Negative Equity ?

[Anonymous]

Still thinking(I know) about chucking my 2008 Kia with 98.6K miles on it; I have 4,500 in neg equity(I know). Current loan is at 18%; loan balance is 6990,monthly note is 200(199.28).New car loan would have int rate around 6-8%. If I keep the car, will the neg equity situation improve with-out extra payments to principal on my end. Per diem interest is 3.48. I am thinking in a year from now loan balance will drop same as value and nothing will change.I drive only about 8-10K miles a year now on the car.  Car drives well but parts are tough to come by cheaply since car is no longer in production; my mechanic had to order originals from Kia last year with no luck in the aftermarket. Seems each repair starts at 400-500 and end up at 1K. Car needs some work (small oil leaks, new axle ect) according to the dealer.

[Appleman]

Negative equity is a multi-factorial issue:

Make and model: I have had good luck with Acura, Honda, Subaru when it comes to keeping value. These cars usually keep value. Chrysler Minivan, is rapidly losing value in my garage right now.

Length of loan: 36 month versus 84 month financing. The shorter the term the less time you will be upside down. Get a seven year loan and you are might be even by year 4 or 5.

Interest rate: 0% - 32%, the lower the rate, the more goes to principal each month.

Down payment: Cash up front means less time in the negative equity side of the equation.

Economy: Is gas expensive or cheap. Are stocks up or down. How is supply.

My opinion is that you have thought about it enough and you need permission: Granted! (Don't tell Suzy Orman, she will tell you no)

It will take more time to get rid of the negative equity, get Gap insurance but at a good price.

And your question about going from 18% to 6% interest, in theory more of each payment should go toward principal reducing the negative equity.

[Anonymous]

Thank you for your informative response

I did this little exercise; not sure it is accurrate in real world but here it goes. NADA has my car valued at 2400; I plugged in a 2007 version of my car(mine is an 08) and increased the mileage by 10,000 (my max annual driving) to 108,600. The value only decreased to 2,150; seems like it did not tank at over 100K miles like dealers keep telling me it will due to less banks being able to finance due to mileage. If this is the case; then it pays for me to wait as I don't drive a ton and at 3.50 per diem interest and slowly dropping, next year at this time my neg equity will be reduced from almost 4600 to around 3500.Only caveat is if car takes more repairs(no one can precict this) and if dealers half my trade due to mileage as stated above. 

I also just did the same exercise using KBB(Kelley) and the vaue went from 2575 to 1775; in this case neg equity goes from 4400 to a little under 4K, a case for not waiting.

Question: Who is more accurrate in trade car valuation-Kelley or NADA? 

Appreciate all the input. 

[Appleman]

In my experience KBB and NADA get you in the ball park. Need a more firm number? Take it CarMax and let them do a FREE appraisal. Dealer should easily match that number on trade in (plus you will save sales tax on the trade in).

[Anonymous]

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@Appleman wrote:

In my experience KBB and NADA get you in the ball park. Need a more firm number? Take it CarMax and let them do a FREE appraisal. Dealer should easily match that number on trade in (plus you will save sales tax on the trade in).

Already went to CarMax; they offered me $1,200, half of the trade value from KBB and NADA. Told me car was in good condition oddly enough. I told them if car was towed in and not driveable I would probably still get 500-700 dollars; they with agreed with me on that. Enterprise free appraisal was $2,500. Last  Sept Carmax offered me 3,000; only difference was car had  92K on it. instead of 98.7K. 

If I can get fair value of 2,500 I will buy; if not I will walk. Looking at 2016 Cruze Limited LS(old model), MSRP around 20K, one dealer already quoted me 16K via e-mail. I think car price is fair;I will work on trade value and dealer fee issue.  

[Anonymous]

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@Appleman wrote:

In my experience KBB and NADA get you in the ball park. Need a more firm number? Take it CarMax and let them do a FREE appraisal. Dealer should easily match that number on trade in (plus you will save sales tax on the trade in).

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Car dealers do not always match the amount that CarMax will give you.  If you have already negotiated a low price for the new car purchase then CarMax is often higher than what a car dealer will give you for the tradein.  CarMax has a much bigger system to get rid of older cards than your typical dealer so they are more willing to give you a higher amount.  In that case, and this happens often, the car dealer will tell you just to sell the car to CarMax and then complete the deal with them or do it aferwards.  Really not a huge deal.

As for saving sales tax, that depends on the state you live in.  Not all states subtract trade-in amounts to determine taxable amounts.

[RonM21]

Negative equity can be tough to deal with especially when the number is high. Sometimes it really takes some digging to find something that makes sense, if there is anything.

From.what I've seen, the above is.correct in that a normal dealer will not always match the price you found.

[Anonymous]

Went to look at the Cruze; car was a "demo"with 3636 miles.I will pass.Made great offer on trade; above NADA and KBB.   Carmax offered only 1,200. Looked at Ford Focus; they offered me 2K for my car. In my case Carmax is the least. Thinking of staying with my current car as I only drive about 9K a year on it now. 

[Watchmann]

Don't get too hung up on the value of your car in the trade in process.  A dealer can offer you more on your trade and less discount on the new car, in the end you get to the same number.  ALWAYS work to the total bottom line, out the door price for your deal.  Do your research to understand what the true trade in value is for your car, the CarMax number is pretty representative.  Then you have to research what your new car should cost, TrueCar is a good place to start.  Take the TrueCar price and subtract the trade in value and you should get in the ballpark of what your new ride should cost.  Go in to the dealer with a number 5 or 10% less than that and start from there.  You probably won't get that number but it's a good place to start.