Showing results for 
Search instead for 
Did you mean: 

Question About Leasing To Overcome Current Negative Equity?

New Visitor

Question About Leasing To Overcome Current Negative Equity?

Hi Everyone,


I have a unique scenario.  My daughter is about to start driving and I just discovered that the 2015 Mustang I currently own is going to drastically increase to insure once my daughter gets her license.  Even if I make seperate policies for that car and the others it only saves me $5 per month so drastic increase either way.  If I was to trade out into say a Toyota Yaris or Honda Civic I could save between $50 and $105 per month between both payment and insurance combined.  I'm currently at 4.99% with a little under 60 months left on the current loan which was originally 84 months.  Yes, I know that's bad but the previous vehicle was not eligible for lemon law due to me moving out of state so I took what I could for it to get out.  I love my Mustang but something more family friendly and cheaper is tempting so that's the motivation here.


The Mustang is worth about $17,500 to $19,000 at best on "trade" at dealers locally.  I owe $24,000 so pretty negative.


Scenario A)  Keep the Mustang and hope the value goes up so I'm out from the upside down within 1-2 years.  Approximately $387 goes to principal out of the $485 payment.


Scenario B)  Lease a 2017 Toyota Yaris and lower my payment from 485 to 430 saving me $105 between car payment and insurance.


Scenario C)  Lease a 2017 Honda Civic Hathback and lower my payment from 485 to 460 saving m $50 between car payment and insurance (I prefer this car more than Yaris).


Credit score is currently around 700.  Anymore information I can provide to get your input?  Let me know!

Message 1 of 7

Re: Question About Leasing To Overcome Current Negative Equity?

Keep your car. 

You're talking about a very, very minor improvement in monthly cashflow. $50-100 should not make much of a dent in your budget. If it does, you have bigger problems than this one. And in exchange for that $50-100 improvement in monthly cashflow, you ensure that you will never truly own your car or have any equity in anything for at least another 3 years, because you will end the lease with no car and no money. 

Message 2 of 7
New Visitor

Re: Question About Leasing To Overcome Current Negative Equity?

Does it matter if I'm someone who typically trades every 3 years anyways?  It's unlikely I would ever pay this completely off.  Best case I would just delay trading it in.  

Message 3 of 7

Re: Question About Leasing To Overcome Current Negative Equity?

I think you're going to be on this merry-go-round for a while if you keep up the current pace of trades. You're upside down right now because you took an 84 month loan and rolled in negative equity. And now you want to escape that by... rolling in negative equity on a 3 year lease. 

Keep in mind:
1. The "true cost" of the lease is often much greater than the cost of the monthly payments, because you'll have mileage charges and "excess wear" or "damages" charges at the end unless you keep it in the garage and stay under 12,000 miles per year.

2. Even assuming everything goes perfectly (which is to say, you trade off for this lease, use the new car for the lease term with no damage or excess mileage, and turn it in after 3 years), you will have no equity at the end. You will either lease another car, repeating the merry-go-round, or buy one, in which case you will be upside down again as soon as the off-the-lot depreciation sets in. You can easily assume that with this one decision today, you won't have equity in a car for at least another 6-7 years (assuming you buy your next car and have to "catch up" to get ahead of the depreciation curve).

There's no such thing as a free lunch. Rolling negative equity into your current car is what got you so far upside down in the first place. Rolling that negative equity into another car doesn't make it disappear. It just kicks the can down the road and keeps you on the debt treadmill forever.

Message 4 of 7
Moderator Emeritus

Re: Question About Leasing To Overcome Current Negative Equity?

Leasing is the best way to get out of negative equity if you don't have the cash to pay off the negative equity.. I was upside down in an infiniti for 8k+ due to bad credit along time ago then leased a Lexus and wrapped that negative equity in a 36 month lease.  Funny thing is my payments were about the same as the inifiniti and the lexus was a more expensive car and I flushed out the negative equity in about 2 years and traded the lexus in and bought a mercedes after 24 months of a 36 month lease and since Lexus had such a good resale they paid offf (mercedes dealer) my lease completely and didn't lose a dime and got a new car at 2.49% apr from PenFed.  I am slowing down on getting new cars to every 3 years approx...I would suggest if you are one that gets a new car every 2 to 3 years for whatever reason to do a lease unless the residual and money factor make more sense to buy a car vs. leasing which in some cases it does.  Just the basics of leasing vs. buying.  Keep in mind mileage obviously in a lease or you can really get hurt among keeping it serviced etc one time, etc...  Also leasing obviously you don't get equity in the car, but if you keep cars two to three years one typically doesn't have equity anyways.  Leasing is certainly a way to flush out negative equity though.

Message 5 of 7
Valued Contributor

Re: Question About Leasing To Overcome Current Negative Equity?

Keep your car, drive it payment free once it's paid off, and then you'll be saving $400 plus per month for however many years you drive it.


I haven't had a $400 car payment in four years. That's $20,000



Ch 7 Discharge May 2015
Discover/Target/NFCU CLOC/NFCU More Rewards Amex/NFCU Platinum/PenFed Power Cash Rewards/PenFed Pathfinder Visa/Citi Costco Visa/CapitalOne SavorOne/Apple Card - $139,100 total revolving, 21% utilization
3.25% mortgage July 2020, $20k used Auto Loan October 2020, $20k PenFed Personal Loan Dec 2020
687/683/673 EX/EQ/TU w/ 5/6/6 INQs as of Jan 2021
Spending 2021 in the Garden
Message 6 of 7

Re: Question About Leasing To Overcome Current Negative Equity?

Easier to get out of a negative equity with a lease... some leasing company does 110% LTV..

but then the car choices you have doesnt have much room from invoice to retail to swallow that negative..

most yaris/corolla or that typr of segment have about 2-3K room...  you might want to venture to

another ford , fusion or Focus of some sort ive seen them around 6-8k off msrp ... just my 2 cents.... Smiley Happy

11/2016 - EQ(575)/TU(550)/EX(565) Current - EQ(675)/TU(680)/EX(678) Goal – 700

Message 7 of 7
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.