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Established Member
Posts: 24
Registered: ‎12-07-2016

Negative Equity - Roll into loan or lease? Help please

I currently have a 2005 Lexus IS300 I purchased when I was in desperate need of a vehicle (My Ford truck was done for). Fortunalely, I chose a car that was 10,900 with very low miles, and had all major services already done. Unfortunately, I had bad credit and got a terrible interest rate with Capital One AF of 15.99%. Once I worked on my credit, I refinanced with Penfed, to a great rate of 2.89%.  Problem is, I've had the car for a while now, and the previous payments I've made have gone mostly to interest. 


Now, I'm in need of a new vehicle, as this one needs a costly suspension repair. The tech told me he could fix it, but that "It's just not worth it". I got my car appraised at CarMax, and they valued it at $6000, leaving me $4000 upside down. I have $2k cash I can put towards a down or paying my vehicle's negative off. I've been exploring the option of a lexus CT hybrid F-sport. I've had a couple offers I've been considering. 


1) LEASE - 36 Months / 15k miles per year, 3K due at signing, $480/ month -- Rolls negative equity into the lease, leaving me with a clean slate at 36 months. I could then purchase another vehicle or lease again. 


2) PURCHASE - I've been approved at Penfed for another used auto loan. Up to 30k, 3.84% for 72months. PenFed will not finance negative equity, so I've got to come up with a way to get that out of the way. I'm not sure I want to purchase again, as it always seems Iwant out of my current vehicle while upside down, and I hate being stuck throwing money at something that is actively depriciating. 


3)Give car to Carmax, pay off the negative with a personal line of cerdit, then purchase or buy after that loan is paid and i have at least 1k down. I have two other cars I can drive in the meantime, although neither of them are practical to drive for more than a few hours per week - And they'd have to come out of storage. One is a collectible car and the other is a gas thirsty 75 stingray. Id like to avoid doing this if possible. 


My concern is that I will end up paying more than i should if I keep the car longer to pay the negative down, all while driving the vehicle and causing it to depriciate more and more. I feel like I'll be chasing that gap as I can only afford to put an extra 1K / month toward principle on my current budget. The car will not be worth 6K in 4 months - And might have a major mechanical issue before then. 


Thoughts? It seems ro me the cleanest way to do this is the lease. 

Posts: 10,226
Registered: ‎03-06-2010

Re: Negative Equity - Roll into loan or lease? Help please

[ Edited ]

Actually the cleanest way is to sell it to CarMax and pay the $4k negative equity.  That way you won't have the neg equity in either the lease or the new purchase.  You have to get rid of the neg equity to start clean and you may as well do it now rather than rolling it into something else.


You have $2k,  It's pretty easy to come up with another $2k (usually).  The problem occurred because you (had) to take a high interest loan according to your post. If you finish it now you don't have to worry about neg equity again - unless you take another high interest loan or fail to put down a decent downpayment or get a rapidly depreciating vehicle (more than usual) or any combo of the 3 reasons. It is up to you to control your negative equity. You can do this Smiley Happy


PS I am not a fan of leasing except in very limited circumstances. However, if you are the kind of person that is always looking for the newest vehicle and you don't mind having an endless payment and no equity then leasing is probably what you want to do. 

Valued Contributor
Posts: 1,151
Registered: ‎01-31-2008

Re: Negative Equity - Roll into loan or lease? Help please

Sounds like a lot is going on here.


1. Have you received a second quote for the proposed work on the current Lexus? 

2. You can save some money on taxes if you trade into the dealer. $8,000 on trade at 9.3% tax rate = $744 in savings. You however need to buy/lease at the same place you trade with...

3. You are correct, the lease option will likley be the amount of work for you. Remember you may be out of warranty before the lease is up at 15K miles per year.

4. Use the PenFed quote as benchmark for the dealer to beat. This may allow for you to achieve your goal.


Be careful they can do vodoo with the math!

Valued Contributor
Posts: 1,377
Registered: ‎12-16-2014

Re: Negative Equity - Roll into loan or lease? Help please

I agree with Appleman to get a second opinon on the suspension work.  

If the work is legit don't trade or sell to Carmax, they will inspect the car too well and that will reduce the value.  I would trade directly to the dealer your buying from in that circumstance.

I am never a fan of rolling negative equity into a car deal, when you roll off the lot your already in a negative equity situation so I don't believe in making that worse.  

I suspect you can get the suspension work done much cheaper than the quote, either way the best option may be to keep it until you have less negative equity as long as it is reliable.


Tough situation, we have all been there. Personally I would do all I could to minimize rolling any negative equity.


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