Really upside down and not sure if I should trade-in ?

[Anonymous]

I've had my car since August 2007, the value has depreciated a lot and my interest rate is 21%. My credit score was around 510when I purchased the car. The last couple of years, I've managed to raise my score to around 750. I've built a good relationship with my credit union and have established a good history with them.

I still owe $18,000.00 on my car and the trade-in value is only $11,000.00 My monthly payment is $700 . I got myself in a bad situation with financing and wanting a car I couldn't afford. I've never missed a payment, but with the interest rate being so high, nothing is getting paid off. I've had some mechanical issues with the car and the up keep has been expensive.

I've tried to refinance, but no one wants to refinance the car because it's so upside down. My credit union approved me for an auto loan up to $40,000 and a interest rate of 4.5%. They are suppose to be sending a bank check within the next couple of days.

I wanted to buy a used car for around $15 - $20,000 so I can get out of the car I currently have. My car note would be lower even if they add the $7000.00 in negative equity. Does anyone have any advice on this or has anyone been in the same situation as me ? I'm not sure if I should trade-in or keep the car I have and keep paying the loan down. The final payment is suppose to be 3/2013. Also, how would the dealership figure in the negative equity ? Do the add the $7000.00 to the final price of the new car ?

Thanks for any advice in advance !

[maynie]

The problem with rolling in negative equity is it is a vicious cycle because the new car will depreciate as it's supposed to and you've already started out upside down in it. The very best option for you is to lease a car. Roll the negative equity into the lease payment so that it will be paid off in the next three years AND you will be driving a car that you like. But this will only work if you are a regular driver (10,000-15,000 miles per year).

If you drive too much for a lease than you can: 1) Put down the $7000 (I'm going to assume this isn't an option or you wouldn't be here asking for advice)

2)roll in the negative equity and buy an inexpensive car (no more than 10000, IMO) that won't depreciate very rapidly and over pay monthly. If you do this your car payment will be affordable and you can still add an extra couple hundred per month to chip away at the negative equity. Even better if you can continue with the $700 after you get the new loan.

I don't recommend that you keep the current loan and car only because you're paying thousands in interest alone. When you get your new car be careful about a loan term that is extended out to keep your monthly payment lower. You want to do everything you can to get that principal paid down. The shorter the loan term the better. And on a final note, be prepared to have a down payment for your next vehicle purchase. It will be the final step in getting out of your original car loan.

[Anonymous]

I never thought about a lease. I only drive about 10,000 miles a year, 12,000 at the most. Is financing a lease only through the dealership ? I'm not sure if my credit union offers leases.

I plan on a shorter loan term. I wouldn't mind the $700.00 car payment if I was making a dent in the principal balance. I haven't started researching cars yet. I wasn't sure what my options were as far as financing and stuff.

[Anonymous]

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dallasrez wrote:  I wanted to buy a used car for around $15 - $20,000

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Hi dallasrez,

I don't have a lot of helpful info on getting out of an upside down car loan.  But, as you work your way through this, consider buying a lovely used car for ten grand or less.  When you get yourself out of the current predicament, then go in for some pricier cars, if you still have the desire.  DH drives a beautiful shiny and loaded Inifiniti (that girl can move!) that came in at 9500.  BTW, I'm a totally different animal than DH, and I happily drive a 2000 Toyota Sienna, which I bought 7 months ago.  What's great for me, is that its KBB value is now $1300 more than when I bought it.    Looks great and runs beautifully.

Also, here's a great read from our Credit in the News board:  The Real Reason You're Broke

It looks like you're working hard to get all your ducks in a row.  Congrats on your great scores - you obviously are pretty focused on getting on top of things!

[mross1080]

Thats a bad situation. I had a very simliar issue and heres what I did. Shortly before meeting my DW she bought a used 2004 acura tsx that had higher miles and paid way to much and was taken advantage of at the dealership. Fastfoward 3 years and I was stuck lloking at this car every morning and it had very high miles now 150k and was starting to have transmission issues and still owed little over 15k. What we ended up doing about a month ago is traded it in towards a new toyota corolla I did a lot of neg. to get the car several thousound under sticker and putting a 2k down. In the end I had to roll a little under 8k in the new car. Bonus of why I did this the toyota I got was 0 apr so at least im not paying any interest and my car payment went from 550 to 400 and I have piece of mind my cars not going to break down. Good Luck with your situation I hope it works out well for you.

[ngerasimatos]

If you have the ability and can get the financing, roll the neg equity into a lightly used car that has already depreciated. A 2007 or 2008 would be your best bet and make sure its certified so you have the same warranty as new. You want to make sure you are covered with warranty. I cannt emphasize that enough. WARRANTY!

Your other option is also as mentioned, a lease. The problem is most financing wont go more than 120% LTV and leasing is just as tough. It literally is a numbers game.

So in order to get 120% LTV for 9k negative equity you would have to buy a 45k car. Also, you need to understand the car MUST have a KBB value of at LEAST 45k in order to get the full amount for LTV.

45k for the car + 9k negative equity = 54k (120% LTV)

[maynie]

I would like to help you more, but I need more specifics. What kind of car do you have now? How many miles does it have? Options etc. Every situation is unique so I just need more details to give you an accurate answer for yours.

[Anonymous]

Thanks for all the advice. I have a lot to think about. I could kick myself for getting into such a bad situation, but what's done is done and I am trying to work my way out of it. I am still researching cars. I'm looking for something that will hold its value and nothing too expensive. I'm not going to make the mistake of rushing into anything again.

[ngerasimatos]

Honestly, your best choice to to try and get as much cash as you can together and refinane the current vehicle. You need to look at the fact eventually your current car value will level out and if you can get a decent interest rate more dollars per month with go to the bottom line.

[ngerasimatos]

A funny and sad story. At one point in my life I dated a girl who loved having new cars, but refused to lease. So, almost every two years she would trade in her previously new car towards a used one. Towards the end of our relationship, she had gone through 3 vehicles in total and had a HUGE negative amount of equity in her final car. The end result was already expected, she ended up doing a voluntary repo as she refused to pay 800+ a month for a car she was no longr satisfied with.

Glad I escaped that relationship. Year later she filed for a BK and defaulted on just about everything.