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

mirth · September 2005

...your payment will go down, but you'll be paying it for longer. Running the numbers:

$589/month * 36 months (guessing) = $21,204

$500/month * 60 months = $30,000

So, over the next 5 years you would have to save $8,800 in fuel just to break even. Assuming $3/gallon and 15K miles per year:

Pathy: 16 MPG = $2,812 per year in fuel
Mazda3: 28 MPG = $1607 per year

Savings over 5 years: $6025

So you would actually lose $2,800 ($8800 - $6025) over 5 years. Even if gas shot up to $4 today, you would still be out $800.

I say stick with the Pathfinder, unless your situation is so dire that the extra $90-110 per month will make or break you.

rroyce10 · September 2005

....**So, over the next 5 years you would have to save $8,800 in fuel just to break even. Assuming $3/gallon and 15K miles per year .... **

Good post .... most people won't bother to do the math, they'll just trade and "pretend" they're saving money ..l.o.l.....

Terry :P

aero_pat · September 2005

The best I can do is 60% of Edmunds TMV Pricing.

danf1 · September 2005

Probably not if they want to stay in business.

aero_pat · September 2005

I meant to say: Do any of the dealers pay close to TMV Trade In Pricing? If not, does Edmunds have any credibility at all? Where do these prices come from?

qbrozen · September 2005

depends on the car.
i've seen them come close on occassion.

scottinky · September 2005

nope, I do do the math. thus my posting here. Even though it cost me $48 to fill up tonight, I am still
keeping my pathy. this was a rare occassion where I drained the tank. Wanted to fill up completely
with Chevron.

ellenk1 · September 2005

I'm looking for some advice on same problem. In 02 I went into a lease of a Camry LE, dealer took my '98 Camery LE that I still owed 13,000 on. At that time I had three years left to pay off the purchase. This was about $4000 over what trade in value was. I leased this 02 Camery to get rid of the other car and not have huge payments. I put down $1,500 and came out with a payment of $464/mo ($100 more a month than I was paying on the '98.) I figured I would not be paying that much more a month and be driving a new car. Well here I am three yrs. later with 70,000 miles on my 02. Three months ago I converted from a lease to a purchase with 8.5% loan. I now owe $18,000 for the next 5 yrs. on my car that trade in value is $9,000. I am retiring in 5 years. Would like to get one more new car and have it paid off in 5 yrs so I will have a good car to last me the rest of my driving life but don't know if it is wise. I just hate paying the $18,000 for a car that already has 70,000 miles and is only worth $9,000. My reasoning is when I retire this car will have over 100,000 miles. If I flip it, I could start fresh with money out lay of probably only $100 more a month. Whats the best way to get out of this mess (other than have the car stolen and use the Gap insurance,HaHa)?

bobst · September 2005

"Whats the best way to get out of this mess"

The best way out is to pay the $18000 you owe.

Suppose I buy a pair of underwear for $5, charge it to my VISA, and wear them every day for a month.

Then the VISA bill comes in. At that time, the underwear are probably worth about a dime. However, I still have to pay $5 to cover my VISA bill.

In the same vein, you owe $18000 for a car that is now worth $9000. The only way out is to pay up or die.

oregonboy · September 2005

Bob is right, if cruel... cruel

The $18k debt is really a separate issue from the value of the car. It's money owed. Trading the car will only make matters worse. The GOOD news is that it's a Toyota Camry. Keep up on the maintenance and there is no reason that it can't last for the remainder of your driving days. (Depending of course on how much you drive).

With a little luck and regular maintenance your Camry should be good for 200-300 thousand miles.

james

ghulet · September 2005

Not to rub salt in your wound, but how'd you get roped into leasing a car when you drive 70k miles in three years (or about twice what is normally allowed on leases)? And, after having rolled $4k from your last purchase into this lease, why did you not learn that this wasn't the best idea? Lastly, why do you feel it's absolutely imperative to trade a durable, reliable car like a Camry in every three years? You can't expect to drive 20-25k miles a year, make low payments, get a new car every three or four years and come out financially even. You're lucky it's a Camry and not some domestic, then you'd really be in bad shape!

steine13 · September 2005

Ellen,
I'm with ghulet on this one. The problem is not that your car(s) cost too much, the problem is that you have delayed paying. Oh well, that's where you're at, happens to lots of people, no big deal.
But look at one scenario: If you'd stuck it out with your '98, you'd have it paid off by now, you'd have $3-4k in cash -- minus any necessary repairs or maintenance on your '98, and you could get into a new or drive the old one "for free".
By trading and burying the negative equity in the new ride, it sounds like you incurred some serious costs...every time you trade, there's the inevitable sales tax, there is initial depreciation, financing costs, and dealer profit.
And the hinkier the deal you're attempting to get done, the more likely the dealer will be paid handsomely for the service.

The lesson for now is: DO NOT repeat your mistake of burying the negative equity. Either pay the $9k out of pocket, right now, or keep driving your '02. As the other boys have said, count your blessings it's a Toyota! The only thing you can reasonably do is shop around for a better rate... but again, with $18k to borrow against $9k of car, my guess is it's wasted effort.

"f I flip it, I could start fresh with money out lay of probably only $100 more a month. "
Um, no. $100 a month for 90 months is $9000.. that's your negative, without interest. Add the costs for the new car... no. No way.

Hey, worst case, you have to work part-time in retirement and make some money to pay for wheels... not the worst fate, is it? And I'm not being facetious; from working full-time to full retirement is a heck of a step anyway...

Good luck,
-Mathias

lemko · September 2005

...if I'm physically able, I'll work some part-time job just to stay active after I retire. Best thing to do is just pay the $18K. You can't borrow your way out of debt.

rroyce10 · September 2005

.. **You can't borrow your way out of debt ....... **

Better words have never been said .................

Terry.

qbrozen · September 2005

Let me get this straight.
You have a Toyota Camry with 70K miles now ... and you are thinking about 5 years from now when you retire. You say you want a decent reliable car at that time. If you don't like the car having 70K now, what makes you think you are going to like the new car you buy now 5 years from now when it has 115,000 miles??

Kirstie_H · September 2005

Don't forget tonight's member-to-member chat - it's open mic night, so come and discuss whatever's on your mind.

6-7pm PT/9-10pm ET. Drop by for live chat with other members. Hope you can join us!

kirstie_h

Kirstie_H · September 2005

People come here looking for financial advice, not judgments about their personal choices. Please just answer the question and let the member decide whether to trade in or keep the vehicle.

In this case, it certainly seems wise to keep the vehicle til it's paid off, and perhaps if you can pay a more on the car payment each month to help get the balance down more quickly, you'll be in better shape to purchase a new vehicle sooner.

mirth · September 2005

...plus it's better to wait until you retire to get a new vehicle so that you won't be putting a large amount of mileage on it.

perna · October 2005

People come here looking for financial advice, not judgments about their personal choices. Please just answer the question and let the member decide whether to trade in or keep the vehicle.

If I moderated this board, I would clear all posts and put up one post that says, "Pay off your current car first." Then lock the thread. :P

mac24 · October 2005

But everybody who posts hopes that the advice will be different for them!

After all, there's obviously some way to turn that Kia into a Lexus for only $300 a month, it's just a case getting an insider to post the secret.

Kirstie_H · October 2005

That's probably true in a majority of cases, but sometimes it just isn't. If someone's got a vehicle that, including payments plus major repair bills, is costing them more per month (or overall) than rolling a couple of grand's worth of negative equity into a new vehicle, that might be the right choice.

Now, when we're talking about folks who just desire a nicer car and are mega-upside down, the sound advice really doesn't differ. Keep your car and pay it off, hombre.

alval · November 2005

what if you're 10K upside down: owe 26 on a 16K valued vehicle. Need to lower monthly pymnts due to a sudden lower household income. Buy an 18K vehicle while you get 15 or 16K for trade-in and your excellent credit can get a loan from a couple of different places. Now your monthly goes from $610/mo. to $470/mo. and you're in a Camry or Accord type vehicle that will hold its value since you'll probably have to see that note thru. Am I way off here? Any advice is good advice.

steine13 · November 2005

Yes you're way off here... where did that $10 disappear to?
You cannot roll $10,000 into a $20 car, no way.

So yeah, sounds like a great idea if you have $10 cash lying around the house. I don't mean to be flippant, it's just that you can't borrow your way out of debt.

Buy an 18K vehicle while you get 15 or 16K for trade-in and your excellent credit can get a loan from a couple of different places

So you'll owe $18 for the new vehicle + $1 in taxes and stuff = $19 - $15 they gave you for the trade-in = $4 + $26 you owed on the old one is $30. $30 over 5 years is $600/month... IF you could do it. And no bank will let you.

Mathematically inclined, I remain,
-Mathias

bobst · November 2005

How about this?

Sell the car for $16K. Then you will only owe $10K and your monthly payments will be much lower.

However, you won't have a car. Try to find a decent used car like the 1994 Nissan Altime we sold for $800 in March.

isellhondas · November 2005

Only 800.00 ???

What was wrong with it?

alval · November 2005

that make the internet a great place. thanks for the great advice everyone. Please keep it coming.

bobst · November 2005

Hi Isell,

Nothing was really wrong with it to my knowledge, but with an older car, you never know what might go wrong tomorrow. It had 130K miles and I think the wholesale price was a little over $1000. I parked it in our driveway with a price of $900, some nice young guys came by and made an offer of $800, so I sold it. I hope it serves them well.

bobst · November 2005

Oh Yeah, I just recalled the Altima had a brake light that would come on from time to time. I told the buyers about it.

lemko · November 2005

...usually means a faulty master cylinder. I've changed them out before. It's not too bad. As far as cheap cars go, I just bought a nice 1988 Buick Electra Park Avenue for a winter beater for $1,200. This one only has 81K miles on it and runs great. Heck, after I got done cleaning it up, it actually looks pretty nice despite a few small dents and scratches.

If you're strapped for cash and not too picky, nice cheap old cars are out there if you look. I found this one at a repair shop near my workplace. This guy has been there forever, so I doubt he would risk his good reputation selling me a lemon.

isellhondas · November 2005

That was a great buy. I would have pegged that at 2500.00 at least on a private sale.

bobst · November 2005

I agree, Isell. If the Nissan holds up, our buyer got a great deal from us.

That's why I suggested the guy who started this thread might want to sell his $16K car and try to find a good deal on an older used car. There are probably a lot of sellers like us who just want to get an older car off their hands.

danf1 · November 2005

You can't say no bank will do it. I have one bank that will not look at loan to value or debt to income ratios if your credit is good enough.

I recently signed somebody out at $34,000 on a car that listed for $23,000. My advice was "buy gap insurance."

steine13 · November 2005

I stand corrected.
[shudder]

-Mathias

familiar · November 2005

I think that I'm in somewhat of a similar situation. i have a 03 pontiac bonneville, and in near future plannings, I dont feel I will be able to make the payments. So.. I thought that since I owe 15k and its trade-in is 11,5 - 11,9 I am somewhere around 4k upside down. Well, for me reliable , affordable transportation is king, and somehting 6-7k might be sufficient enough. (which is 4k less than the trade-in value) You guys might want to consider shopping for a car that is (Your trade in value (-) Negative equity on your car = avoidance of doubling neg. equ. If possible since there is two of you, have one go to places to negotiate trade-in for your current vehicle separately, and the other one negotiate price on desired vehicles, then come together without letting salesmen know your both on the same team per say. they play games with us, why not return the favor! It's worth a try.

mac24 · November 2005

.....then come together without letting salesmen know your both on the same team per say. they play games with us, why not return the favor! It's worth a try.

I'm sure that'll work well!

Kirstie_H · November 2005

I'm sure that'll work well!

Meaning, you have absolutely zero chance of that working at all.

You know how consumers constantly complain that the "deal" changes somewhere along the line? Say you negotiate a price over the phone, and you get there and the salesperson says, "sorry, we made a mistake, and we can't give you that price/the car is sold/we didn't realize your trade was xx...." When this happens, consumers have the option of walking out without completing the transaction.

In the same way, if you negotiate a deal based on false information given to the dealer, he's not going to honor a price based on a sneaky manuever, and he doesn't have to. Why not just try to negotiate your best deal and don't sign until you're comfortable with it? Seems a lot easier, and really requires a lot less energy.

mac24 · November 2005

I'm sure that'll work well!

Meaning, you have absolutely zero chance of that working at all.

Exactly!

We need a 'rolling eyes' emotorcon......

kyfdx · November 2005

I think this one works pretty well.. for that.. :surprise:

Kirstie_H · November 2005

Yeah, I just wanted to clarify in case the sarcasm didn't shine thru

isellhondas · November 2005

Just amazing...the things we read in these forums!

mac24 · November 2005

Hmmm.......I guess you forgot to read the conditions you agreed to when you signed up today! :surprise:

beliver · November 2005

lemco: "you can't borrow yourself out of debt" I wish the whiz kids in Washington could somehow be made to understand that brilliant concept !

believer

mac24 · November 2005

Apparently the basic laws of finance don't apply in the parallel universe of government.

Yet another example of "Don't do as I do, do as I say!". :shades:

myriamh · November 2005

My fiance and I recently moved. We now both work 2 blocks away from where we live. We have two cars and dont need 2 anymore and are considering getting rid of both and leasing out a new one.
1- Mine: Leased 01' Toyota Solara. $62K miles. I slowly ran over a large rock one night when I was picking up the mail causing a large scratch under the driver door. Besides this, the car is perfect. I have taken the best care possible.
Remaining payments: (321.41 includes taxes X 9 mos=$2893)
Payoff: $12,855.57
Trade In Value: assuming Clean cond: $9284
Based on this, am I upside down by: $3571? plus whatever it will cost to fix the scratch lets say another $1500.
I am looking at $5K neg equity?
2- His: Free & Clear Toy Corolla 98' 101K miles. Well cared for but driver handle broken on the inside. (minor, handle costs $100).
Trade In Value: $3800
QUESTION: By taking my negative eq of $5K and his positive eq of $3800. Are we in the hole $1200?
If so, $1200 doesnt seem like a lot of money to roll into a new car lease. We dont need 2 cars anymore. We hardly drive period! Am I calculating things right? If so, what is the lowest maximum mileage we could lease a car for?
THANK YOU!

bobst · November 2005

Why not just sell his and keep yours until your lease is over? A Solara is a very nice car.

If you ran over a rock while driving the car, your insurance should cover it.

Congratulations on being engaged. Out son just got engaged to a wonderful young lady and we are absolutely thrilled.

myriamh · November 2005

Good question. I forgot to mention that the lease is for 60K miles (12K per year 5 years).
The car has 62K miles so I am afraid to keep driving it.
As for the damage, I understand that if you submit a claim to the insurance company, your insurance will go up. Is this correct?
Congrats on your soon to be daught-in-law

steine13 · November 2005

Paying for miles isn't a bad thing.
We own our cars, and we're still paying for miles, trust me on this one...

If it's 20 c/mile, that's expensive; if it's 10 cents, count your blessings. 15 c is ok.

Never ever ever lease again for such a long term. And I agree you should keep it; probably your cheapest solution, and it's a nice car.

-Mathias

myriamh · November 2005

Leasing for such a long term is the worst thing you can do, but its a long story....college grad then.. no credit.. no money.. etc...
Not doing that ever again.

You say keep the car. Do you mean keep it and then buy it when the lease is up and not worry about the miles? I will be paying about $10K to buy a 5 year old car at that time.
The car is not even worth that now.

We were thinking of getting rid of the 2 cars and lease 1 new, for the shortest amount of time and lowest mileage. Did you have a chance to look at the numbers? Am I running them right? Still think I should keep the car?

exb0 · November 2005

If you terminate your lease early, you will still have to pay remaining payments of $321 per month. Now when you lease a new car, you will have another payment of $200-300 per month. So in effect, for the next 9 months you will have two payments and one car.

I know youre concerned about the mileage penalty. You said that from now on you wont be driving much; therefore, do you think that the new lease payment will be less than the mileage penalty?

If it were me, I would sell the old car and keep the leased car until the end of the lease. Then at the end of the lease pay off the car and keep it for another five years or so; and then sell it for about $3000, and dont worry about the mileage penalty. You dont commute to work, why do you need a new reliable car?

Look at it this way, to keep Solara for 5 years would cost about $11000 total (10 residual  3 you get when you sell it + 2 in interest to finance the residual + 2 in maintenance and repairs). To lease a car for five years at $250/mo (and I am being very optimistic here) will cost you $15000.

steine13 · November 2005

You say keep the car. Do you mean keep it and then buy it when the lease is up and not worry about the miles?

Pretty much. If you don't keep it until lease end, you'll have to pay the residual + the montly payments remaining - the finance charges. If you keep it until the lease ends, they'll "pay" the residual upon taking the car back.

I don't know what your mileage penalty is, but if it's under 20 cents, it's fine... the cheapest I can drive is around 10 cents a mile; I can do it for less, but only at considerable risk... so if you wind up paying 10 or 15 cents, that's just the cost of driving and nothing to worry about.

I will be paying about $10K to buy a 5 year old car at that time.
The car is not even worth that now.

Ah, you may be wrong about that. Just TRY and find a Solara for that kind of money... the bring stupid dollars at the auction or on the street. A buddy of mine has a 99 4cyl auto with leather and moonroof, 100k miles, and Terry over on RWTIV said to take $7,5 to $7,9 on the street. That's tall money. So if Toyota is willing to sell you yours for $10 when the lease is up, see what it's worth at that time. These things can change overnight; the 4cyl Solaras got pretty hot when gas it $3.

As far as looking up numbers, it's not worth the effort... the books don't really tell you much, they're often off one, two, or more thousands of dollars.

Six weeks before the lease is up you've got some options... can even try to negotiate a lower buyout... if you like the car, it's probably a keeper.

Getting another lease now strikes me as a little silly, but it's your money.... if you have new car fever and can afford it, go ahead.

If you think you're gonna save money by leasing a new one, forget it.

-Mathias

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

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