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Negative Equity Confusion?

Your FICO® Scores can impact your loan interest rates, terms, approvals and more.
Frequent Contributor

Negative Equity Confusion?

I was going to purchase a car last night, 2017 Ford Focus MSRP 20,145 for 13,289 before taxes and dealer(stealer) fees. I have my cap one and springboard and other pre-approvals that will let me roll in 4,500 neg equity.  I figure I may as well see if the dealer can get me in with Ford. This is where things went south. Finance manager kept insisting a large DP at least 3K saying I needed "good faith" money to any lender saying my LTV was too high. I said with 6,856 off of sticker should allow me to roll in 4,500.(not smart but dont care) Of course the scores they pulled were 40 to 50 points lower than I got from here. I said I want to put 500 down as good faith money. He said not enough cash and asked me if I ever financed a car before saying LTV is not based off of MSRP and said my low credit score iand income s not the issue but too much neg equity? I thought by coming up under MSRP OTD with roll-in I would be ok and credit score could be issue instead?   Spoke to me like they did me a favor when telling me they can get me in with Cap One with only 1,500 down when I have a pre-approval with them on my own for 35K and no money down. Way to make customer feel comfortable. 

 

Sorrry for the long post, 3 years ago found a car 7k off of sticker rolled in 4K no trouble with scores 70 to 80 points lower.  My auto history is long with no baddies. May just go back to that dealer and buy from them. Any thoughts or comments is greatly appreciated as always. 

Message 1 of 18
17 REPLIES 17
Frequent Contributor

Re: Negative Equity Confusion?

Sorry for your confusion and I hope it works out for you. It makes sense to me what the dealer told you. I purchased a new 2017 Ford Focus (with 3 miles on it) for my daughter in May of this year for $13,343 (total including finance charges $15,434, I put $2000 down, not because I had to, but because I wanted to).

The KBB value of my daughter's car right now is around $11,OOO, so if you're rolling in $4,500 of negative equity, then you're around $17,843 without the taxes and fees included (using her figures, guessing at yours). Since the cars lose value pretty quickly, this all makes sense to me, you'd be underwater around $6000+ come 2018, if you don't put a decent down payment on the car. Not that the dealership can't push it through without a decent down payment, they just don't want to. My daugther's car was financed through Capital One for 4.97% for 72months (around $215 a month). Just re-financed through NFCU for 3.14% for 60months (same monthly payment, but term decreased).

Shop around until you find a deal that you're comfortable with and crunch your own numbers. Don't settle for anything, look at the total cost of the car and the term, not just the monthly payment. Best Wishes!

Current FICO 8s: Ex 711, Tu 724, Eq 725
Current FICO 9s: Ex 748, Tu ?? Eq 722
Total TLs: $120,000
Plenty of baddies remain
Message 2 of 18
Valued Contributor

Re: Negative Equity Confusion?

How much negative equity was the dealer looking to roll in?

Ch 7 Discharge 3/12/2018
Cap One QS1 $3,000, Wayfair $5,000, Blaze MC $3,000, Kohls $500
Infiniti Financial lease

AU Cards: CSP $37.7k; Chase Marriott $20k; Discover $7.8k; CapOne Venture $30k
Message 3 of 18
Valued Contributor

Re: Negative Equity Confusion?

The dealer is always looking for cash as a down payment. What you are attempting to do is roll negative equity into your new loan. Get your financing approved prior to going to the dealer. The lender will tell you how much they will finance and depending on your finances some will finance 110% to 120% of the new cars MSRP. 

 

The only reason they want good faith money is so you don't walk away to another dealer. Plus they get the profit from that deal immediatly in the form of your down payment (no waiting for payoffs etc). With the deal you are looking at you are going to be right around MSRP for the car.

 

$13,289 Negotiated price

$4,500 negative equity

$399 dealer fee (these range from $199 to $999 (and up))

$1,000 Tax (wild guess as I do not know the trade value of your current car)

 

$19,188 which is 95% LTV (Loan to Value ratio).

 

As you stated, Cap1 is offering you 100% LTV on the pre-approval.

 

A financial planner would never recommend rolling in negative equity but I think you understand that fact. If I were you and still wanted to do this deal I would get my financing fully approved before heading back to the dealer. In fact I would skip the dealer trying to play games with you and give my business to someone else.

 

So, you are not confused about the negative equity question. The dealer is just trying to be a dealer and maximize their profit.

 

 

Message 4 of 18
Regular Contributor

Re: Negative Equity Confusion?

Just throwing this out there, and maybe it varies by region, but when I submit car deals for approval, the banks need the vehicle invoice amount, and this is what they base LTV on, not MSRP - at least on new vehicles. Granted a $20,000 new vehicle probably has an invoice around $19,600 so it's basically the same in your case. 

 

With regard to Capital One, specifically, I have submitted deals with them where the customer had a legitimate preapproval with better terms than they gave the dealership. In those cases, I've simply called the Cap1 dealer services number, gave them the customers info and I've had different outcomes: some times they approve at what customer had.....other times we had to restructure the deal to make it look more favorable in Cap1's eyes, but that's typically on used cars. 

Starting Score:Low 500s in 2013
Current Score 7-31-18: TU: 806 EX: 829 EQ: 799
Goal Score: 800 Across the Board
In My Wallet: Cap1 QS - PenFed Power Cash Rewards - PenFed Promise - AmEx Delta Gold - AmEx Platinum - DISCO - NFCU Cash Rewards - AmEx Simply Cash Business

Message 5 of 18
New Contributor

Re: Negative Equity Confusion?

Why would you roll negative equity into a Ford  ? They depreciate faster than a fruitcake after Christmas. Did you try a Civic or Corolla or even a FIt ? They would put you in a much better equity condition after 3 years. 

775/780/789- EOY 2017
824/812/811- July 2018
Message 6 of 18
Frequent Contributor

Re: Negative Equity Confusion?


@nursemanit wrote:

Why would you roll negative equity into a Ford  ? They depreciate faster than a frutcake after Christmas. Did you try a Civic or Corolla or even a FIt ? They would put you in a much better equity condition after 3 years. 


I keep cars when I buy new 8 to 10 years so I dont care about equity condition after 3 years; I thought buying a car with huge incentives would be better with neg equity for LTV purposes. 

Corolla is about exciting to drive as watching a rock grow; Civic is about 5 to 6k more and Fit has no legroom in front despite lots of headroom and roomy backseat.

Message 7 of 18
New Contributor

Re: Negative Equity Confusion?

If you keep cars 7-10 years this would not be the second time you are rolling negative equity. Why are you getting a new car now? Can you wait at least until you have paid off your current and break the negative equity cycle? Admit you are in a hole , most of us on ths forum have been in that hole and saying yes I am in a hole and I will do what is needed to get out of it is the way to dig out. Who cares how "exciting" the car is to drive - you ony care will it last long enough to pay off the negative equity and itself ( get you out of the hole). I know which car I would bet on to last 10 years heck ,  I would buy a 2-3 year old corolla or civic  before I got a ford car ( love their  trucks - you can tell that is where ford puts its efforts). 

 

The finance company knows that that "20,000 MRSP" Ford is gonna sell for 14k ... The spread is not helping you. 

775/780/789- EOY 2017
824/812/811- July 2018
Message 8 of 18
Frequent Contributor

Re: Negative Equity Confusion?


@nursemanit wrote:

If you keep cars 7-10 years this would not be the second time you are rolling negative equity. Why are you getting a new car now? Can you wait at least until you have paid off your current and break the negative equity cycle? Admit you are in a hole , most of us on ths forum have been in that hole and saying yes I am in a hole and I will do what is needed to get out of it is the way to dig out. Who cares how "exciting" the car is to drive - you ony care will it last long enough to pay off the negative equity and itself ( get you out of the hole). I know which car I would bet on to last 10 years heck ,  I would buy a 2-3 year old corolla or civic  before I got a ford car ( love their  trucks - you can tell that is where ford puts its efforts). 

 

The finance company knows that that "20,000 MRSP" Ford is gonna sell for 14k ... The spread is not helping you. 


My current car is very uncomfotable, seats lack support, needs 2k in work and still does help the comfort issue and gets only 20 mpg. Newer car will get closer to 30 mpg, I drive about 15K a year now and spend 2 hours a day in my car. I will have mechanical breakdown coverage through GEICO at a cost 6 dollars a month on any new car for 7 years and 100K with 250 dollar deductable. I had a Corolla once that the tranny went at 67K, car was well maintained.  

Message 9 of 18
New Contributor

Re: Negative Equity Confusion?

You have convinced yourself 

775/780/789- EOY 2017
824/812/811- July 2018
Message 10 of 18