QuestionQUESTION: Hi. I have a 2001 Chrysler PT Cruiser that I owe $8700 on and I’ve been getting estimates of trade in value in the $3000-$4000 range. However, the car has a bad transmission; and I’m very concerned about more problems occuring. I have a 715 credit score, and pay 7.25 % on a 60 month loan for a payment of $200 a month. I usually pay $250. I need a new car because when this one breaks I can’t afford $2000 - $4000 in repairs on top of this loan. And it WILL break. I realize that rolling over negative equity is bad, and it’s hard to find a decent used car for $5000 under NADA retail value (my credit union uses NADA). I could afford $300 a month for a car as long as it has a warranty and I know I wouldn’t have to pay for repairs. My credit union has an excellent warranty program that is very comprehensive, but my car isn’t eligible for the service. I’m going to go to college next August and I don’t want some huge payment but I need a new car! If the car breaks, I’ll have to take out a personal loan at 9% interest to cover it. I’ll end up spending a ton on a car I hate! I thought that if, for instance, I were looking at a car that was $11000 but retailed for $15000, I would add the warranty ($1500) making the price $12500. There’s a $2500 difference and if the dealer gave me a trade value of $4000, that would leave me $4700, making the cost $17200. Could I just take out a personal loan for the difference of $2200 so the car would be purchased at full retail value and I would be making two payments? Or is it smarter just to leave it all together? Also, my credit union can only fianance 15% more than the book value of the car - meaning I could fianace $17225. Should I just max it out and make larger payments so I’m not terrificly upside down? It’s a never ending cycle! I want to lease, but I’m unsure of what negative equity will do to a payment. I want ANYTHING that I could get for $300 or under a month with my $4000-$5000 in negative equity for preferably 36 months with 0 down. I know putting money down on a lease is stupid. I'm desperate; I'll drive a freaking Kia! I think leasing is my best option for getting out of negative equity. I know dealers can play with residual values and money factors to get a preferred payment. I have several volume dealers around me, and I think they'd be my best bet. Sorry I wrote a novel! Thanks!
ANSWER: Hi Eric: Wow! I wish you were on my lot! It's great to talk to such an informed consumer. Here's what I would suggest. First we know your goal of getting the most reliable vehicle for the lowest monthly payment, while getting out of your current problem car. So let's find a vehicle that has a good track record, a great warrantee from the factory, a low MSRP, and go from there. A couple of great ideas for you to ponder over. Although Credit Unions usually offer lower interest rates than most manufacturers financing, The dealers have got to move cars in these slow times and I am aware of many brands that are offering 0% usually for 60 months. You can't beat free money. It is a great way to get out of your negative equity situation without piling interest on top of interest, if you follow me. I don't think that you will get to a 300.00 payment on a lease if you go only 36 months, with zero down, with that kind of negative equity. Have the Finance director at the dealership do the math and look into leasing for 48 and see if the manufacturer offers a "pull ahead" program like GMAC does. This program lets you get out of your lease 6 to 12 months early without penalty if you go back into another vehicle of that brand. I really think with all the zero percent out there that that is the way to go, however. The zero percent, no down payment deals are usually reserved for the top tier credit customers, in which you qualify. All you have left to do is to find a vehicle that will "fit" you and do the math. I don't usually, on this site, try to recommend any particular make or models, but if I can be of further assistance, please let me know. (I have to remain non-partial, you know). And by the way, keep in mind that your trade in lowers the sales tax liability on your new purchase as well for an additional savings that a lot of people don't see. So in my opinion, find a super low MSRP car that will work, see that it comes with no interest financing, and get out of that old beater. Thanks, Jim
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QUESTION: Thanks for answering so quickly! So I now would like you to suggest a car, if you would. I'm thinking Vibe, Cobalt, G5, Caliber... but I don't know. I've done so much research I'm exhausted! I know the Caliber has really high residual and trade value and a Lifetime Powertrain warranty, so that sweetens the pot. Just remember, ANYTHING (but preferably with power accesories and a sunroof, but it MUST have an automatic) for under $300 a month for 60-72 months. Thanks!
AnswerHi Eric: I don't know the MSRP's on the vehicles in your area, so that will be a major deciding factor. You will need the lowest to get you to that 300.00 mark with adding that negative equity. I also like the Caliber as a vehicle, but I think the sticker is higher tan the rest. Chevy's Cobalt and Pontiac's G5 (almost twins) are really reasonably priced if you don't load then up with options. Same with the Vibe. GM also has that 0% financing right now, and their powertrain warrantee is 100,000 miles, not bad. If you need lots of storage room the Vibe is the clear winner. I would go to a Pontiac dealer, drive both the Vibe, and the G5, then if that doesn't make up your mind, see which vehicle the dealer will offer you the most for your trade on, and which vehicle they are willing to discount the most. (Sometimes if a dealer is overstocked on one model, or if they have any left over 2007's, they will make a super price cut to move it) Best of Luck...Jim.
