topic Upside down trade-in in Auto Loans

Upside down trade-in

Anonymous — Mon, 15 Feb 2021 22:00:22 GMT

We purchased a new car 2 years ago and are realizing that due to a change in lifestyle (along with Covid), we're wanting to upgrade to a mid-size truck (for easier camping and recreational activities).

The issue is that we're probably about 5K upside-down on our current vehicle (loan was 10.9% ugh). Our scores are much better now (low-mid 700's), so we know we can definitely qualify for better financing but are wondering the best way to deal with the negative equity. We are trying to hold off the purchase as long as we can (since every month we owe less), but that also means trade-in value declines lol.

I know most lenders will allow you to add negative equity to your loan but I'm going to assume at higher interest rates. Also wondering if that really removes the manufacturer financing options?

We're looking at either new or newish vehicles (within the last couple of years most likely). And yes, we're going to be able to put $$$ down in but definitely not enough to cover the negative balance.

Thanks in advance for any suggestions!

Re: Upside down trade-in

Anonymous — Mon, 15 Feb 2021 22:29:06 GMT

You can burry the 5K at the top tier financing.

Even credit unions like DCU will let you finance up to 110% LTV.

Hopefully the truck you like has a big fat rebate that can offset this.

Re: Upside down trade-in

Anonymous — Mon, 15 Feb 2021 22:32:29 GMT

@Anonymous wrote:
You can burry the 5K at the top tier financing.

Even credit unions like DCU will let you finance up to 110% LTV.

Hopefully the truck you like has a big fat rebate that can offset this.

Thanks for the feedback. Unfortunately we're looking at a Honda Ridgeline and they rarely offer rebates lol. They do have 0% financing right now though.

Re: Upside down trade-in

CreditCuriosity — Mon, 15 Feb 2021 22:34:14 GMT

Either as mentioned can wrap into new loan or also do a lease and that is another way to get rid of alot of negative equity. Either way you are giong to eat it in one way or another but possibly at more favorable rates

Re: Upside down trade-in

Cowboys4Life — Mon, 15 Feb 2021 22:36:31 GMT

I just went through this with a similar amount of negative equity in a vehicle I HATED and an interest rate post BK that sucked swamp water.

Rolling 5k negative equity in to a new loan unless at 0% interest is a bad idea. It is never recommended as now you are paying on 2 cars but only have one. The worse the negative equity the worse the deal. You are likely not saving any money. My solution was to make larger than normal payments (which I had always done anyway) and pay down that negative equity. It improved my financing qualifications/interest rate. I focused on a car I wanted (new 2021) and waited until a weekend and used every shopping technique available. Knowing they would send my trade to auction because of age and a windshield crack I was given what I asked for the car which was $500 below KBB value. My trade in value, how much I reduced the negative equity, down payment, and sales incentives I had no negative equity to roll over. For me this plan worked better as my state offers a tax incentive for trading in as well as I ended up with a small refund check from the previous lender after the sale was done.

To sum this up: KNOW YOUR TRADE VALUE from several sources. Look for good financing sales with dealer incentives. Reduce your negative equity as much as you can with either down payment or paying bigger until you are ready to buy. Check in to tax incentives for trading in vs. private party sales.

Re: Upside down trade-in

Anonymous — Mon, 15 Feb 2021 22:44:59 GMT

Believe it or not the offer from Carvana to purchase my car without buying a new one was a fair offer.

I did better at dealer where I bought the new one but it helped me know what my car was worth.

Because of minor hail damage that was repaired some dealers would not take it on trade.

Is rolling negative equity into a new loan a bad idea?

Rolling negative equity is generally a bad idea but if you can get a good rate - the last rate I got was in August 3.75% for 7 years then is it really bad to move the negative equity from an old loan higher than 10% to a new one at 3.75?
Rolling negative equity in will cause you to be upside down longer on the loan so please make sure you get GAP insurance.
Please make sure you understand that you will not be able to refinance the loan for a few years since you will be upside down.
In simplest terms rolling $3,600 negative equity into a lease should mean an extra $100 car payment. I don't know if that's worth it

Re: Upside down trade-in

Anonymous — Mon, 15 Feb 2021 23:06:59 GMT

@CreditCuriosity wrote:
Either as mentioned can wrap into new loan or also do a lease and that is another way to get rid of alot of negative equity. Either way you are giong to eat it in one way or another but possibly at more favorable rates

Does it really matter much if going with a new car or used car loan?

Re: Upside down trade-in

Anonymous — Mon, 15 Feb 2021 23:09:46 GMT

@Cowboys4Life wrote:
I just went through this with a similar amount of negative equity in a vehicle I HATED and an interest rate post BK that sucked swamp water.

Rolling 5k negative equity in to a new loan unless at 0% interest is a bad idea. It is never recommended as now you are paying on 2 cars but only have one. The worse the negative equity the worse the deal. You are likely not saving any money. My solution was to make larger than normal payments (which I had always done anyway) and pay down that negative equity. It improved my financing qualifications/interest rate. I focused on a car I wanted (new 2021) and waited until a weekend and used every shopping technique available. Knowing they would send my trade to auction because of age and a windshield crack I was given what I asked for the car which was $500 below KBB value. My trade in value, how much I reduced the negative equity, down payment, and sales incentives I had no negative equity to roll over. For me this plan worked better as my state offers a tax incentive for trading in as well as I ended up with a small refund check from the previous lender after the sale was done.

To sum this up: KNOW YOUR TRADE VALUE from several sources. Look for good financing sales with dealer incentives. Reduce your negative equity as much as you can with either down payment or paying bigger until you are ready to buy. Check in to tax incentives for trading in vs. private party sales.

Thanks for the input. I'm the type of person that researches stuff to death so I already know my trade-in value from a few sources already (Carvana offer, KBB offer, etc.) I would also get about $1500 in tax savings by trading it in which helps.

Fortunately our car is fairly new (2019), still has factory warranty and no damage or issues - it's very clean as we don't have kids lol. It's also one of the higher desired trim levels (Jeep Cherokee Trailhawk).

Re: Upside down trade-in

DebtStinks — Tue, 16 Feb 2021 16:14:15 GMT

@Anonymous It doesn't matter new or used as long as the value is there. As another post mentioned, DCU (example) will loan up to 110% of RETAIL value...NFCU loans up to 125% of Retail value and PenFed does 110% of Retail. Most credit unions loan off retail value, and most banks loan off either Clean Trade Value for used and Invoice for New. Also, most lenders do offer lower interest rates on New vs Used simply because it's viewed as lower risk.

IMO, 5k negative equity for a 2 year old vehicle (while not good or ideal) is not terrible. Couple that with your current 700-750 scores and 10.9% rate on your current loan means you could potentially offset the negative equity in interest savings alone over the term of the new loan. Just do side-by-side calculators...considering 700-750 scores you should easily get a low single digit interest rate (0% if New and giving up some or all rebate but keep dealer discounts or 2-5% if used or buying new and taking all rebates)

I hope this helps and keep in mind this is coming from someone who sat in the "box" (aka finance office) for 7 years.

Best of luck!

Re: Upside down trade-in

Anonymous — Tue, 16 Feb 2021 15:34:51 GMT

@DebtStinks wrote:
@Anonymous It doesn't matter new or used as long as the value is there. As another post mentioned, DCU (example) will loan up to 110% of RETAIL value...NFCU loans up to 125% of Retail value and PenFed does 110% of Retail. Most credit unions loan off retail value, and most banks loan off either Clean Trade Value for used and Invoice for New. Also, most lenders do offer lower interest rates on New vs Used simply because it's viewed as lower risk.

IMO, 5k negative equity for a 2 year old vehicle (while not good or ideal) is not terrible. Couple that with your current 700-750 scores and 10.9% rate on your current loan means you could potentially offset the negative equity in interest savings alone over the term of the new loan. Just do side-by-side calculators...considering 700-750 scores you should easily get a low single digit interest rate (0% if New and giving up some or all rebate but keep dealer discounts or 2-5% if used)

I hope this helps and keep in mind this is coming from someone who sat in the "box" (aka finance office) for 7 years.

Best of luck!

This is very helpful, thank you!

Re: Upside down trade-in

dunn2500 — Fri, 19 Feb 2021 21:38:19 GMT

check all car buying services like carvana, carmax, vroom, shift, etc

i just did this......dealers were offering between 35-40k for my truck, even vroom and give me the vin were low but carvana gave me 45.8k....i had no money down when i bought that truck and owed 42.5k although i bought it for really good price new (i walked away with 3.3k positive equity in my pocket and they pay off the truck)......if i didnt research and find out all my options i could have been upside down 3,4,5 or even 10k so check all of them and see who highest bidder is (typically wont be a dealership or they just move numbers around to make it seem so)....even consider selling it yourself

they just took my truck away this morning.....totally happy with process and price i got and did very well on both selling and purchase of new one.....

few months ago carvana was low and carmax was better so it just depends......market is saying used car prices will continue to climb so maybe hold out a bit longer........3 weeks ago my truck was 43k (barely paid off) and it climbed to 45.8 today......so yeah check em all and follow used car market.....also find the largest volume dealer for honda in the country and use their pricing as a gauge....i did this with gmc and dealer in AZ matched st louis for pricing....so flew out and drove it back.......about 4.5k in savings over local so cal dealers......actually they laughed at me and told me to pound sand........find that honda dealer and use them, even buy from them if it isnt far.......good luck