Due to work circumstances, my SO and myself have determined that we cannot afford her car that she financed last year. So let’s say we want to trade it in. Say the kbb trade in value is $18,000 and the pay off amount is $23,000 and the car we want is $13,000. Are we basically going to have to buy the $13,000 car for $18,000 ($13,000 + $5,000)?
Your understanding is the same as mine. I have always been able to do much better than trade-in (not kbb necessarily, but what the dealer offfered) through a private-party sale. I am no whiz-bang car salesperson, either. I’m about as smooth an operator as my user name makes me sound. You really pay dealers quite a bit to handle the “hassle” of selling your used car.
Pretty much. The coloquial term for your situation is “being upside down”. You might could do better by selling the car privately, for closer to KBB retail. Arrainge financing via a credit union, and buy a “new” used car for closer to KBB trade-in.
One car dealer profit tactic is to offer a great deal on the new car and “steal” the trade-in. So selling it yourself may make the deal “look” worse
Well, according to kbb.com the private sale value and the trade-in value are about $1,600 apart.
Check the retail value. If the car is in excellent condition, you might be able to sell it yourself and not lose as much. You’ll have to come up w/ the entire payoff amount, to get a clear title for the buyer.
Then get a loan from a credit union (better rates) and buy a good used car.
Upside down auto loans are common, but they’re a really bad idea. If you total the car, or it’s stolen, the insurance won’t cover the loan. You have nothing, but you still have to pay off the deficiency.
BTW, KBB is not the best place to check prices. Try Hemmings or NADA.
I met a girl who works with my wife that has consistently traded in vehicles that she was upside-down on. She currently bought some brand new SUV that had a sticker price of $25K but says she owes well over $40K for it.
Not the brightest girl I’ve met.
Gap insurance, not neccesarily something I endorse, can be purchased to cover this risk for under $300 in most cases.
In some states there can be an advantage (other than avoiding hassle) to trade-ins. The state may only charge sales tax on the difference between the trade-in and the purchased vehicle. If you sell the old vehicle yourself and then buy another one you may end up paying sales tax on the full purchase price of the new vehicle.
With a $2 calculator (or a 10 cent pencil) you can figure out if that factor actually saves you money. It probably won’t but it is at least worth considering.
You didn’t exactly ask this, but here goes anyway:
This may not be a good idea. She is currently driving a car that is worth $5,000 less than what’s owed on it.
If the deal goes down exactly as you’ve described, she’ll still be driving a car that’s worth $5,000 less than what is owed on it.
The difference being she’ll have a much less desirable car to drive.
Finance companies, banks, etc. normally want a shorter repayment period on used vehicles than they do on new ones. You could wind up with the same or even higher monthly payments than what you have now, with a lot less car to ride in.
Run the numbers carefully before you make a decision.
Following the financial planning vein that Mr. Carter just began to go down, the best car for people trying to better their financial situations is not a $13K car.
It’s more like an undesirable but newer and lower-mileage $5-7K car. The best deal would be an older design that is nearing end of life (or just flat-out obsolete) without a real fan base, maybe 3 or 4 years out of model year. Think of a stripped US or Korean-made car coming off of lease.
Now, as far as disposing of your $5K in negative equity, your credit and savings determine whether or not you can do so without having to take out a loan at exorbitant rates.
To follow the excellent advice of John Carter and ** Mr. Slant**, one way of assuring that you won’t be ‘upside down’ in the future is to look at different vehicles’ future resale value. A Honda may be worth more in 10 years than a Kia; check it out. I realize that the damage has been done here, but next time you can be more savvy.
Good idea.
Also, shorter notes help with that. Very easy to go upside down during a 72-month loan.
Much trickier in a 2-year loan.
Lots of good advice above. One difficulty about selling a vehicle privately when you are “upside down” is that you don’t have a clear title to transfer to the buyer, and you have to come up with cash to pay off your loan before you can get one. If you sell the car for the payoff amount, all that means is a delay while the loan company clears your title of the lien. If you sell it for less than the payoff, you have to make up the difference out of your pocket.
Edmunds is considered the best pricing engine in the industry.
Thanks for all the advice, although I wasn’t really asking for it. We are just exploring ways for her to still have a reliable car, but that we don’t have such a high monthly payment.
Good advice. Anything over 36 months is insanity, for the average Joe/Jane. If you can’t put 20% down (10% in a pinch) and get a 3 year loan under 8/9% then you can’t afford the vehicle. Better to buy an older car and save some money each month, until you can afford to move up.
The only time a longer term loan makes any sense, if for someone in excellent financial position, who can get a very low rate and wants to take advantage of using other peoples money. Same for leases, if you’re well fixed and want a new car every 2-3 years, a lease might be OK. Leases are stacked, heavily, in favor of the dealer.
Nothing worse than unsolicited advice, huh? While I agree that it’s annoying, you should understand that the posters here see, by your OP, that you are in a hole and
proposing to dig it even deeper.
I’d suggest that your best bet would be to tough it out w/ your SO’s current car, maybe get a P/T job, and consider it a life lesson learned. Anything else is almost certain to cost you even more and leave you w/ less.