Pay off question!

[Pony4her]

In the market to purchase a new vehicle this month, need to know if it's more advantageous to pay my lump sum on my principal or take to the dealer to satisfy my negative equity.  I'm trying to see if there is a way to save some cash.

Stats:

Current Vehicle:  2021 Mercedes Benz GLC 300

15.25% interest 😏

Payoff $42,429.17

Cash on hand $18.5k

Dealer willing to give me $25k

What's the best approach?  I'd love to save somewhere after the $25k is applied to my trade in (if possible).

Credit scores are all in the mid 700's so thankfully no high interest this time😉

Thanm you for responding!

[FicoMike0]

Wow, $42k due on a $25k car? That sux! Have you looked at selling it rather than trade in? Caravan or private sale, anything? With that kind of depreciation, I wouldn't buy another benz.

Actually, I have an '81 280 sl id sell for less than the $17k you're underwater. The 81 doesn't depreciate anymore. May need a new top in a couple of years.

As far as where to put the down payment, wherever it reduces the purchase price the most, to reduce sales tax.

[Patient957]

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@Pony4her wrote:

... need to know if it's more advantageous to pay my lump sum on my principal or take to the dealer to satisfy my negative equity. 

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It doesn't matter.  Either way, it's not going to change the fundamental numbers here and that you're up to $17K under water.  

If you're dead set on buying a new vehicle, there's only 3 variables that matter:

1) The OTD price of the new vehicle.

2) The price you get for your existing Benz.

3) The interest rate on your new loan.

You'll have to negotiate all three of these, and only these, if you want to save any money.

This is going to be an expensive endeavor regardless, but you already know that.

[Patient957]

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@FicoMike0 wrote:

Actually, I have an '81 280 sl id sell for less than the $17k you're underwater. The 81 doesn't depreciate anymore. 

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Yes, but does it run anymore? 

Off topic, but check out @mercedessource on youtube.  Great channel.

[Pony4her]

There's negative equity due to a trade that had  a large balance, not because of the current vehicle.

[JoeRockhead]

Unless you can get an interest rate on a HYSA (or similar) that's higher than what you'll pay on the new car loan, you'll save the most money by paying the negative equity down to where you're not rolling it into a new loan. 

Considering the elevated amount borrowed by rolling the negative equity in, I don't know that putting it into savings would be enough of an offset to be a viable option.  @Kforce seems to enjoy running numbers like this, so if you can give some more specifics about the new car purchase price, interest rates, etc... maybe he'll chime in with some projections.

Paying it down would obviously lower your amount borrowed, monthly payment, and interest paid over the life of the loan especially if you can go with a shorter loan term.  As mentioned, negotiating the OTD price, the value of your trade, the interest rate of the new loan, in addition to whether or not you can earn more money in a savings account than you'll pay out by rolling over the debt will all be key points in helping you decide the best path to save the most money.

[FicoMike0]

@Patient957 

Still runs like a clock. She'll out run most cars on a two lane with any curves. She does need some work on occasion. Parts aren't so much hard to get as to identify. Car wasn't sold in us (didn't meet emissions) so not listed by suppliers. I use supplier websites ending in .de, like amazon.de. Helps I can read german. I spent hours finding part number for wheel bearings, then found the parts at local autozone! 

[Kforce]

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@JoeRockhead wrote:

 @Kforce seems to enjoy running numbers like this, so if you can give some more specifics about the new car purchase price, interest rates, etc... maybe he'll chime in which some projections.

Just need number's.   

[BallBounces]

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@Patient957 wrote:

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@Pony4her wrote:

... need to know if it's more advantageous to pay my lump sum on my principal or take to the dealer to satisfy my negative equity. 

---

It doesn't matter.  Either way, it's not going to change the fundamental numbers here and that you're up to $17K under water.  

If you're dead set on buying a new vehicle, there's only 3 variables that matter:

1) The OTD price of the new vehicle.

2) The price you get for your existing Benz.

3) The interest rate on your new loan.

You'll have to negotiate all three of these, and only these, if you want to save any money.

This is going to be an expensive endeavor regardless, but you already know that.

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This is actually not neccesarily the complete picture.  There is sometimes a nuance with 'number two'.

In some locales, your purchase price for the purposes of sales tax is computed AFTER deducting the value of a trade in.  So, trading in a vehicle for "$40,000" on an "$80.000 OTD" price for example  would reduce taxable amount to $40,000. Depending on the jurisdiction's sales tax, price of the vehicle, and STATED value of the trade,  this could be significant and  reduce total cost.  The complication of course is the maths involved with comparing that sales tax benefit with a potential (read, likely) larger sale amount in a private party transaction.   

Of course, the fact remains, it is still a negotiation point and total cost factor.   But it can be even more relevant to the deal if trade in value reduces taxable purchase amount.