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Have they lost their minds?

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Anonymous
Not applicable

Have they lost their minds?

I am a tax accountant. I just completed a tax return for a client who purchased a 2017 Dodge Ram 2500 truck. They rolled $52,000 in negative equity from a prior vehicle into the deal. They now owe $82,000 on a truck that Kelly Blue Book values at about $41,600.

 

Let's see who lost their minds in this deal:

 

1: The buyer, obviously. They are beyond upside down in this vehhicle - they are inside out also.

 

2: The genius of a Credit Manager who approved the deal. For his sake I hope the loan never goes bad because he might have a lot of 'splaining to do. I can just hear the first question: "Where was your brain?"

6 REPLIES 6
Miner
Frequent Contributor

Re: Have they lost their minds?

That is just insane for both sides.  To even have $52k in negative equity on a car loan, how is that even possible?  10 year loan?  And then to buy another vehicle worth less than half of the loan amount?  What sort of interest rate was demanded to get that loan approved?   I can't even fanthom the amount of interest they must be paying on the life of that loan and don't see how it could possibly be worth it.  Every time I do the math for a loan and see all the interest I'll have to throw away, my loan lengths always seem to get shorter. 

Current FICO8: EQ:782, TU:754, EX:767 | 1x 30 day late 6yrs ago
AAoA: 10 years; AAoOA: 13 months; Credit Length: 21 years
INQ Eq: 3 / Tu: 5 (4 for auto) / Ex: 9 (5 for auto)
Message 2 of 7
Anonymous
Not applicable

Re: Have they lost their minds?

Since it has not been tax deductable since 1990 I didn't ask what the interest rate or payment was, or the loan terms. Insane, yes. The old trade has over 300,000 miles so it had very little trade value and they still owed $52K on it, so this is not the first time they have wrapped negative equity into a new car loan. I just wonder how much negative equity they will have when they finally get declined because of LTV.

Message 3 of 7
9CLINE
Valued Contributor

Re: Have they lost their minds?

Wow !!!!!!!!! Amazing........

Message 4 of 7
Anonymous
Not applicable

Re: Have they lost their minds?

It’s basically a credit card disguised as an auto loan. Wonder what the interest rate is for something like that
Message 5 of 7
Anonymous
Not applicable

Re: Have they lost their minds?

If I was a betting man this person is a "hotshot" driver who put's a ton of miles on vehicles using them to pull campers/other loads to their destinations.

 

If they owed 52k I seriously doubt the truck was worth "0" a dodge ram diesel with 300k miles is still surprisingly worth something, and quite possibly more than anyone would think. Purchasing a new ram 2500 with a 60k+ invoice wouldn't be too hard to finance that kind of money on, considering many captive lender's will advance as far as 135-140% of clean trade in/invoice, and I wouldn't be surprised if the rate isn't all that bad either.

 

Absolutely a horrible idea to do this, but can be very possible given the perfect situation.

 

If he's putting that kind of miles on a new vehicle, he should be smart enough to pay down the balance quicker by making extra payments or financing at a shorter term in order to keep up with the mileage he is putting on the vehicle.

Message 6 of 7
Loquat
Moderator Emeritus

Re: Have they lost their minds?

This is one of those times where I fully recommend that the customer buys that $595 GAP plan that is offered.  This could potentially pay for itself time and time and time and time and time......again!

Message 7 of 7
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