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

driftracer · January 2005

and greatest, lest their neighbors, family, and friends would think they're impoverished.

I spent 10 years in the Air Force and noted a general, sweeping stereotype of many military folk. While many were content to have a 3-4 year old decent ride and feed their families, so many had to have things beyond their reach. This certainly spreads into the rest of society, but in the military, it's especially ironic, since you know exactly what your neighbor (in base housing) or roomate (in the dorm) makes, down to the penny, given that you know their rank (easily obeserved) and time in service (easily figured out).

In 1988, at Dyess AFB, as a SSgt, I couldn't be thought of as impoverished, so I had a 1987 Toyota Corolla FX-16 and a 1988 Mustang GT. I also had two part-time jobs, no days off at all, and only one evening off per week, where I spent worrying about how we'd pay the bills.

It's an easy trap to get into.

Being upside down in a car is very common, and mostly accepted in society. My previous comments were designed to hopefully pull some of the air out of other's comments that were fairly insulting, yet based on skewed data and ideas.

mac24 · January 2005

That's funny about the military folk. Visably living beyond your income has got to either invite pity ("I guess he just can't control himself!"), or suspicion ("I wonder if he had anything to do with that missing tank!").

After a couple of painful mistakes early in life, I learned that I sleep much better if I spend a little less than my income.

boomer1b · January 2005

Folks RUN and get into a financial transaction.

(car, house, whatever)

Then end up over their head and whine about it in a public forum ????????

Some comments both good and bad are deserved !!!

cdnpinhead · January 2005

It's not so much what's wanted vs. what's needed as it is what's wanted vs. what can be afforded.

Need is a very subjective term in the car world.

Transportation is nearly never what it's about.

"You are what you drive" is the mantra on the west coast, and elsewhere, it appears.

I've had tons of fun in rental crap because I just enjoy driving. Driving something nice is better, but driving at all is the deal. Most don't share this point of view.

jlawrence01 · January 2005

Driving ANYTHING beats walking or waiting at night in subzero weather for a city bus. Been there, done that.

steine13 · January 2005

"I understand that being upside down on a car loan is completely acceptable in society. (I just wish the radio commercials were a bit less obnoxious.) Those in the auto industry thrive on this perpetuated state of affairs."

I dunno about "acceptable" and if it matters. It's a fact that lots of people are upside down, maybe half.

But whether the auto industry "thrives" on this -- it's a difficult question. Lots a people are trading too soon, and rolling "negative equity" into the new car. How often can you do that before the dealer says, sorry, need $$ or I can't do it? For many folks, they're done trading until they can find some cash.

A lot of cash was found by refinancing houses. That's gonna get tougher as interest rates rise. Without outside cash, the domestics have a huge edge by giving $4-5k rebates to hide the negative with... that is one reason the big rebates continue... I don't know if you could bury $4k neg in a Camry, where it would be safer than in a Mitsubishi, say.

IF more and more people find they can't trade anymore because they are too far in the hole, that is going to affect the domestics in a huge way. What do the salespeople around here think? Do you have to turn people away more often? Do you see this as a big problem for the next coupla years?

As a friend of mine likes to say "Where would the world economy be if the American consumer behaved responsibly?"

-Mathias

jlawrence01 · January 2005

***I see generally good advice being given, but it's not emphasized enough, KEEP your car until your negative equity is gone is almost always the BEST course of action, but from what I read, not often followed.***

The BEST course of action is to keep your ride until you have your **NEXT** car paid for ...

askmeimightkno · January 2005

The only thing you can do is to continue to make payments on this vehicle. You do not want to mess up your credit history, even if your credit is not the best, one of the worst things you could possibly do to your credit is file bankruptcy or get a reposession. If you care about your credit your option would be to first make sure that you have a good history with your finance company if you do, you have more room to negotiate a better percentage on the loan. 2nd make sure that you know what payment would be comfortable for you if you think 300 would be a great payment then tell the lender what you are looking to do. If they approve your request this may add a few more months to your contract but at least you will feel a whole lot better paying 300 per month over 456 a month. That way if you have a repair you wont feel like you are so upside down. Try that first and then let me know what happened.

driftracer · January 2005

automotive lenders don't refinance car loans, and going through the person's bank or credit union requires proper structuring of the loan, meaning the loan amount has to be in line with value, and you're already buried, the amounts don't, and won't match.

Great idea, just not very feasible.

cdnpinhead · January 2005

Absolutely.

Discipline actually works.

driftracer · January 2005

and your post will be deleted - I suggest removing those import words, lest you be chastised by the hosts. I've had posts removed for using the same words.

My youngest son has a 1990 Nissan 240SX that has repeatedly embarrassed Mustangs and Camaros, and is going into the shop tomorrow to get its new engine and transmission - the engine is a non-turbo dual cam, bored .030 over, that has dyno'd at 288 hp at the crank....that'll translate to 220-230 at the wheels, in a 2300 lb car....do the math.

My oldest has an Eagle Talon AWD with over 300 hp at the wheels - and is AWD, like I said - can't do that with a Mustang, although if they made an AWD Mustang, I'd buy it.

I just bought a supercharged Saturn Ion Redline for my daily driver and weekend playtoy. Should be fun.

CarMan@Edmunds · January 2005

Hi everyone. I have recently deleted a number of off-topic posts. Please remember that this discussion is about consumers being upside down on their vehicles. Thanks.

Car_man

Host

Smart Shopper Forum

benderofbows · January 2005

When I got my first "real" job offer out of college, I went out and bought my first brand-new car. (2004 Ford Explorer 4x4, purchased December 2003).

I financed for 72 months because I didn't want a high payment, and more importantly because of the zero-percent interest (no extra cost for stretching the loan). I saw this offer as having the benefits of a lease (new car for affordable payment) without the drawbacks (no finance charges or mileage limits and I can sell whenever I want). However, reviewing this forum I see that many disapprove of this option because of depreciation.

I didn't figure this would be a problem because my trade-in was paid for and I got a great deal. I financed $19500. Now I owe $16450 with 60 months remaining. Terry over in "Real World Trade-in Values" appraised the Ford at just under $15000 trade-in, or about $17250 retail.

My question is, do you guys think I will build any equity at this rate? My payments are $275 a month. I've kept it nice, am not putting excessive miles on it, and might not trade for another year or two.

Kirstie_H · January 2005

The short answer is that no, you will not have any "equity" in this vehicle til about the last year of your loan, if then. If you can re-finance to pay it off more quickly, or if there's no pre-payment penalty and you can pay extra each month, that's about the only way you'll get ahead of the depreciation on your vehicle.

kirstie_h

Roving Host

Host, Smart Shopper & Future Vehicles discussions

kyfdx · January 2005

it has a 0% loan on it, just save any extra money you have, rather than paying extra on the loan.. And try not to equate money borrowed on a car loan with the car itself...

Whether you "build" equity or not, the car will depreciate the same amount... Depreciation plus interest is what your car expense really is, despite positive or negative equity.. If you had put $5000 down on the car, it would still be worth the same amount, and the expense would be exactly the same.. even though you would have $5K more equity in it.

But, if you need positive equity to buy another car, then Kirstie is correct.. It will be sometime in the last 18 months of the loan, before you are even..

regards,

kyfdx

stickguy · January 2005

Since you are paying no interest, I can't see any reason to want to pay it off faster. In your case, negative equity is mostly a state of mind problem.

Look at it this way. You could take $5,000 from wherever it is invested (earning whatever it is earning), and pay down your loan to put you ahead. Or, keep that money in the bank, earning interest, and supplying an emergency fund. Or put it toward a house, buy stocks, or whatever. If you put it toward the loan, you are making your effective ROR on the money 0%.

If you are worried about trading in when you have neg equity (like now), put the money toward the payoff then. Or keep the Explorer, and the issue is moot.

cnew21 · January 2005

I have a bit of a dilemma. I currently have a 1998 Mitsubishi Diamante ES. I purchased this car in 2001 at a 13% interest rate. My credit used to be terrible. It's really good now and we have just purchased our first home.

We would like to buy a new car. Actually a minivan. My loan payoff on this car is $8,736 while the KBB value is about $4,500. I have 31 payments left. I have been a SAHM mom for two years and I tried to re-fiance this loan before to lower the interest rate but was turned down because I am not employed.

So my question is...should we try again to refi this loan and lower the interest rate? Also by getting a lower interest rate will that make the payment lower? Also will the amount I actually owe on the loan be closer to what it's worth?

OR...

Should we just suck up the $4K negative equity and get the new minivan? I know our payment will be higher than what we pay now.

Thanks!!

Kirstie_H · January 2005

In any case, negative equity is only a problem if you have to sell the car.

asafonov · January 2005

You may want to ask Terry (rroyce) on the Real-World Trade-in Values thread in this forum about the actual trade-in and retail sale value of your Diamante. These are nice (near) luxury cars; it just seems that if selling privately is an option, you may be able to get a bit more than 4,500 for it if it is in good condition and has reasonable miles. Another reason not to trade it in to a dealer is, as a 1998, it is unlikely to stay on the retail lot and will be sent to an auction, meaning that the dealer will offer below auction price for it - possibly, below 4,500.

As far as the minivan, I personally decided to buy one used after I found out what how much (little) I am likely to get for my 2-year old Accord, our first and likely last new car for a while (I need a minivan, too).

cnew21 · January 2005

Thanks for the reply. I did post on the Trade-in Values thread after I posted here. I need to check for any replies.

Figuring all this stuff out is so complicated and confusing...

lemko · January 2005

...for a 24-month loan, a 36-month loan, a 48-month loan, a 60-month loan, and a 72 month loan?

In other words, roughly how many months into each of the above scenarios would a buyer need to be to break even?

danf1 · January 2005

Too many variables here to say.

What was the LTV?

What kind of car?

What mileage do you drive?

How well is the car maintained? And the list could go on.

audia8q · January 2005

like danf1 mentioned, there are alot of variables....but I have found if your an avg driver (not alot of miles and keep the car in good shape) that 20% MSRP down and 36 month loan should keep you in a decent position.

kyfdx · January 2005

That is a good rule of thumb..

Another one?

Assuming no negative equity rolled into the loan, and no more than 60 month term, almost anyone will be right side up, once they have made at least 2/3 of their payments...

So, 32 payments into a 48 month loan, or 40 payments into a 60 month loan..

Of course, if people could keep a car that long, they most likely would never even wonder about negative equity, anyway..

regards,

kyfdx

qbrozen · January 2005

well, danf1 mentioned the type of car, and that is a HUGE factor. Its MUCH easier to be right-side-up in a Honda than in a Lincoln.

ghulet · January 2005

...well, I certainly wouldn't want to roll ~$4k negative equity into any new domestic minivan, you'll be in a 'double whammy' negative equity situation for perhaps several years in that case. Maybe you could take the chance on a Sienna or Odyssey, but naturally, you're going to pay more for the van up front (and have bigger payments). I'd probably try to look for a slightly used domestic, if the payment amount is an issue, or a new Honda/Toyota if it isn't. Any chance of just keeping the Mitsu (and fixing the problems) til you're flush?

janz · January 2005

if you get hit and your car totalled. The insurance company pays per the value of the vehicle, NOT the pay off of the loan. I know because this happened to me years ago. I had no car, an outstanding loan balance, and no cash.

From the posted amounts, Bender does not seem to be too off base with value and loan balance, but as I understand it Explorers depreciate fairly rapidly.

The other drawback to extended loans is that you are making payments long after the vehicle is off warranty when you will likely be beginning to have repairs.

I agree with kyfdx, if Bender can build his/her own separate equity (account) by being disciplined enough to put a small amount (even $50) away monthly. You just plan for $325 a month payment and sock the $50 away.

explorerx4 · January 2005

in the past explorers have done well as trade ins.

i have an '02 eb. i took the zero for 5 years. at the time the rebate was 2k, so it wasn't a tough decision. at some point the rebate went to 4500, although it isn't there now. that is what's hurting me. i've been wanting an '05 to add some more toys, but since i don't want to put down any cash, i'll have to wait, no matter what i might buy. i still enjoy my '02, so life isn't exactly miserable in the mean time.

blueiedgod · January 2005

if you get hit and your car totalled. The insurance company pays per the value of the vehicle, NOT the pay off of the loan. I know because this happened to me years ago. I had no car, an outstanding loan balance, and no cash.

I hope people realize that if they are buying a fast depreciating car with no money down, they ought to buy GAP INSURANCE.

janz · January 2005

but, I doubt most do.

cadillacmike · January 2005

Or get a loan with included gap insurance. Mine pays the higher of current value or (loan payoff-my current deductible). And if I get hit from behind (i.e., other person's fault) I don't even pay the deductible! No additional charge and still a better rate than the dealer F&I could provide.

driftracer · January 2005

"And if I get hit from behind (i.e., other person's fault) I don't even pay the deductible!"

What has that got to do with GAP insurance - if an accident isn't your fault, you wouldn't pay a deductible anyway...

wlbrown9 · January 2005

My stepdaughter traded in an old Saturn on a Rodeo summer of 2003. Got a good deal on the Rodeo with not much trade on the Saturn that needed work. I insisted that she get GAP coverage so she would at least be even if something happened and not way under and no wheels. It's INSURANCE just in case and IMHO it makes more sense the less you can afford the loss.

rroyce10 · January 2005

....... I'm with you, and it's Cheap insurance ..! .. depending on the amount, whats it going to cost - $150/$300..? thats 1 day at Disney World ..

But hey, it's like ABS and Side Curtains .. folks think they will never have to use them, so they don't want to pay for them ...

Terry.

keyman21 · January 2005

Hello to all!!!

Okay, here is a sad one. I currently have 18 payments left on a '02 Jeep Grand Cherokee Laredo. Terms are 48mo/15k. I currently have 63k on it. My payoff is $21,250 and I have an average appraisal of on the vehicle of $13,500. I have access to GMS and am looking at anything General Motors to try to combat the negative equity. I am weighing the options of getting out now or paying $.15 per mile at the end. Should I lease again or stay put or should I try to finance???

Any suggestions welcome...

ksccts · January 2005

Best thing to do might be to finish out the lease and just buy the truck then. You can then resell or keep it.

How on Earth did you get yourself in this predicament. 4 year lease at 15K/yr and only 30 months into it you are already at 63,000. OUCH!

With a lease you have no equity, negative or positive. Thats what a lease is all about. You pay only for the portion of the car/truck you use. Your problem is the payment for excess miles at lease end. Cheapest way out may be to just buy it and sell it yourself at lease end. You are going to pay no matter what. Can't drive a car/truck 96,000 miles and have it worth anything substantial at that point!

And remember, you can never borrow your way out of debt!

akangl · January 2005

I'm one up on you, I have a 2004 Nissan Titan LE CC 4x4 that I'm 3 months into the lease. I have 4k miles on it. Its a 48 mo/48k lease and I owe right now about $16k more than its worth. NEVER again will I own a Nissan. Leasing isn't a big deal since we have 3 vehicles, but those Titans take a bath. The residual is $17k........OUCH!

steine13 · January 2005

I suggest you keep paying on it until 4/5 weeks before the lease is up, and then find out what it's worth at that time, and weigh it against the purchase price.

Buying it may be a lot worse than sucking it up and paying the $0.15 per mile. If it were MY Jeep, I wouldn't loan it to people for a lousy $150 bucks every thousand miles... I think that's pretty cheap for a $30+ SUV.

Just hope it doesn't cough up a tranny or something... it IS a Grand Cherokee...

-Mathias

keyman21 · January 2005

I drove myself into this predicament!!! Actually I changed jobs and it required a longer round trip. I am getting a company car at the first of February. My wife is driving a 92 Nissan w/ 156k we own it, but who knows how long it will run. Is it really worth (a) driving it to the end

(b) letting sit as I pay $550.00 for next 18 mos???

(c) or trying to widdle down

approximately $8000 in negative equity.

I do have access to Ford friends and family and to a GMS from my father. What if I got it down to -$2000.00 or -1500.00 with rebates and discounts. Is it worth it then???

stickguy · January 2005

Well, if you are getting a company car, that should keep down the miles. Why not dump the old one, and let the wife drive the Jeep?

If you go 30K over the mileage limit, it will actually add less than $100/mo. to the cost of the lease. So, as Mathias pointed out, it is really a cheap way to put that many miles on a nice SUV.

(30,000 * .15 = $4,500, 4,500/48 = $93/75/mo.).

Look at it this way, if they told you when you got the lease that you could do 48/78,000 for an extra $94/mo., and you knew you needed the miles, would you have done it?

grandtotal · January 2005

Looks like your best bet is to drive it to the end of the lease. At the current rate you will be only 16000 over at, say, 15 cents per mile that's only $2400, which is pretty fair for the use you will have had out of the vehicle.

However, knowing your history the real problem may be that the new smell has worn of it and you're itching to change it, which may not be so easy with that much negative equity, but I'm betting it won't stop you.

kyfdx · January 2005

If you are getting a company car, let your wife drive it.. It looks like you'll have to buy her a car soon anyway..

You are $7750 underwater right now..

If she drives it for 18 months, it will cost you $9900 in payments plus $3375 in mileage charges.. (22,500 X $0.15).. for a total of $13,275.. giving you a net cost of $5525 extra to drive for 18 months.. $5525/18 mo. equals $292/mo. for your wife to drive it...

Still...its not cheap.. But, since you are getting a company car, you will only have the one payment, and won't have to pay the mileage penalty until the end...

And.. using a car with big rebates doesn't get rid of the negative equity.. If Joe Blow buys the Tahoe for $40K, and gets $8K back in rebates, then the car is worth $32K.. If you use the rebates to cover the negative equity, you still owe $40K for a car that is worth $32K.. You haven't gained anything, but another big payment.

At least by keeping the Jeep, you will pay yourself out of debt over 18 months...

regards,

kyfdx

mac24 · January 2005

.......... If Joe Blow buys the Tahoe for $40K, and gets $8K back in rebates, then the car is worth $32K...........

So basic, so simple, so obvious, yet apparently so little understood.

I know several people who are convinced that their vehicle is worth MSRP and that the rebate is free money!

steine13 · January 2005

"With so many stupid people out there, how come I'm not rich yet?"

-Mathias

ksccts · January 2005

Good one!

akangl · January 2005

LOL, if that was a reply to me, this time the neg will stop me from trading (I don't have $20k laying around to pay it down). Its not getting ANY miles put on it at the moment since its been at the Nissan dealer for 2 weeks and will probably sit for another 6 weeks there while waiting on parts. Right now its just shy of 3 months old with 4k on it, by the time I get it back it will be just shy of 4 months old with 4k on it. We don't drive it much since we both work all the time and have our other vehicles.

Now as for the new car smell wearing off, nah, I like the truck, just a bit frustrated with the dealer. If I wanted a new car I could trade my Focus, but won't since its given me no trouble in 6 mos/20k miles.

I *think* I've chilled out, I want a house not a new car.

grandtotal · January 2005

I'm glad to hear you will stick with it but sorry to hear you are having problems. Is it a Nissan spares problem in general or is it just because of your remote location? If it's the latter can't you lean on someone to get the part sent from a dealer who has one?

I have to say I'm not impressed with Nissans. I have a friend with a Murano which was hit from behind, it's been off the road for 7 months waiting for parts - unbelievable.

akangl · January 2005

Unfortunatly a lot of the Titans and Armadas have issues. Mine isn't alone that's for sure. This is Titan #2 for me and while its a bit better than the other one its still a pain. The dealer is horrible, I used to think they were awesome, ha, that ended 2 weeks ago. The part is on backorder, we are on customer emergency status, meaning we will get one of the first ones when they come out. There are over 256 of this part backordered, very frustrating!!

Its not the end of the world though, we have our 04 Focus (great car) and our 99 Ram (excellent truck) so we are in good shape.

rroyce10 · January 2005

.... ** If Joe Blow buys the Tahoe for $40K, and gets $8K back in rebates, then the car is worth $32K...........

So basic, so simple, so obvious, yet apparently so little understood.

I know several people who are convinced that their vehicle is worth MSRP and that the rebate is free money!** ...

I do this every minute of everyday, "trying to splain' the negative equity" ... the greatest statement I hear is, "if I would have known that I was going to drive the extra miles, I would have paid for them upfront" .... the point is, whether it comes out of the right pocket or the left pocket, it's coming out of the same pair of pants .. whether you paid then - or now, you still pay for those miles, and thats okay ..

You have alot of good information here -- read it - understand it - and follow it .......... Keep the Jeep until the lease is up.! ... or, trade it and have $15/$20 grand of negative equity already built into a new vehicle, then you have no control because the lenders will stop you from buying your next vehicle ~ and thats when it gets reeeeal ugly ............

Terry.

keyman21 · January 2005

Thanks to everyone for your input. It is greatly appreciated. Sometimes you don't want to hear what is so painfully obvious!!!

Signed,

Driving Fool

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

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