QuestionBefore my fiance met me she leased a truck on a five year plan. She roled an upside down truck into this one. She is still $7k upside down after two years. Are there any legal ways to get her out of this deal without having to come up with the $7k? Thanks
Answer
car guy
Hi DJ,
Sorry to hear about your issues with your fiancé's truck that she bought on a 60 month lease. The short answer to your question is .."No". There is no legal way that I know of to make this go away ...it's her's and she get's to pay it, or keep rolling until it is. That said there are a few simple things you can do that can make this go down substantially and even go away If she is leasing for 60 months that means she has either good credit or great credit. If you are ready to take her out of this truck then this is what I would do if I were you: STOP BUYING YOUR CARS LIKE A RETAIL CUSTOMER AND START DOING IT LIKE THE DEALER DOES! What does that mean? Let me explain:
Right now she has about 7k in negative equity in the car she wants to get out of right? Up until now what she has traditionally done is exactly what most retail customers troughout the USA do. They drive the car they owe money on to the dealership ...they find the car they want to buy and then trade in their old car on the new car and let the dealer payoff the old loan and roll anty equity (not likely) or disequity (likely) into the next loan and have him arrange all o the financing for you. Am I right? Let's break that down and call it what it really is... she goes to the dealer and picks out a car she likes and on that new car is a "retail price" ... the dealer the takes her car in based upon it's '"wholesale value" ...no matter what they 'show" you for your trade in to make you feel good about it I promise you it goes into the dealers inventory with it's actual cash value determining the cars cost factor. In short The dealer is buying yours at whoelsale and selling theirs at retail...AND ... You are buying at retail and selling yours at wholesale right? Sounds like a good way to go broke if you ask me.
HERE IS A BETTER WAY TO DO IT:
Leased cars, just like financed cars all have a payoff amount representing the amount the bank must have to zero out the loan and release the title ...Why don't you try doing what the dealer does ? The publication I wrote on how to buy a car instructs the reader to never never never trade your old car in (if you can possibly help it) ....Why? because trade in = wholeale value . I tell my people to write the best ad they can and selling it at retail (or thereabouts) on Craigslist or autotrader or both! While their car is waiting for someone to buy it they are able to shop for their next car slowly and carefully and not emotionally. Then when you car does sell in 1-3 weeks have your next car picked out and ready to go, and also have your financing also ready to go through your local community credit union or your own bank (at least be preapproved and know what your rate is going to be at your credit union or bank ....when your car sells be ready to pull the trigger on the new one at the same time. The important thing to remeber at all times are the 3 ways a dealer can beat you and the 3 ways the dealer can make money on a car deeal. (and without which you can beat him) ....(1) He can sell you his car for more than he paid for it (2) He can lowball your trade in or even take it in from you at wholesale and (3) all of the various ways he can make profits from you during the finanece process (writing the rate up by 1-3 pts, selling you extended service contracts and GAP insurance etc) ...unless you are on your game he can beat you with just one of these methods or God forbid he can use all 3. By retailing your own trade in you eliminate #2 and by setting up your fianancing ahead of time you are eliminating most of #3 remembering of course that your creduit union can sell you the same mechanical breakdown coverage and GAP insurance for about 60% of what the deal will charge you.. That leaves us with just #1 ... and what you do there is to buy the dealers car at or very near to it's wholesale value. To do this you must (in addition to a few other things) NEVER NEVER NEVER sit in the dealershuip showroom for an entire weekend while they controlthe tempo and flow of the process. ALWAYS . ALWAYS. ALWAYS go to the dealership to look at and drive the car you want to buy ......then go home. You donot go back dfdown to the dealership for any reason whatsoever until it's time for you to sign papers and take your new car home. negotiate for and buy the car over the internet ... and stay off of payments and stick only to price in your negotiations. There is a new product out right now called "wild storm" negotiation software that dealers are using to negotiate the pricing for them.. To find the general area of what the wholesale value of the new car is you can do alot of things but even going to kbb.com and getting the car's trade in value is better than nothing. If it's a new car then you can negotiate based upon the cars invoice numbers. Here is an example using numbers for you: This is from an actual deal we did two weeks ago acting as broker.
The customer wanted to purchase a Honda Ridgeline and had a 2001 Honda Accord to trade in. Before he found us he was ready to go to the dealer with the Ridgeline and pay them both to retail book for their car.... or approximately $23,900 for the 06 model year. He was also ready to accept 3000 dollars for his trade against that price (he owned his trade outright) we helped him do exactly what I described above and we retailed his Honda Accord for $5500 and found him eight 2008 model with much fewer miles that he could buy for a wholesale value $1500 below the wholesale book number. Which was approximately $21,000.
So I selling his own trade at a retail price instead of tables at a price he picked up $2500 more than he would have just from his trade in alone... the swing on his purchase was even more dramatic than that: instead of paying 23,900 for his new vehicle he paid only $19,500. And additional savings of.. $4400! When you combine those savings you get $6900 that were picked up simply by doing it the same way the dealer does it. That makes sense? The key to getting top dollar value for your trade in when selling it yourself is to write an ad that tells a story about the vehicle in such a way as to make the reader think it's a member of your family and was cared for meticulously. Ask me if you need to see some examples.
A final thought on negative equity and leases:
Negative equity is the kiss of death for lease payments but is fantastic for amortizing away large chunks of negative equity in a fairly short period of time. Most people who develop negative equity in their vehicle (you know 90% of the population) will roll negative equity from one car loan to the next almost in perpetuity. The main reason for this is the rapid rate that cars depreciate during the first 2 1/2 years, and the slow rate your principal gets paid down during that same time frame. Of course that was back before 2008 when the average term cycle for retail auto customers was close to 2 1/2 years (meaning that every 2 1/2 years average consumer would trade in his vehicle and purchase a new one) without putting money with it it's a recipe for negative equity that never goes away. The turn cycle for cars has increased to almost 33 months now
You're probably thinking "That's all great Roger... but what does that have to do with my girlfriends truck lease"?. I'll tell you. Every lease payment is broken down into principal and interest payments of a fixed amount. At the end of the lease all of her negative equity will be gone should she choose to stay in the lease. The reason your writing me is because you have both decided, for whatever reason that you would like to get out from underneath a payment or vehicle. Leases, like purchases using conventional financing, ALL have payoffs that your bank is able to give you, telling you explicitly how much money is owed in order to pay off the loan and get them to release the title. If your truck is worth way less than the payoff then get as much as you can for it by selling it at a retail price... and whatever negative is left roll back into the next loan just make sure you tell your bank what you're doing so they can assist you.
Should you have any follow up questions please feel free to ask me....
Good Luck
Roger
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