I have a friend who wants to buy a new Pickup Truck 3/4 ton or 1 ton, 4 door...preferably Ford. Second choice Dodge.
However, he has a car he wants to trade in that has negative equity. He asked me if the various discounts, incentives, cashbacks or markdowns can make up for some or all of the negative equity.
I really don't have much experience there.
Can anyone give me some input on best ways to roll negative equity. He has good credit...I believe 750-760.
I realize the downsides of such a meneuver, so if anyone can provide the "theoretical" possibilities, I'd appreciate it.
Thanks 
@Anonymous wrote:I have a friend who wants to buy a new Pickup Truck 3/4 ton or 1 ton, 4 door...preferably Ford. Second choice Dodge.
However, he has a car he wants to trade in that has negative equity. He asked me if the various discounts, incentives, cashbacks or markdowns can make up for some or all of the negative equity. YES
I really don't have much experience there.
Can anyone give me some input on best ways to roll negative equity. He has good credit...I believe 750-760. Hopefully those are true FICO numbers. The higher the credit score the more negative he can roll, depending on the lender. But most lenders do not end up financing past a LTV of 1.2 (loan to value) Lower LTVs do tend to invoke easier fiancing and better rates, depending on the lender.
I realize the downsides of such a meneuver, so if anyone can provide the "theoretical" possibilities, I'd appreciate it.
Thanks
Rolling negative equity into a vehicle is common. It happens every day. You have not said how much NEG EQ is on the table here so I will just give you some pointers.
1- The higher the credit score the more negative equity you can roll with a bank still financing the deal, until you hit that lenders "wall" of loan to value where they either trigger you moving to a less desirable credit tier, or they do not finance at all. Ie: you qualify for 5.9% but since you are rolling so much negative they want 12.9. Or your LTV is so bad as I used to say, banks are not going to do $50,000 in financing on the back of a Ford Focus.
Whats LTV? different lenders have different make ups, but in general and for most cases a LTV of 1.2 is 20% over MSRP of a new unsold vehicle. In some ways thats a lot in other was not really. But it is how you are able to hide negative in a new car easier then a used.
Examples:
1 MSRP of $21,000 sold at sticker: means you can only have a transaction of $25,200.
if you aren't putting any money down, just the 7.75% sales tax takes you to $22,628-thats not counting dealer fees doc fees and what have you. Add all that in and you may have to write a check if you want an extended warranty.
Most new cars have some type of a rebate to sop uop any inconsequential negative equity and to help insure fiancing of the vehicle. Most. The non essential cars simply dont have rebates as it is assumed people can afford them or not.
2- MSRP of 37,000, means a max transaction of $44400. But on this vehicle there is a Ford Employee discount Price of 33,480 plus 5,500 in rebates means you are paying $27,980. thats a huge varience even after tax title and fees that you can bury a lot of negative equity into.
But...and heres where it gets interesting.
Cars are depreciating assets, and rebates trend to progress through the model year. And money can be destroyed but not "made."
So what is a MSRP $30,000 with 8K in rebates vehicle really worth? Yep $22,000. Roll 7K into the transaction and you got it financed, but in all reality you financed 29K on a 22K vehicle.
So you aren't really making the negative equity go away, you are more or less redistributing it, re-alligning it so to speak. Hopefully for a better end result. WHICH IS WHY YOU MUST HAVE GAP COVERAGE IF THE VEHICLE IS TOTALED.
if the 30K/22K vehicle were to be totaled insurance will only pay out on the 22K so you are screwed. If you go to sell it, the fact that you Owe XXX does not be labor the point that vehcles of that model year are only worth XXX.
Thats one of the reason rebates are said to contribute to so much depreciation: case in point
MSRP $37,000 truck from above. Customer buries 6K negative equity So he finaces lets say 36K, for 72 months at 5.9%- Payment of 594.
two years later he goes to sell it but still owes $25,381. Who is going to pay 25K for a two year old vehicle when they can buy a brand new one, for maybe 2K more...... He is not getting 25K for his truck.
If you are rolling any amount more then a 1000 in negative equity you need GAP COVERAGE.
The downsides really are not that bad, especially if you can time your trade in to a Zero percent promo, that way at least whatever negative you have are not paying interest (assuming a large amount), you just cannot forget that you did not "make" money in the deal, and your new vehicle has a large amount of negative equity on it also, you just cannot see it as bad.
A huge thing I remember seeing on trade ins would be, Ok we are giving you this much for you car...but but I owe XXX. Ok well did you put any money down when you bought it? No? Ok DID you have a trade in when you bought it too? yes How much negative were you then? Oh $4,000 well you are only $2,000 negative now.
People would get angry when ther vehicle would trade in at less then they owed but forget how much negative they buried in it when they first bought it.
You can by the way, by constantly trading in and keep building negative equity on each vehicle until finally you are stuck with it as your LTV is too high to go into a new vehicle.
I rolled 6k Neg equity into my car. I went from a 80K Miles no warrantied truck to a new Ford Fusion with an extended warranty and Zero percent for 72 months.
I think I made a good choice, I just know I am not getting out of my Fusion for a long time.
