Negative Equity

[Romeoo47]

I was wondering if lenders were still allowing you to roll negative equity into your new loan?  I ask because my roommate's car is about to die and he owes 20,000 on the car that is only worth at most $12,000.  He wants to trade it in and roll some of the negative equity into the new loan.  I think he has $2000 to put down.  I told him that I didn't think lenders allowed this anymore.  However, I could be wrong.  Does anyone know (1) if lenders are still doing this?  And, (2) if so, would they even allow that much negative equity to be rolled in assuming he could get $12,000 for the car?  Thanks for your input in advice!

[Anonymous]

Yes, they still do it.  When the big sales come up in July they will probably start advertising up to $10,000...

But I suggest your friend not do this because when the next car is about to die he will still be upside down and it will be a vicious cycle that never ends.  That is a LOT of negative equity.

[Anonymous]

well 2K down but with 8K negative equity so figuer basicly you want them to finance 100% of the price, the taxes and license fees, and an additional 6K.  The only way that there is going to be enough wiggle room on the price to get that done is id the car is a fairly expensive car.  They are not going to finance 150% or something like that.  So say you buy a car stickered at 35K that will sell for say 29K  There might be enough leeway to get that doen.  That said, it is a bad idea.  Anyone who is that much underwater on a car that is falling apart is very likely to end up right back in the same spot. 

[Anonymous]

Some banks will allow it, but it depends on how much.  I have a friend that wanted to trade in a car with 10k neg equity.  She was getting 10k off the MSRP, but the banks wanted her to put down 6500 at least and maybe she could get the loan.  But she had previously rolled $3k neg eq into her current car.  I told her it's a vicious cycle and to stop it immediately.

[Anonymous]

I'm curious cause the numbers do not make sense:

How can a car that is worth 12K and owes 20K be "about to die?"

Unless he rolled tens of thousands of neg eq into this car's loan and is paying a 20%+ interest rate I just do not see how it is "about to die" unless:

1- was bought used and had a lot of mileage or unforeseen damage/issues

2-has been involved in a lot of accidents

3-has not been properly cared for since purchase

4-Vehicle has had a catastrophic mechanical failure shortly after end of manufacturer warranty

If he did owe a lot of negative on the last car/is payin ghigh interest then he had really bad credit to begin with, which leads me to believe that he will not get financed for a new car at a high loan to value rate.

What kind of car is it, make year mileage, and how is it "going to die?"

I am curious if there is just regular maintenance repairs he does not want to pay...which honestly even 3K in repairs would be cheaper for him to do then trade in the nagative.

And for all you readers: yes I believe extended manufacturer warrantys are your friend.

Message Edited by usmc58555 on 06-20-2009 07:01 AM

[Anonymous]

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@Anonymous wrote:

And for all you readers: yes I believe extended manufacturer warrantys are your friend.

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I have to agree.  My Jag XJR had to have a transmission replaced......$12,000!  I had a $200 deductible on my extended FACTORY warranty so the manufacturer picked up the rest.  I only like extended factory/manufacturer warranties....I don't like third party contracts, personally.

[Romeoo47]

Update:

Before reading replies to this message I advised my friend that he shouldn't do it.  Anyway, he purchased a 2001 BMW X5 in 2007 and bought an extended warranty to go with the car.  The problem is that he traded in his 2004 Audi A4 in which he had negative equity on it.  He put about $4000 down in 2007 for the deal.  He financed the loan through some credit union in Houston for 9.5 interest rate.  The funny thing about this whole situation is that he was suppose to be helping me look for a car but ended up trading his in before I bought myself a new car in 2007.

Anyway, he takes his SUV to BMW after he noticed that his car heating/cooling gauge wasn't staying in its normal spot.  BMW told him that he needed a new engine because (1) his coolant was leaking and (2) his engine oil was leaking inside his car.  They estimated $12,000 for parts and labor.  So we looked up the value of his car and it is coming in around $10-12K.  According to the credit union, he owes about $21K on his loan.  Anyway, I told him to get a second opinion.  So he takes it to another European auto shop and they tell him that nothing is wrong.  Finally we take it to another German auto shop and they estimate the cost of repairs to be $2k.  So at this point we have taken his car to 3 different places and each have said 3 different things.  Oh btw, the extended warranty refused to pay for the engine replacement.  They didn't seem convinced either that his engine needed to be replaced.  I tell my friend that the money he would spend on a downpayment ($2K) should go to get his car fixed.  However, at this point we don't know what to believe.

So, he goes looking for a new car and most of the auto dealership tell him that there lenders are only financing 120% of the LTV.  He really wants another BMV because of their 5 year mfg. warranty.  However, I told him I would never touch another BMW if I was him.  Finally he stumbles across Volvo who is giving $6,000 cashback on new cars.  The last I heard he was going to try to trade his car in for a Volvo.  I will keep you guys informed. 

[Takunda1]

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@Romeoo47 wrote:

Update:

Before reading replies to this message I advised my friend that he shouldn't do it.  Anyway, he purchased a 2001 BMW X5 in 2007 and bought an extended warranty to go with the car.  The problem is that he traded in his 2004 Audi A4 in which he had negative equity on it.  He put about $4000 down in 2007 for the deal.  He financed the loan through some credit union in Houston for 9.5 interest rate.  The funny thing about this whole situation is that he was suppose to be helping me look for a car but ended up trading his in before I bought myself a new car in 2007.

Anyway, he takes his SUV to BMW after he noticed that his car heating/cooling gauge wasn't staying in its normal spot.  BMW told him that he needed a new engine because (1) his coolant was leaking and (2) his engine oil was leaking inside his car.  They estimated $12,000 for parts and labor.  So we looked up the value of his car and it is coming in around $10-12K.  According to the credit union, he owes about $21K on his loan.  Anyway, I told him to get a second opinion.  So he takes it to another European auto shop and they tell him that nothing is wrong.  Finally we take it to another German auto shop and they estimate the cost of repairs to be $2k.  So at this point we have taken his car to 3 different places and each have said 3 different things.  Oh btw, the extended warranty refused to pay for the engine replacement.  They didn't seem convinced either that his engine needed to be replaced.  I tell my friend that the money he would spend on a downpayment ($2K) should go to get his car fixed.  However, at this point we don't know what to believe.

So, he goes looking for a new car and most of the auto dealership tell him that there lenders are only financing 120% of the LTV.  He really wants another BMV because of their 5 year mfg. warranty.  However, I told him I would never touch another BMW if I was him.  Finally he stumbles across Volvo who is giving $6,000 cashback on new cars.  The last I heard he was going to try to trade his car in for a Volvo.  I will keep you guys informed. 

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We call BMW Dealerships "Stealerships" the reason is becasue they charge 1000% markup on anything they do. Labor depending on State is about $135 per hr (thats whats charged here in TX). So the quote you got from BMW is correct according to their standards. I would check with more reputable euro shops in the area.

[Watchmann]

The car industry loves people like this, it is like taking candy from a baby.  It's too late in this case but there is an old saying that is still true: "NEVER own a German car outside of the warranty".  They are better than they used to be but German cars are not as reliable as the equivalent Japanese cars long term.  The electronics are usually deficient.  I would suggest you take it for another opinion to a good shop.  Not all BMW dealerships are crooks, take it to another dealer and tell them you are NOT going to entertain a new engine on a car this old.  Get an opinion from them.