@CH-7-Mission-Accomplished wrote:
@Anonymous wrote:
Man,... i hate to be a Debbie Downer, but i'm going to have to be real in this situation since this forum is about the betterment of your finances.
Cars and car loans should not be mixed with your short term financial goals. This forum often confuses major purchases with something as elementary such as a credit card application. I wish you consulted the forum before making a big decision like this. I'm not a fan of piling negative equity upon more negative equity. And on top of this, you're now facing depreciation from this new car too. This is before reaching an equity situation and actually paying down the car.
One thing i've learned throughout the years in my profession is: the borrowed amount is of supreme imporrtance in a loan, not the APR. This is why the borrowed amount is called the "principle". I'm always conservative with finances. Make additional payment towards the principle, and do not trade in this car until the loan becomes of SIGNIFICANT EQUITY.
While I agree that negative equity is always a bad situation, you have to pay back the negative equity one way or another. If you do not have the funds to pay down the principal balance to get into the black, it is better to repay the negative equity at 2% versus 9% or 18% or whatever.
Yes, there is dramatic first year depreciation on a new car, etc., but that occurs whether you are rolling old negative equity into the new car or not.
Just be sure that the car you are now buying you intend to keep for four or five years, and do make additional principal payments as you can, ideally sending in a double payment each month.
For some people, getting out of a high interest rate, high payment that involves rolling negative equity into a new loan is a much better option if you can drastically reduce the interest rate, reduce the loan payment by buying a cheaper car, and paying off the negative equity faster by doubling up on payments.
I don't think it makes sense for folks to repay negative equity at 18% when they could repay it at 2%.
You're basing your example off an extreme variation on interest rates when in this situation it's not that significant. We're talking 6.3% to 2.5%. But now you're talking 72 months. Factor in 40-45% depreciation based on general lease residuals on the new car. Both points negates any savings and puts you heavy into triple negative equity. And i feel i'm being generous about that residual because Toyota fleets cars to rental car companies which flood the used car market.
Like i said earlier, i don't mean to be a party pooper. But congratulating everyone and everything on this forum is not in the best interest of making credit better.
Either way, "it's only money". And the main thing is you enjoy in good health.
Current (8/2015): Equifax 688, Transunion 689, Experian 708