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Owe more than it's worth... I'm upside down and I can't get up!

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  • rroyce10rroyce10 Posts: 9,359
    ....... As soon as you say the word "Kia" you have instant negative equity, even if you paid Cash .l.o.l..

                          Terry.
  • q45manq45man Posts: 416
    On a 5 year loan you have to pay 30% down [including sales tax] to always be above water.
    Since most cars depreciate 47-55% [US versions as high as 63%] in the first 3 years.
  • steine13steine13 Posts: 2,411
    Apples and oranges. The down payment goes against the "street price"; the depreciation is calculated off MSRP.
    Haggle right, pay 10-15% down on a popular car (Sienna, Outback, Pilot) and you're right-side up from day one and likely to stay there.
    No 72-month loans, please.
    I put 8% down on a cheap Sienna a year ago and Mr. Finance didn't even TRY to sell me GAP insurance.
    Of course, the sales tax money is GONE immediately.

    All the tales of woe here just illustrate Steiner's Law of Credit: It's expensive to be poor. And it's even more expensive to make bad decisions.

    -Mathias
  • eharri3eharri3 Posts: 645
    By paying Full MSRP plus a street price, meaning the depriciation hit was even harder because the car was worth less than what he paid for it right from the beginning?
  • grandtotalgrandtotal Posts: 1,207
    Not sure I follow your reasoning on gap insurance. To give you an example, I bought a car at the beginning of 2003 for cash (100% down, nothing a month for 48 months). Four months later it was written off, I'm really glad I had gap insurance. In your case you stand to lose your downpayment plus suffer early depreciation even though you got a great deal on the vehicle.
  • Grand, gap insurance is worthless if you're right-side-up on the car (i.e. owe less than its worth). I interpreted steine's comment to mean that the F&I guy didn't try to sell gap to him because, given the size of his down payment, he was right side up immediately, and hence had no use for gap insurance.
  • grandtotalgrandtotal Posts: 1,207
    Gap insurance is not worthless if you are right side up on the car. In my case, if I had not had gap insurance I would have received around $16000 from my insurer. With gap insurance I received a little over $20000 and was able to replace my essentially new (4 months old) car with a brand new car.
  • landru2landru2 Posts: 638
    I believe you are refering to Waiver of Depreciation insurance rather than GAP insurance. I've learned on these boards that this excellent type of insurance does not seem to be available in the U.S.

    GAP insurance is only relevant when you owe more to a lender than a vehicle is worth.

    I've seen this a lot working with leases:
    Selling price $24,000.
    Payoff at time of insurance write-off $20,000.
    Value of vehicle at time of write-off $17,000.

    GAP insurance will take care of the shortfall from $17,000 to $20,000.

    Waiver of Depreciation insurance will pay the $4,000 remainder to bring the customer back to what they originally paid.
  • grandtotalgrandtotal Posts: 1,207
    Thanks for the clarification Landru2. My aplogies to jratcliffe, it looks like we were talking about two different things, sorry.
  • No worries - weird things go on up there in the frozen north, I know. ;) Landru, thanks for the clarification - I had never heard of Waiver of Depreciation, sounds like an interesting option...
  • Best option is to suck it up and keep paying for the Volvo. You have been paying it for years. In another 20 months, or in about spring of next year by my calculations, you will own a very nice car free and clear.

    The other option would be refinancing which might be possible, but would ensure that you would remain upside down longer. Maybe stretch it out for another year with a better interest rate, but by then you are financing an 8 year old car.

    Rolling 5k of negative equity into another car would be a bad, bad move. That means you would be paying 20k for a 15k car.
  • eharri3eharri3 Posts: 645
    IS before you calculate the finance charges on the inflated price of the new car.
  • ms_mayorms_mayor Posts: 113
    ptrekker says rolling the neg. equity is like paying 20K for a 15K car...

    Very true, and that 15K car will be worth even less once you drive it off the lot.
  • kyfdxkyfdx Posts: 27,692
    No one can make negative equity "go away". If you pay MSRP for a car that usually sells for $2K less than MSRP, and roll the amount into the loan, you'll soon find you are the same amount upside down.

    In regards to the Volvo, you either paid too much, put down nothing, or just got unlucky and bought a quickly depreciating car. Whatever reason, the cheapest way out of your dilemma is to just keep paying on your current loan. Anything else you do will just compound the problem.

    In regards to the Subaru: You aren't paying $560/mo. for the Subaru, you are probably paying $380/mo. plus another $180/mo. for the negative equity you rolled into the loan. Trading the car for another car will not fix that problem. To fix your problem, you have to pay off your debt. Keeping your current car is almost always cheaper than buying another one. Try to separate the payment from the car. They really don't have anything to do with each other. The large payment is a result of past mistakes. Learn from them, rather than compound them. For both of you, its better to just suck it up and make the payments.

    I've been there, and it can be fixed, but it takes discipline and its not fun.

    Good luck,
    kyfdx

    MODERATOR
    Prices Paid, Lease Questions, SUVs

  • I gotta agree with the consensus... If you took out a 60 mo loan, guessing you made about 12 payments or so(said you had it just over a year), your total payments for 48 more months is about 26,880. The KBB private party value of an '02 Limited Outback 24k Excellent(no problems at all) is 20k. Which means taking out intrest, you are probably still at least 3-4k upside down. gas probably isn't killing ya on it, and I doubt insurance is... so it's difficult to justify trading it unless you can make a substantial difference on the payment while keeping your insurance/maintenance/gas bill at bay....
  • Kirstie_HKirstie_H Posts: 10,824
    A midwestern newspaper is looking to talk with recent car buyers who had negative equity in their trade-ins. (In other words, your old car was worth less than the remaining loan balance.) Please respond with your daytime contact info to jfallon@edmunds.com by 5pm Eastern Monday, Feb 9.
    Thanks!
    Jeannine Fallon
    PR Director
    Edmunds.com

    MODERATOR
    Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.
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  • Sorry about your difficult situation. My advice seems to be a bit out of step with what others have been saying, but is probably what your Parents (or Grandparents, depending on your age) would have to say:

    Sell the Volvo for as much as you can get for it and buy a good-running, if not pretty or fast, used car you can keep for a few years. If you keep the used car cost down to $2,500 or so (which can be done) you'll need to come up with $6,000 to $8,000 in cash or loan. Pay off any loan as quickly as possible (at $500/month it would only be two years at most), then keep the used car another two or three years and save that $500 each month towards a better used car, or if you must, a new car that you will never be negative in.

    That's my advice
    --
    Scott
  • janzjanz Posts: 129
    that the $2,500 car lasts 5 years...
  • steine13steine13 Posts: 2,411
    It's an art. And it requires luck. I recommend against it if the back's against the wall financially... much better to go with the $6k 2001 Prizm, inspected of course, and then drive it a loooong time while saving money.
    The cheap car thing is really iffy... I've done well with the $1-2k variety, but I quickly learned to have TWO of them... and I did all my own work... and I've done almost as well with cheap new cars bought right.
    -Mathias
  • lemkolemko Posts: 15,120
    ...like a Chevrolet Caprice, Crown Victoria, or Mopar M-Body. These cars are darn near bulletproof. Repairs and maintenance are cheap and easy. Parts are plentiful.
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