QuestionOkay. Now, I ask myself, isn't the worth/value of the car I want and its selling price compared to my negative equity only...theoretically equal in your example.
In other words, I still have a -$9,000, and if I want their car, then that's $11,000 + the $9,000 for a loan of $20,000 yes? Now, if I were to turn around after all that and SELL my car for it's WORTH of $20,000, is it only then that I'd be equal, as you put it?
If I had a car worth $7,000 but owed $15,000 and found a car that SOLD for $5,000, should I expect to pay (principally) $13,000 since, in essence, we add the price of the two cars (5+15) and credit the worth of the trade-in (7) for a total of 13?
Forgive my long-windedness and clouded mind. I can see how all of this can be overwhelming and that might be the red flag that I should pay attention to.
Thanks again. This has been very interesting and helpful.
Shane
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The text above is a follow-up to ...
-----Question-----
Okay, we have a 2005 kia spectra, and the payoff on it is a little less than 15000, I believe. I've been wondering about trading in a car that you still owe on.
So far, I've seen many indications that you CAN do this, but most people strongly advise against it, as the dealer can (will?) take advantage of you, and you'll be "upside-down".
However, I've wondered specifically what happens if I roll up to the car lot and say, hey, I have this here Kia, and I'd like that 98 Mitsu 3000gt VR-4. You're asking, let's say, 5 grand for it (pipe dream), and my car's worth to you 7000.
So, does that mean that my trade-in pays off the used car, and I now have a note for the difference between what the payoff on the Kia was and how much the Mitsu was - 10,000?
Or am I way off base? And do they even do this for used cars or is it strictly if you want a new car? Or could the dealer do whatever they wanted to?
Thanks in advance for all your trouble.
Shane
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Hi Shane,
Great question, with a simple answer. The dealer is always who decides whether or not to take a trade, and what to give you for it. BUT you decide if the deal is right for you. So, for instance let's say your car is worth (on trade) between 5 - 7 thousand dollars. Let's call it $6K. If you owe $15K and you get $6K for a trade, you now have $9K of "negative equity" to deal with. You can pay some of it down with cash, or finance it all in your new loan. The only way this isn't usually a bad idea is if you can buy a new/used car for well below its book value. That's usually only possible with a used car by the way. So in this scenario, if you found a car that's worth (book value) $20K, but could buy it for $11K now you're back in balance value/equity wise. It is rare to be able to find what I've just described (although possible), so you have to decide how much "negative equity" are you comfortable financing. As a side note, if your state allows it (most do), you should definitely buy GAP insurance with any loan you end up taking. They'll offer it to at the $600 - $750 range. You shouldn't pay more than about $400 for it, or tell them you don't want it. They'll sell it to you for $400. Good luck!
Aaron
AnswerHi Shane,
Yes, you seem now to have a reasonable grasp of how this works. The only very important fact that I failed to mention previously is as follows. I gave you the example that I did with something in mind which I failed to explain. Banks will not loan you much more, if more at all than what a car is worth. With really great credit, some rare banks may loan you up to 130-140% of the value (usually loan value/not retail value) of your new car. With this info, you can see the importance of the relative worth versus the purchase price of the new car when "rolling in" negative equity. Again, good luck.
Aaron
