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

Kirstie_H

Or you can do what I did... total the current car (if you're with an insurer who uses KBB high retail), get the payout and start over.

I would not recommend this method!

mattgg1

Or hold onto your current vehicle for 5+ years after it's paid for and pay cash for the next one. Repeat these steps and you will NEVER have a car payment.

Plus, YOU will be earning interest on your money instead of letting the banks/manufacturers get rich from the interest you pay.

If you finance a $25K vehicle for 60 months at 6.0%, your monthy payment will be $483 and you will pay $4,000 in interest.

If you instead invest that $483/month at 5.0% for 60 months, you will end up with nearly $33,000 in your pocket (not adjusted for taxes). Which can be used to buy your next car.

sky23213

Or you can do what I did... total the current car (if you're with an insurer who uses KBB high retail), get the pay out and start over.

Yep... Happened to me too. I was so mad at the time, otherwise my dear Elantra would have probably be still rolling. I realized much later how deep of a hole that unfortunate accident dug me out of. 17 mo old Elantra financed at 16% the first year (later refinanced at 7%). I'm still amazed I came out about 300.00 ahead.
The 01 Galant that replaced it is still rolling, paid off and in good health
I'm also lucky the Ford dealer could not trade it in for a new Mustang less that a year after I bought it :surprise: So glad I managed to get it out of my system.

blueiedgod

Or you can do what I did... total the current car (if you're with an insurer who uses KBB high retail), get the payout and start over.

I would not recommend this method!

GAP insurance is probably required by lenders when people finance more than 100% of vehicle's worth.

I imagine someone who just rolled $5000-$8000 worth of negative equity into a shiny new car getting it totalled 2-3 months later. They have no car, they owe the bank more than insurance company gave them... They have no savings... Financial nightmare... lose their job because they have no car to get to it to make money to pay for the car that they don't have... snowball effect.

joel0622

GAP insurance is probably required by lenders when people finance more than 100% of vehicle's worth.

I wish, I would be at 90% penetration But it is against the law to tell a customer that an auxillary product is a stipulation of approval. I.E Gap, ESP, CL etc

sky23213

The GAP Insurance coverage is good, but in such cases would not be life-saver either. There was a discussion in the GAP Ins thread and someone pulled a contract. Of course, the Ins Co had their ... uh ... bases covered. The protection had certain limits, making sure the Ins Co isn't on the hook for that 8,000 of negative equity that was rolled into the new car the poor bugger totaled 6 mo after it was purchased.

Kirstie_H

A reporter would like to speak to consumers who took out car loans of 5 or more years. Please respond to ctalati@edmunds.com no later than May 22, 2007 with your daytime contact information.

uga91

Which is better: My trade is about $5k upside down. Recently came into a little money and I was wondering: Would it be better to send GMAC $5k and trade about even or a little right side up; or, offer to put $2-3K down on a trade and see if the dealer "helps" a little to make the deal? I guess the easiest way to find out would be to try the latter as I can always do the former if it's not working out. Any thoughts?

boomchek

Well, do you have to replace your vehicle. Keep in mind with most GM products, even if you break even on the trade and get into something new with a fresh loan, you'll be in the same situation again as soon as you drive off the lot.

And to answer your question, yes. Try to see if the dealer will help out.

By the way, what are you trading, and what are you planning to get?

jimbres

This is spam & should be removed.

uga91

No, I don't have to trade. I have a 2005 Saturn VUE that I would like to turn into something with 3 usable rows of seats.

boomchek

The safest bet would be to get into a minivaqn (Sienna or Odyssey), but that still leaves you with being upside down on your vehicle.

See if you can sell it privately. You will be upside down less. Call GMAC, and ask what your payout is, then put the asking price as close to your payout as possible, and see if anyone bites.

perna

The safest bet would be to get into a minivaqn (Sienna or Odyssey), but that still leaves you with being upside down on your vehicle.

Another option, if you like the minivan idea, is to go with a Chrysler van. They are nice vans, and Chrysler is GIVING them away since a) the redesigned '08s are just around the corner, and b) they overbuilt the living crap out of them.

If you really need to do this, roll your neg. equity into the Chrysler van on a 0% loan. At least that way you're not paying interest on the 5k.

However, and this is a biggie, do NOT do that if you flip vehicles often. You could easily find yourself $15k in the hole, and then you'd really have problems. And take the GAP.

fezo

If you haven't dismissed that one yet.....

Because the Chrysler folks are giving away minivans you ought to see the depreciation hit THEY take. Buy a year or two old oen and you have a practically new vehicle for next to nothing!

mistyb76

This post isn't for me but for my father-in-law. He needs to buy a new car, his is about to give up the ghost. He still owes almost $3700 on it and trade in is only about $1000. He needs a new car to get to work, he lives in a rural area so there is no public transportation. He bought this car almost 3 years ago and it was 6 years old then, the dealer actually found a lender to give him a 5 year loan as well, the price he actually paid the dealer for the car was $5400. My father in law is a cheap skate who didn't read the contract before signing he just cared about the monthly payment, now he's really paying for it, through the nose. He didnt' even have bad credit and they stuck him with a 17% interest rate on top of it. But that is his fault. Now his engine is about to blow so he needs a new car, I am tryin to figure out the best way to dig him out of this mess. I am looking at rebates and all that, he can only afford about $250 a month as a car payment and new seems to be easier to finance with the negative equity than a used one because of the rebates, i know this is not the most advisable but he does need to get to work to pay the rest of his bills, does anyone else have any more ideas, time is of the essence with the car he has now, it's going to blow any day. Any help or advise would be greatly appreciated.

shipo

First off, what makes you so sure the engine is about to blow? I've seen and heard more terminal diagnosis over the years than I care to remember, and my bet is that easily 90% of them were completely wrong, often to my advantage.

One time I bought a car (for $250 no less) that had a terminal report on the engine (it allegedly had less than a hundred miles before the motor was complete toast), I drove it another 70,000 miles with zero engine work. Yeah, it used some oil but so what, oil's cheap.

Regarding his predicament, my bet is that he might be better off fixing what's wrong with the engine than buying another car. If (and that's a very big if) his engine is really going to fail within a matter of days, he's probably still better off fetching one out of a bone yard and putting that in than he would be if he rolled the negative equity into yet another beater.

My advice; keep the car he has. Drive it. If it breaks, fix it. When he owns it free and clear, then (and only then) buy a new(er) one.

Best Regards,
Shipo

mistyb76

Well it has a cracked head, fluids are mixing. and labor on that is a beast, (i had to have one fixed on my old car) parts aren't bad but it's the labor, and with the age of the car, ( he re-did fuel injectors and something else within the last 6 months) he needs a reliable car because my mother in law has cancer and he has to drive her 100 miles round trip for treatment so he really needs something reliable. We don't live that close or else we would be able to help out more. He has a 99 Neon which is a P.O.S. he's not looking to buy an expensive car, we're talking like something in the range of a chevy cobalt or the like, good gas mileage cheap insurance etc... Nothing fancy not really any options besides auto trans. He's not wanting alot of debt, something cheap he can hopefully pay extra on each month to pay off faster. His prob is when he bought the neon he didnt' read any contracts just signed, and well he got screwed but he let them screw him by not reading contracts, hopefully he learned his lesson.

shipo

Sorry to rain on your parade, but I just don't see it happening the way you envision it. Even if he was to get a strippo Automatic Cobalt at well below dealer cost (possible) and roll in his $2,700 worth of negative equity, you're still talking an easy $15,000 for the note. Spread that out over five years and your talking a $300 monthly payment.

I still maintain that his best bet would be to pick up a servicable engine for the Neon from a bone yard and put that in. To take it one step further, you can buy a rebuilt Neon 2.0 liter motor complete with a 12 month, 12,000 mile warranty for all of $2,200 and have a local garage install it.

http://www.actionsalvage.com/engineschrysler.asp

Best Regards,
Shipo

mistyb76

Well we were considering the 2500 in rebates here for the cobalt soaking up some of the neg equity, and he's been quoted 1200 for the trade in, so that would basically start him at zero, I see what you're saying though. He's just wondering if he should put 2200 into a car that's only worth 1250 then risk more things going wrong, it needs some other repairs as well, the engine is just the most major at this point. Tranny shifts a little hard at times as well and he figured that would be the next thing to go. But thanks for the advice I'll let him know so he can weigh his options, I think he was going to go on some look see's at lots this weekend and see if anything could be done ( i know they'll tell him what he wants to hear) lol. But I appreciate your time and will pass on the advice.

shipo

Good luck. FWIW, when I took a peek, I figured that you could get your hands on a Cobalt Automatic for right bang on $12,000. Add in the $2,500 worth of your negative equity plus taxes, title and license, and you're right back to where I started from, $15,000.

Keep us posted, I for one will be curious to see how this deal shapes up. ;-)

Best Regards,
Shipo

qbrozen

you don't really NEED rebates to soak up negative equity. You just need a good deal on a used car. Find something like a low-mile Focus. You're talking maybe $7k for a decent one. With the taxes and negative equity, you might have an $11k note. Even with just passable credit, you'll be within the $250 mark.

oldfarmer50

I like your junk yard engine idea. I've done two engine swaps like this and they have worked out more or less OK. Much cheaper to do it this way than to buy a new car.

Swap the engine, pay off the loan and then look for a new car deal.

Engine-$700 Labor-$1000 Tranny-$450 Labor-$300 Worst case $2450. Can't buy a new car for that.

stickguy

is probably the way to go. Focus, Cobalt, something like that. Maybe a Hertz resale?

the other temptation (depending on how many miles they need per year) is a loss leader lease. Dump the give them the neon for the tags and fees, lose the neg eq soemwhere, and get the payment?

Not knowing exactly what their financial situation is, but IMO, when possible, people should start clean by getting the neg eq out of the car. Scrape up some cash, borrow ST, do something to not bury it in a car note.

For the lease, I know that there are always teaser prices being floated on cheap cars. The only one that really caught my eye was a Jetta, 2.5 with alloys and roof (maybe a wolfsburg?) in the paper a few weeks ago.

nothing down, no bank fee, just tax/tags. $189/mo, 12K year for 36. Hard to go wrong with that!

mistyb76

well there are quite a few around for 13,100 before the rebates, so that's why he was thinking about a cobalt to begin with if he didn't have the neg equity it would be quite a deal, too bad lol. I just figured out he's got himself into a rule of 78's loan as well, how archaic but like i said it's his fault for not reading. I'll let ya know how things go though should be interesting. I would laugh but the mother in law needs to go for cancer treatment, she can't drive because she's blind so she depends on him to take her just about everywhere

shipo

Geez, I haven't run into the Rule of 78s in a long time. ;-)

IIRC, the Rule of 78s was made illegal in the United States during the early 2000s. If some sharpster managed to sneak that kind of loan in on your dad, then I suspect you should have no problem having the loan recalculated prior to paying it off.

Best Regards,
Shipo

lemko

D-uh? What's a Rule of 78s? Please explain.

tidester

IIRC, the Rule of 78s was made illegal in the United States during the early 2000s.

The restriction was made in 1992 and only applies to loans of 61 months or more, i.e. it is still legal to use the Rule of 78 for loans of 60 months or less.

tidester, host
SUVs and Smart Shopper

shipo

The rule of 78s is a Depression era cheat on how to calculate the principle/interest split for notes that are paid back monthly over a period of months. I could go into a long spiel on how the formula is built and used but I don't think it is necessary for the purposes of this discussion.

Suffice to say, loans calculated via the Rule of 78s are front end heavy on accounting for collected interest, and back end heavy on accounting for the collected principle. Effectively there is no difference in what is paid per month and what is paid over the life of the loan IF every payment is made (i.e. sixty monthly payments are made over the course of sixty months). That said, the consumer is in for a good screwing if they want to pay the loan off early.

It's been years since I ran a side by side comparison of a simple interest note of say $20,000 for three years versus a Rule of 78s note for the same $20k/3 year period. IIRC, if you decide to pay the note off after say 22 months into the 36 month term, you would be required to pay a significantly higher buyout amount (I've seen it go into the thousands on larger notes) in the Rule of 78s version than you otherwise would with the simple interest version, hence the fact that it's no longer legal to use the Rule of 78s (edit: for longer term notes).

Best Regards,
Shipo

shipo

Good information. Thanks. ;-)

tidester

What's a Rule of 78s?

The Rule of 78 is a method of calculating (actually estimating) the amount of interest due a borrower who pays off a loan early. The payments on the loan that you have made up to that point are based on the assumption that you make payments for the full term of the loan and that gets thrown off a bit when you pay it off early.

Doing the exact calculation of interest was difficult before calculators and computers so to make things easier on the lender the Rule of 78 was invented. Basically, it breaks up the interest due on a 12 month loan into units - 12 units for the first month, 11 for the second and so on. Adding the integers from 1 through 12 gives 78 and interest rebates are based on that apportionment. Of course, a loan of something other than 12 months would require adding the integers from 1 to the number of months but "Rule of 78" was adopted as a generic label for the method.

The problem is that the interest rebate using the Rule of 78 always favors the bank and the early payoff penalty the borrower pays for the bank's convenience can we VERY significant for long term loans particularly at high interest rates.

In this day of calculators and computers there is no need to do an estimate but some lenders still use this archaic method to squeeze a few extra dollars out of a borrower.

tidester, host
SUVs and Smart Shopper

mistyb76

Well the financial situation isn't the best for him. Mother in law will not co-sign again, because the last time she co-signed he wrecked the truck only had 2 payments left on it, and the repair people didn't fix it right so he was refusing to make the last 2 payments because of it, so she paid them so her credit wouldn't get ruined. Little backstory about why their finances are seperate, they've been divorced for over 20 years but are still "together", she made him sober up before she took him back, will not ever consider re-marrying him. She is disabled because she can't see and she has marfans syndrome and now cancer as well. She pays her half of he bills and he pays his. He of course has quite a bit more money but you wouldn't think that by looking at him. He's the type of guy who holds on to worthless junk because he may be able to sell it to someone for a buck 10 years down the road, he has 2 storage units he rents to prove it (about 100 bucks a month). Then screams he doesn't have any money. Gets way overcharged on his insurance, but refuses to rate shop so he's still using the same guy. Like I said I would laugh but mother in law NEEDS to go to the doctor, that is the only reason I am trying to help him out of this mess he got himself into. The thing with the repairs is he doesn't know where he would get the money to pay for the repairs, I know I don't have it right now I am in school and not making much money because of the lack of time. I just had to buy a new car last winter, I replaced the engine, trans, fuel injectors, exhaust, fuel pump, water pump, and some more stuff, and the engine was abotu to go so I wasn't putting anymore money in it, it had over $6000 in repairs in about 18 months and it was only 6 years old! But he's cheap and if he can't get what he wants then he just won't buy, I know I will never give him money.

bobst

Tough situation, Misty. You have some in-laws who need help, but you don't know what to do.

I would let them take care of their own lives. If their car breaks down and they can't afford to fix it, it will force them to move closer to civilization, and that will solve the problem.

That's why we men are happier than women. We don't try to solve everyone's problems.

mistyb76

I am only helping because I was asked to help, otherwise I would let him do it himself. I am not making decisions for him just presenting him with information, so he can weigh his options. I keep telling them civilization is better, but he won't hear it, you know here in the city living expenses are more, and god knows he won't have that lol. And of course I am will be there if he decides to buy to read stuff, because for some reason he can't figure that part out lol. Oh well hard lesson learned.

grandtotal

And of course I am will be there if he decides to buy to read stuff, because for some reason he can't figure that part out lol.

Not making excuses for your father, but maybe he has some sort of undiagnosed learning disability which prevents him from understanding the written contract (even though he can read it) and he needs you to assist in 'translating' it.

mistyb76

I am here to give you an update, we went to 3 lots yesterday, 2 of which would not drop their "extra" fees, including their dealer holdback that they were trying to charge him for their vehicle. We weren't telling them they couldn't keep their holdback, just telling them that the father in law was not going to pay their holdback because I already know they recover that from GM. They also had over 300 in "ad fees" I thought that was a bit outlandish so we walked. The third was a small town dealer, who was nice, understood the situation, and cut him a good deal, he had a 4 door auto cobalt on the lot brand new, 3000 in rebates and incentives, with a spoiler the upgraded stereo and i think the protection package, problem was it had a small scratch on the bumper. (very small) they were having a hard time selling it apparently because of the scratch. They sold it to the father in law for 9600 and rebates and trade in came to almost 4900, so he had about 1200 down. So he went ahead and bought it because it really was a steal. Got a good interest rate on a simple interest loan, and was very happy.

bobst

Misty, I hope your father-in-law appreciates you very much. It sounds you did a good job helping him.

shipo

Congratulations, keep us posted occasionally on how they're doing. ;-)

Best Regards,
Shipo

metro123

Can someone explain "the dealer trying to charge holdback" because this statement goes against everything I know about buying new cars and what holdback should be.

$4,900 in trade for a 99 Neon with a bad engine, am I understanding this right?....hmmmm

joel0622

rebates and trade in came to almost 4900

stickguy

actually, I think he said there was 1,200 in equity, meaning they really did ACV 4,900 on the POC

joel0622

am here to give you an update, we went to 3 lots yesterday, 2 of which would not drop their "extra" fees, including their dealer holdback that they were trying to charge him for their vehicle. We weren't telling them they couldn't keep their holdback, just telling them that the father in law was not going to pay their holdback because I already know they recover that from GM. They also had over 300 in "ad fees" I thought that was a bit outlandish so we walked. The third was a small town dealer, who was nice, understood the situation, and cut him a good deal, he had a 4 door auto cobalt on the lot brand new, 3000 in rebates and incentives, with a spoiler the upgraded stereo and i think the protection package, problem was it had a small scratch on the bumper. (very small) they were having a hard time selling it apparently because of the scratch. They sold it to the father in law for 9600 and rebates and trade in came to almost 4900, so he had about 1200 down. So he went ahead and bought it because it really was a steal. Got a good interest rate on a simple interest loan, and was very happy.

stickguy

if you want to prove that I was wrong about something, you will need to take a number and get to the back of the line!

Still, $1,900 for the Neon was still pretty generous. Certainly a no brainer deal. A bombed out Neon that you were buried in, and you can flip that into a new Cobalt for only $8,400? (tat is 9,600 that they sold it to him for, minus the 1,200 he was ahead).

Actually, 9,600 seems way to low if it didn't include the rebates, doesn't it?

joel0622

Stick I was not trying to prove anything or call any one out. Just trying to keep the convo on track. Neither my ego or self esteem is controlled by a message board

You are correct $1900 is a good deal on Neon without problems

qbrozen

I think $9600 was the bottom-line price after all was said and done. but i could be wrong. just a guess.

in any event, $9600 for a new car in this situation is GREAT!

mistyb76

Ok, I will clarify, gbrozen is correct it is 9600 after everything was said and done. Didn't mean to get an arguement started. considering he owed 3700 on a p.o.s. (it was purple so we called it barney, the purple dinosour) from '99 the $9600 was a steal.

saraw1

I purchased a 2000 Ford Explorer Sport in January 2005 for $9000. I put $1000 down and financed the rest (plus tax), so the loan amount was something around $8600. I have been paying $175 a month on a 60 month loan. Right now I owe approximately $5,000 on the car. It also now has 118,000 miles. Well, recently I have been having some car trouble (was making a rattling sound), and it turns out I need both a new catalytic converter (which is apparently very expensive on an explorer) and also have an oil leak, which would require dismantling the motor to repair. I was advised by two mechanics not to fix the car, and to begin looking for a new vehicle immediately. The way they told it, in a short time the vehicle may be worth nothing, so at least now I could probably get something. I was wondering how much negative equity you think I would end up with, and what I should do? I cannot afford to pay the negative equity now and would end up rolling it over into whatever vehicle I buy or lease next. If I could, I would continue driving it and paying it off, but apparently that is not a viable option. And is buying a used car or leasing a new one a bettter bet? I can stay within the miles on a lease, and I can't afford anything more than about $250 a month (including whatever negative equity I end up with). Any help is GREATLY appreciated! I have no idea what to do!

qbrozen

Need to know more about this truck. 2wd? 4wd? leather? moonroof? auto or stick?

If I assume 2wd automatic and no options, its got a trade value of around $500, I'm sorry to say. 4wd would bring that up to around $2k-$2500.

moonroof and leather would add another $800. So, as you can see, this can vary quite a bit.

british_rover

Unless you live in a state with emissions testing forget about the cat. You don't NEED to replace it right away and can probably hold off for a while. Even when you do replace it you can probably get an aftermarket one much cheaper.

Where is the oil leak coming from? You can buy a lot of oil to keep the engine topped off before you spend enough to buy a new car.

saraw1

It is a four wheel drive vehicle with power sunroof, windows, and seats. Also new tires. However, there is some rust on the running boards and also a small dent in the fender. I live in NY, which does have emissions testing. Plus, the car is making an awful rattling noise, which I believe is caused by the catalytic converter. Not sure where the oil leak is coming from, but the mechanic I spoke to said with the labor it would take to dismantle the engine to fix it (I apologize, because I do not know much mechanically, and am not sure exactly how he described it) would probably be in the range of $2000.

saraw1

Also, it is automatic and has cloth seats (no leather).