My wife has scores in 700's and 2 years ago she got a used car financed with Toyota financing I believe at 7% she now owes about 18k on it. Owes more than what car is worth (2012 Camry just hit 30k miles) my question is should she go and trade car in to get a new car and less interest rate. What are her best options
Rolling in negative equity is a terrible trap. I hate to see anyone doing it.
I would throw as much $ as possible on the principal, get the loan balance on par with it's actual value, and refinance it at a better rate.
A 2012 Camry with 30k miles easily has 10+ years of minimal maintaince life left in it. No need for a new car.
Whatever you think you might be saving by rolling negative equity into a new lower interest rate loan is going to be offset by the negative equity on this car PLUS the depreciation on the new car when you drive it off the lot.
Say she's $5k underwater now. She's $10k + underwater or more the second she drives that new car off the lot. This creates the negative equity trap that keeps repeating itself.
Get out from it and good luck!
In situations llike this it is always better to just keep grinding out the payments on the loan and don't listen to the siren song of a new car. Once the residual value is close to the loan value you can start thinking about trading it in if you just have to have another vehicle. Golden rule is NEVER ROLL NEGATIVE EQUITY INTO A NEW LOAN, it's a killer.
I was able to convince her not to do anything. The car is in mint condition. She will be looking at refinancing. another option was that I can purchase the car sometime after her taxes which is about 7 months from now. I maybe can purchase her car and free her up to buy a new car. Which I think is better than trading in a car
I don't see how this works in your favor. Unless you are going to pay her over book value you will end up having to eat the negative equity. The delta between remaining loan value and the value of the car will not go away by you purchasing the car.
so best bet is to wait for her income tax and put a big payment then refinance? Or refinance now
Can't refinance for more than the car is worth, so you have to get the balance down to it's value so the refinancing bank will loan on it.
Sidenote: If she's getting giant tax refunds her withholding is off. Talk to an accountant, see what it should actually be, and she could be getting more $$ each payday to be throwing on that loan NOW and saving interest in the meantime.