Heh. So much for my run at the world’s record for longest lurk. Ahoy the Dope. Y’all have provided me with many an hour of entertainment, maybe now you can provide a little enlightenment.
After a great deal of hemming, hawing and outright denial, I’ve decided $600 every month is just too much for a car payment. I love my Impreza WRX STi dearly; she runs like a dream and having 300 horses under my foot is always a blast. But I’m just plain fed up with having to plan my entire budget around that one thing. Something’s gotta give – I can live like a hermit with my sweet, sweet ride, or trade out for a car that lets me keep enough of my paycheck that I’m not rollin’ nickels for groceries.
Here’s where I get lost. As of this month, my balance due is about $3,000 over the average trade-in price (the various adjustments balance out to about $22K). Upside-down on loan = bad thing, I get that. Nobody likes negative equity. But if I were to approach a dealer to buy, say, a $14,000 car and offer to trade in my $20,000 car – what happens? I honestly don’t know how this would work, if at all; I’ve never traded in a car I owed money on, let alone more than the value.
Well, you’re loking at it the wrong way…you’re not giving the dealer a 20,000 car, what you’re giving him is a negative equity situation…in other words, assume you owe 23,000 on the car. You’re giving the dealer a 20,000 car, but the lien against
it is 23,000, so the dealer is coming out at a net loss onthe deal of 3K, that has to be made up.
It will likely be rolled into your payments for the 14,000 vehicle, so instead of having a loan for 14K, you will have a loan for 17K and walk out with your 3,000 of negative equity still in effect, plus whatever depreciation occurs with the new car. For example, let’s say that the actual value of the new car is only 12K, but you’r epaying 14K for it. Your total negative equity would now be 5,000 right? NOt such a bad deal, as long as nothing bad happens to the car.
What happens if you total it? Well, the insurance company willoffer you fair market value for the car, which will be 12,000 bucks. But the bank will want 17,000 bucks.
You could, of course, tell the bank to go suck rocks, but that does bad things to your credit. So you’l be stuck paying the bank 5,000 for basically no net benefit to you.
Your situation is pretty ugly. How long have you had your WRX STi? Could you refinance it, perhaps tossing in a little downpayment to help bring your payments into a more manageable situation?
Refinancing isn’t likely to improve the situation – believe me, if I thought it would, I’d never even consider selling. I’ve only had the Subi for about a year and a half, and if I had my druthers I’d keep her as long as she runs.
Good lord, $600 payments and you’re still upside-down? Did you put any down payment on the car? I really don’t envy your situation.
Anyways, you could certainly trade in your car and take a bath, but doing a private sale is, as a rule of thumb, a better course of action. Dealers have a lot of games to play when it comes to trade-ins, financing, and other tricks used to part you from your money. Heck, your own cite shows that a private party sale will get you $2,000 more than a trade in, so you’re losing only $1,000 on the deal.
Before you make any moves, you may wish to consult this and other sites offering financial advice. They would certainly help you with making some better decisions about how much car you can afford.
IMHO alert: You ought to be very cautious about buying another car with another large loan. Unless you have a substantial down payment saved up – and it sounds like you haven’t been able to do it – you’re still going to be paying a good amount of money each month for a car that costs $18, $15, or even $12 grand. You’d probably be much, much wiser to buy a late 90’s Honda or Toyota for $5,000 or $7,000, getting out from underneath your current loan, and putting a substantial amount of monthly savings into a savings account. That way, you can either work on getting a down payment together for your next car purchase years from now, or better yet, just save the money for a rainy day or a home purchase. It is unfortunate that you wouldn’t be able to have a cool car during this period, but your pocketbook with thank you.
This isn’t IMHO, but I’m more or less of the same school Ravenman is here. I think.
Your best financial bet is to liquidate assets, pay off the deficiency, and sell this car to a private buyer.
If you don’t HAVE assets to liquidate, see what rate you get for an unsecured $3000 personal line of credit.
If that rate is something you can stomach, calculate the following:
Scenario A: Keep current car. Pay off per schedule. What is your total interest paid between now and pay-off?
Scenario B: Sell current car at private party value to private buyer. Finance $3000 deficiency. Purchase oldest/highest mileage car that meets your needs for reliability and lifestyle and make payments on that [1]. Assume you’ll pay $600/mo combined. Pay off the $3000 loan while making minimum payments on auto loan. Once unsecured loan is paid off, assume you’ll make minimum payments on the auto loan and devote the money you’re now saving by not having $600/mo in payments to something more productive, like putting it towards retirement or your next vacation. Assuming your new pay-off date on the used car loan will be the same as it was on your old car, what will you have paid in interest?
How much will you have saved overall?
I’d run projections for you, but I don’t have all your numbers handy, or any idea of your credit rating.
[1] Remember not to buy a car you can’t stand just to make your budget fit. If you get a car that is not your style, you’re likely to sucumb to temptation and upgrade before pay-off. I love cars, and since you have a WRX, I’ll assume you do too. I have a problem with getting rid of cars before I ought to.
I’m not sure how much this will help, but my parents were looking to get a new car. They had settled on a Toyota 4Runner and were planning on buying new (my parents haven’t bought a brand new car in 20 years.) Anyway, it turned out that there was someone who had about the same amount in student loan debt as she did in auto loan debt and that the particular car was a fairly new (last couple years) 4Runner. My parents bought it from her at the price needed to clear the auto loan. However, I don’t know if she was upside-down on the car. In any case, I agree on trying to sell it privately. I bet there’d be a lot of buyers willing to pay close to market value on a good-condition WRX STi. But that’s all the advice I can give without knowing more about your personal financial situation.
BTW, I think there’s around a $2000 difference between trade-in and private party.
You’re not 3K upside down if you liquidate to a private party. More like $1K.
I am in car sales and must say that dealers do not use Edmunds, KBB, or anything like that. Also, do not assume you have negative equity at all. It is best to play stupid. Dealers use auction sites to see what they can get for the car if they could not sell it retail. They try to ‘rob’ you from there. Dealers also use what is called the black book.
1/2 of the time it works to the dealers advantage to have an ‘educated consumer’ because they are usually misguided as the the ACV (Actual Cash Value) of their car. The other 1/2 the dealers are dealing with customers with an unrealistic value of their cars.
If you could tell me a little more about the car, miles, etc. The first ten numbers/letters of the VIN number would be the most helpful (don’t post the whole 17 numbers/letters).
Ahoy the Dope. Y’all have provided me with many an hour of entertainment, maybe now you can provide a little enlightenment.
Something’s gotta give – I can live like a hermit with my sweet, sweet ride, or trade out for a car that lets me keep enough of my paycheck that I’m not rollin’ nickels for groceries.