the RAV or CRV for around 20-21,000.
 
I just recently got 2 of my free annual reports and paid for the scores:
Transunion 734    Experian 726
I will get Equifax this Saturday and I hope it is 720 or above too - from what I understand they can be tougher.
SO! I am thinking Capital One as a first option but I do intend to try other options (my bank told me 8.8 would be the lowest and told me that they aren't that great for car loans)
How does figuring in the negative equity work when buying the car????
For instance, if Capital One approves a 26,000 loan and I get the car for 21,000 - how will I pay them the neg equity? Will it be added into the price of the car?
 
ANY help would be appreciated!!!!!
 
Message 1 of 7
6 REPLIES 6
MattH
Senior Contributor

Re: AutoLoan/Trade-in ?


@Anonymous wrote:
Hi - I have been lurking for a few weeks on this board and learning so much! I am looking to buy a car (Toyota RAV4 or Honda CR-V). I currently have a 2005 Chevy Malibu. I financed this with Nuvell at a really high interest rate (14.5%) because my credit was not so great at the time. I also rolled over WAY TOO MUCH neg. equity into the loan.
The pay-off on the Chevy is around $12,524 and KBB list the Chevy Trade-in value as $7120.
I am hoping to get the RAV or CRV for around 20-21,000.
I just recently got 2 of my free annual reports and paid for the scores:
Transunion 734 Experian 726
I will get Equifax this Saturday and I hope it is 720 or above too - from what I understand they can be tougher.
SO! I am thinking Capital One as a first option but I do intend to try other options (my bank told me 8.8 would be the lowest and told me that they aren't that great for car loans)
How does figuring in the negative equity work when buying the car????
For instance, if Capital One approves a 26,000 loan and I get the car for 21,000 - how will I pay them the neg equity? Will it be added into the price of the car?
ANY help would be appreciated!!!!!





If you buy with negative equity then you are storing up trouble for yourself,
especially if you get totaled in an accident: insurance will usually pay only
what it's worth so you can end up owing money on a car that you no longer have.
Lenders will be happy to roll your negative equity into a new loan, but didn't
you learn your lesson the last time? Don't do that to yourself again, WAIT
till you can pay AT LEAST 1/3 the price of your next car and preferably more.
Borrowing more than the price of a car is even dumber than a 100% mortgage,
because with a car you KNOW you'll be upside down even without a market collapse.
While you are paying down your current loan and saving cash for your next car,
you can also continue improving your credit score by paying every bill on time,
reducing balances on credit cards, etc., etc., so the rate on your next car
will be less costly.

I suggest you keep your current vehicle for a while, and after it's paid off open a
new bank account and deposit what you would have paid on a loan into that account
every month until you have about half the cost of a late-model used car, then get
that. I prefer to be the SECOND owner of a car, so the first owner takes the big
depreciation hit.

I just paid off the loan for my current car (a 2000 Camry which I got in 2004),
and I *could* pay cash for something newer tomorrow but at this stage in my life
(DW and I are both in our forties) our number one financial priority is saving
for retirement so I plan on keeping this Camry for a while longer. It still runs
very well, so I'd rather save instead of splurging. Your 2005 Malibu should have
MANY years of useful life remaining so in your situation you really should hang onto
it for a while longer!

Message Edited by MattH on 04-28-2008 07:11 PM
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
Always remember: big print giveth, small print taketh away
If you dunno what tanstaafl means you must Google it
Message 2 of 7
Anonymous
Not applicable

Re: AutoLoan/Trade-in ?

The only way you can roll that much negative equity into a car loan is thru dealership financing....they normally cap at $10K.

Capital One will let you roll negative equity in, but you have to get a really good deal on the new car in order to offset the additional money. Basically they won't let you borrow much more than a Certain Value they think the new car is worth.

If you do roll negative equity into a car loan always buy GAP Insurance or Loan/Lease Insurance through your carrier so that if you do total the vehicle this coverage pays the difference (always buy through your insurance carrier, not the dealer)
Message 3 of 7
BRH3
Regular Contributor

Re: AutoLoan/Trade-in ?

The finacially smart thing to do would be what MattH suggest. However, if you are set on buying and rolling negative equity make it as little as possible. Do get the GAP insurance to protect yourself. Don't assume going through your own insurance is the best. Compare and contrast their GAP with the one from the dealership. Some GAP coverages limit the amount covered . I just purchased a new vehicle and rolled a little negative equity over. I purchased the GAP though Ford because it was relatively cheap and their was no limit on the amount covered. My insurance would only cover the "negative loss" up to 5K dollars and I would be stuck with the rest. Shop and compare but if you can then take Matt's advice. And the only reason I purchased with negative equity is my previous loan was @ 10.5 % interest, new loan was @ 1.9% interest and I purchased the vehicle under dealer invoice(lifelong friend deal). I figured I would rather pay 1.9% on borrowed money then 10.5%. Next time I will purchase a used low mileage vehicle as matt suggest.
Message 4 of 7
Anonymous
Not applicable

Re: AutoLoan/Trade-in ?

Thank you all so much for the advice.
Matt, I also feel sure I will now qualify for a much lower interest rate and that is the main reason I am trading. My rate now is 14.5!!!!!
I know you said that you had a friend get you the dealer invoice deal but can you tell me if using one of the car buying services such as Consumer Reports to find out what the dealer invoice actually is?
 
Message 5 of 7
Anonymous
Not applicable

Re: AutoLoan/Trade-in ?

You can go to CarsDirect and get an estimated amount that the dealers in your area are paying for a certain vehicle make and model.

Always ask to see the invoice on the car you want because it has everything that the car actually has on it listed. That way you can see what the markups really look like for things like Floor Mats that cost the dealer $20 and charge the consumer $125.
Message 6 of 7
MattH
Senior Contributor

Re: AutoLoan/Trade-in ?



@Anonymous wrote:
Thank you all so much for the advice.
Matt, I also feel sure I will now qualify for a much lower interest rate and that is the main reason I am trading. My rate now is 14.5!!!!!





I suspect you have already decided to trade in this 2005 car no matter what anybody tells you, but please reconsider this decision. You must have at least one friend or relative who can run the numbers for various scenarios in a spreadsheet and demonstrate the likely long-term cost of being too focused on the monthly payment.

Even if you could roll over your negative equity into a new car loan at, say, 7.5% I still think you should wait. By now if you took out a five-year loan three years ago you have already paid most of the interest on that expensive loan. Even if you can in fact roll it over into a 7.5% rate now, think about your future: three years from now you'll be in basically the same hole. If you focus on the monthly payment then it may seem like a good deal because the lower interest rate will allow you to get a new car now without much of an increase in your monthly payment. But if you bite the bullet and keep your current car for a year after it's paid for, and save your payments during that year, you will THEN find your patience to have been richly rewarded. Please don't pay what Dave Ramsey calls the "stupid tax" by thinking short term.

ALSO, please don't forget WHY car dealers are willing to roll over negative equity when other lenders usually won't do that: he wants to get the chance to rip you off on a new car. Numerous studies have shown that a buyer who walks in the door with financing already lined up elsewhere ALWAYS gets a better deal, even if he or she ends up financing with the dealer. THIS is the true reason dealers are more willing than other lenders to do negative-equity loans. The bank isn't exactly your friend, but in this case their interests are a heck of a lot better aligned with your interests than is the finance desk at some dealership!!
TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
Always remember: big print giveth, small print taketh away
If you dunno what tanstaafl means you must Google it
Message 7 of 7
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