Trading in with negative equity

[enzia35]

I'm having trouble wrapping my head around the math, and because I don't know how it all works.

As of now, I owe about 23k on the Camaro, book value is 17-18k. Say I wanted to trade it in on a smaller car to cut down on monthly costs. A Cruze runs about 19k. What would happen if I were to trade in the Camaro?

[dcpatters]

You pay the negative equity up front, a portion of it and carry the rest over or all of it into the new car. If you get a good finance rate, e.g. 0% would help offset the nevative. However, lenders are cautious to finance more than MSRP of the new car. Carrying $5000 over is like ~23%. So you'd finance a loan for that much more, plus tax, and all fees. In the end, you'd pay more than what you'd save monthly. Depending on the situation that is.

[terry_b]

Pretty much what he said, although be warned: you will most likely NOT get book value unless you traded for a NEW 2014 leftover of a model that they really wanted to move. Basically you would have to find a car they really don't want on the lot anymore and do them a favor by taking it. Likely you would be unhappy with that car and you wouldn't save money.

I started out negative on my first Camaro, but it reached a certain point where I went positive and the car held it's value.

Here's some (simple) math:

$23,000 (your current loan)
+$20,000 (Cruze @ $19k + fees)
$43,000
- $16,000 (Camaro trade-in value)
$27,000 (Total price W/O interest)

So unless you can really improve your interest rate, it's definitely not worth it. If your interest is high and your credit has improved significantly since you first applied you could look at refinancing for lower, but I wouldn't go the trade route. You's pay more for a stripped down version of a lesser car and the long term value of the Cruze is not holding as well as the Camaro - that is unless you could find one for a steal of a price that would offset the negative equity, but it would have to be one huge discount.

[enzia35]

That math really helped out. Thanks. I'll wait until new Camaro to do something stupid with regards to loans.

[baum]

Originally Posted by terry_b

Pretty much what he said, although be warned: you will most likely NOT get book value unless you traded for a NEW 2014 leftover of a model that they really wanted to move. Basically you would have to find a car they really don't want on the lot anymore and do them a favor by taking it. Likely you would be unhappy with that car and you wouldn't save money.

I started out negative on my first Camaro, but it reached a certain point where I went positive and the car held it's value.

Here's some (simple) math:

$23,000 (your current loan)
+$20,000 (Cruze @ $19k + fees)
$43,000
- $16,000 (Camaro trade-in value)
$27,000 (Total price W/O interest)

So unless you can really improve your interest rate, it's definitely not worth it. If your interest is high and your credit has improved significantly since you first applied you could look at refinancing for lower, but I wouldn't go the trade route. You's pay more for a stripped down version of a lesser car and the long term value of the Cruze is not holding as well as the Camaro - that is unless you could find one for a steal of a price that would offset the negative equity, but it would have to be one huge discount.

GREAT advise!!

When i was young and dumb (just not young anymore..) i did this a couple times (carry over 2-3k to a new loan) its a cycle that is hard to beat unless you pay off your loan.

OP did you buy the camaro new or used? keep in mind that with any loan your payments for the first year or so (depending on rate) upwards to 50% can be interest only. you may be paying 350/mo, but your principal is only getting 150-200. you pay it on time, but you just never see the amount go lower can be frustrating.

[enzia35]

I have the 0% financing. Bought new.

[Keachj06]

So I ran into the same problem from the time I was 21 now 27 went from an 05 corvette (27k, to a 07 duramax at 45k now at anew 15 Camaro at 40k.
so heres what you would want to do learn from my mistakes, get yourself into a vehicle that either A)will have a ton of rebates to eat the negative equity of your trade in and start with a fresh loan, you will come out behind if you buy new but not with so much negative equity. or B) Lease a new vehicle at 36 months, now a lease may say 299/month 0 down but they may ask for 36 months of payments at lets say 700 , (understand the negative equity you can roll is about 150% most banks wont finance higher than about 130% so if you owe 5k in negative your looking at a approx. a 20k car), what this will do is get you a more manageable rate for paying off you negative equity in 3 years and you can start a new loan with a prime rate for a vehicle you want. what I mean by more manageable is you will pay the same payment you are now for a less valued vehicle however it will be paid off in 3 years(your old loan anyway along with the new one). either way its an unfavorable situation its just a matter of picking which option best fits your needs as well as budget and can you handle driving something you don't want for 3 years instead of paying on something for the remaining 4 or 5 years. this is just some suggestions really take your time and shop for interest rates and overall understand when you roll negative equity your compounding the issue. either way your going to suffer a bit.

[dcpatters]

Originally Posted by enzia35

I have the 0% financing. Bought new.

Well, that helps keeping you ahead of game.

Originally Posted by enzia35

That math really helped out. Thanks. I'll wait until new Camaro to do something stupid with regards to loans.

May hurt even more. The Gen 5's should book lower when the Gen 6 is released. No matter what car you buy, you will always take a hit; unless you put a sizeable down payment. Even then, you have lost. Try private selling, trading is a bitch.

[el ess A]

With negative equity, you will always HAVE negative equity until you pay down some on that loan. Stand pat and PAY OFF the current loan as quickly as possible.

Don't get caught in the negative equity cycle. To me, I guess it's obvious to get your ducks in a row first, but I see it happen to more and more people that are "have to have it now at all costs" types of folks. Unless you're willing to trade down, you're not going to reduce the amount you owe. And as mentioned, unless you buy new or pick out a hard to move car from the lot, you'll be hard pressed to get a good interest rate or max trade-in value.

You have a 2014!!! Cannot you be happy abou that? Nothing you're going to get that's going to help you be ahead of where you are now unless you fall into a barrel of cash somewhere.

Sheryl Crow said it best in her song Soak up the Sun- "It's not having what you want, it's wanting what you've got"

[Egon]

Negative equity mostly happens when you choose to finance with little to no money down. Then what happens is the car depreciates faster (loses value due to age, mileage, etc.) than you are able to pay off the loan. Paying down your existing loan will allow you to catch up so that you do not owe more than the value of the vehicle.

I would be very reluctant to roll over negative equity into another vehicle. If you do not have the right type of insurance coverage and roll over negative equity into another vehicle and have an accident where the vehicle is totaled you will only be paid the value of the car at the time of the accident and you will still owe the remainder of your loan which will still have that negative equity sitting there. You can get into a lot of trouble this way. Please be careful.

[Keachj06]

most dealerships offer GAP (guaranteed asset protection) it covers up to 150% of the overall cost of the loan (most fees vary by state but its a one time fee here in WA for $795 inclusive to the amount financed, requirements for coverage as far as limits are based upon the GAP company so if I have a 30k car and roll 7k I now owe 37k I drive the car off the lot and get sideswiped and the insurance pays out 27k, the remaining amount will be covered under your gap contract, it protects you as a buyer and the loan company gets their full amount back, most loan companies will not loan you a vehicle unless you accept gap coverage and keep full insurance coverage on the vehicle for the duration of the loan.

[Foxrus14]

Pay an extra $100 or $200 per month on current vehicle until you get to even then get rid of it. Or a little more if you can afford it.

[enzia35]

Thanks for all the replies guys. I've decided to stay with the Camaro for now. I'll trade it in on the '16 to really screw up my equity later, haha. A car that I really really want.

[terry_b]

Haha, good call! I will also point out that while negative equity is not good for your credit... sometimes you do just have to trade up for your own sake. By then, maybe it will only be a couple thousand. Good luck!