Upside down on car loan

[torinsmom]

I traded in a car 2 1/2 years ago that was worth $5000 less than I owed on it. I didn't have much choice, as it was starting to give major trouble at only 3 years old. I traded it in on a 2004 Toyota Sienna. Of course, all that negative equity went right on the top. I ended up with a lease because the payment was lower. The salesman assured me that before I hit the 60,000 mile mark(2 1/2-3 years), the negative equity would be one and I could trade my van in on a new one and basically start over. I can't believe that I believed him, but I had heard that Toyota has such great resale value.

So, this week I go back to the dealership. It has been 2 1/2 years and I am at 53,000 miles. I thought I'd see where I stand. They told me I am $8,000 upside down! He suggested I keep paying until the 5 year lease is up and then pay the mileage penalty and buy a new car. SO, we are talking 30 months payments totalling around $15,000, then $4000 for mileage. Of course, the warranty is up on my van, so I will probably have repair bills as well.

This is my question--Dodge is having a $4000 cash back deal on their Caravans. I am refinancing my home and could have $4000 towards a downpayment. Basically, that would put me even on the van and I would only be financing the price of the new van.

Am I stupid to even consider this? I feel like I am paying to rent the van I am driving and I will have to PAY to turn it in in 2 1/2 years. Advice would be so appreciated! I am just a total idiot when it comes to this stuff.

Marsha

 

[tar heel]

It doesn't sound wise to me. If you're talking about taking the $4,000 from your refinance and the rebate from Dodge, paying off your old car, then buying a new one, you'll be at the same place the minute you drive off the lot and the car starts depreciating -- upside down in a loan.

We had the experience of a major breakdown (blown engine) when we still owed $5,000 on our van. We put a used engine in for $2,400 and finished the payments. At the time we were not 100% sure we were doing the right thing -- now over three years later it's obvious we did. The van has 122,000 miles and the engine has about 70,000. We DO have some repairs on the vehicle at this point, but we aren't close to the cost of payments.

 

[bumbershoot]

Why are you already over your mileage, or if I'm reading it wrong, why are you assuming you WILL be over your mileage at lease-end?

Is there another dealership you can take it to, one with truthful salespeople (assuming this is the same one that told you the untruth before?)? My husband would even recommend a dealership that sells a different brand of cars, just to see.

I know with my lease, there are penalties for turning a car in early, and that might be part of your upside-downness. I didn't quite get that, with my last two leases, because I was turning them in and getting new cars, and the penalties were getting wrapped in all the mumbo jumbo of the new lease. Since this time I'm NOT leasing (or buying) another car, but I did want to turn it in before I went over my miles AND I was tired of paying new-car insurance, I found out about the penalties.

I'm sorry you had to turn in your previous car b/c of the problems...there weren't any recalls that were pertinent to it, or any lemon laws that could have covered the situation? (if my '95 Jetta had had ONE more oxygen sensor blow inside of two years it would have been covered in my state, but it held off for a few months past the 2 years, grr) Such a bummer, to turn in a car b/c of problems like that.

Leasing a car IS pretty much renting it. Sounds like the guy didn't explain it to you. I personally was MORE than happy to lease cars for 11 of the 12 years I've been doing so, it's a new car every 3.5-ish years for me, and my friends think I'm nuts, but they have had one old beat up car and I kept getting new ones, so I was happy. But it sounds like you didn't anticipate what it might feel like, to "rent" the car. I'm sorry 'bout that.



I personally would rather just go through the lease. Perhaps try to tone down the miles you're putting on it, IF possible. If not, start saving for the miles now. We started some envelopes for mileage.

I know it sounds like forever, but if you do this you'll still be out the 4K from the home equity, and you'll have a 3 year old car in 3 years, rather than perhaps getting a new car in 3 years. I say stick with it, and either have fun with the 4K from home refinancing, or put it towards a down payment on that new, as-yet-unthought-of, car you'll get in a few years.

 

[seashoreCM]

How much would it cost to buy the leased car out from under the lease?

Normally when you complete or fulfill a car lease the dealer will tell you how much it would cost to buy that same car. Here you would be asking now (2-1/2 years into the lease) as opposed to at the conclusion (5 years).

If you can buy the same car you should be able to finance it using the $4,000. you mentioned as a down payment. You can shop around for financing as opposed to finance through the dealership.

Disney hints: http://members.aol.com/ajaynejr/disney.htm

 

[DawnM]

Just my opinion.....get a copy of Dave Ramsey's Total Money Makeover. He says using your home equity for a car is not wise at all.

How much interest will this new loan on the house be? How much will you have to pay to refinance?

We have a home equity line of credit that came when we bought our house. We have never used it and don't intend to. The last flier we got said that they had upped our line to 120,000 dollars at our disposal for a mere 8.5%. NO WAY!

I hate sales people and I hate car dealers even more. They lie, lie, lie to get you to take the car. I am sure I will offend someone here, but I have had such bad experiences with sales folks. They hate the word no.

I would NOT do it!

Dawn

 

[torinsmom]

Why are you already over your mileage, or if I'm reading it wrong, why are you assuming you WILL be over your mileage at lease-end?

Is there another dealership you can take it to, one with truthful salespeople (assuming this is the same one that told you the untruth before?)? My husband would even recommend a dealership that sells a different brand of cars, just to see.

I know with my lease, there are penalties for turning a car in early, and that might be part of your upside-downness. I didn't quite get that, with my last two leases, because I was turning them in and getting new cars, and the penalties were getting wrapped in all the mumbo jumbo of the new lease. Since this time I'm NOT leasing (or buying) another car, but I did want to turn it in before I went over my miles AND I was tired of paying new-car insurance, I found out about the penalties.

I'm sorry you had to turn in your previous car b/c of the problems...there weren't any recalls that were pertinent to it, or any lemon laws that could have covered the situation? (if my '95 Jetta had had ONE more oxygen sensor blow inside of two years it would have been covered in my state, but it held off for a few months past the 2 years, grr) Such a bummer, to turn in a car b/c of problems like that.

Leasing a car IS pretty much renting it. Sounds like the guy didn't explain it to you. I personally was MORE than happy to lease cars for 11 of the 12 years I've been doing so, it's a new car every 3.5-ish years for me, and my friends think I'm nuts, but they have had one old beat up car and I kept getting new ones, so I was happy. But it sounds like you didn't anticipate what it might feel like, to "rent" the car. I'm sorry 'bout that.



I personally would rather just go through the lease. Perhaps try to tone down the miles you're putting on it, IF possible. If not, start saving for the miles now. We started some envelopes for mileage.

I know it sounds like forever, but if you do this you'll still be out the 4K from the home equity, and you'll have a 3 year old car in 3 years, rather than perhaps getting a new car in 3 years. I say stick with it, and either have fun with the 4K from home refinancing, or put it towards a down payment on that new, as-yet-unthought-of, car you'll get in a few years.

I am not over the mileage yet, but with the miles I drive, I will be in a few months and still have 2 1/2 years left on the lease. I work 20 miles from home and also drive to the beach(3 hours each way) several times a year and Disney(9 hours) once a year. This was discussed when I did the lease and I was told it was 5 years or 60,000 and that I would not be upside down in 2 1/2 years. I was lookin at it as paying for the 2 1/2 years I drove the car and then being free to turn it in and start with a new van.

I can't tone down the mileage much at least for another year. I am teaching at a school I love and want to stay there at least another year.

 

[torinsmom]

Just my opinion.....get a copy of Dave Ramsey's Total Money Makeover. He says using your home equity for a car is not wise at all.

How much interest will this new loan on the house be? How much will you have to pay to refinance?

We have a home equity line of credit that came when we bought our house. We have never used it and don't intend to. The last flier we got said that they had upped our line to 120,000 dollars at our disposal for a mere 8.5%. NO WAY!

I hate sales people and I hate car dealers even more. They lie, lie, lie to get you to take the car. I am sure I will offend someone here, but I have had such bad experiences with sales folks. They hate the word no.

I would NOT do it!

Dawn

I am refinancing already to do some much needed home renovations and improvements. The thought was that I could cut some corners here and there and have the $4000 for the downpayment. I appreciate your suggestions. I think I need to rethink the situation. And I will NEVER go to that dealership again--they TOTALLY lied to me!

Marsha

 

[ExPirateShopGirl]

The guy knew very well you'd still be upside down in your loan at this time, especially since you leased the vehicle.

Stick with the car you have and decide when the lease is up what to do. Start putting aside money weekly/monthly for the car, whether that money goes to paying for repairs, paying off the mileage at the end of the lease or buying a low-mileage USED car when the lease is up.

You simply can't keep buying new cars without cash (home equity money is not cash). If you start saving now, when the lease period is up, you'll be in a better financial position to pay off the miles and use your savings to purchase a late-model used car. You can't keep eating depreciation.

Good luck.

 

[CarolA]

Yes you can cut down on the mileage. 1. No trips to the beach 2. No trips to Disney. That's going to cut down a lot (I know that won't be popular but...)


I can't follow you logic on the Dodge Van at all. (Sorry, but I am really confused how you come out ahead there)

You actually have a couple of choices on the lease. You can buy it out at the end or pay the mileage penality and turn it in.

This is going to sound cruel, but before you do anything else on a car make sure you READ the contact. It really sounds like you just signed without reading here. Having purchased and leased cars while I don't doubt that you believe what you are posting the "line" you heard was just unbelievable. Remember if it sounds too good to be true (ie. your two to three year old car was going to be worth MORE then it currently was...) it probably is. (Your car would basically had to "appreicate" for the math you posted at the beginning of this lease to make sense. You were borrowing more then the current car was worth.)

 

[suzieqmomof4]

If you had to lease a car because you couldn't afford the payments on a regular car loan, how are you going to afford the payments on a home improvement loan?

I agree with DawnM, run (don't walk) to the library (not the book store) and get Dave Ramsey's book. He talks plainly and with common sense. Leasing benefits the dealer only. Get a handle on your money and that awful feeling in the pit of your stomach will disappear.

Asking the car dealer about the best options for a new car is like asking the fox how many chickens are in your henhouse.

 

[gris gris]

For those of you quoting Dave Ramsey, I listened to his radio show a lot and never could understand his attitude towards getting rid of your car and making it seem so easy. He always tells his callers with a car loan to sell the car and buy a new cheap one with cash. We have a truck that we owe $12,000 on. We wouldn't get $12,000 if we sold it, so we'd still have a balance on that loan, then we'd have to come up with money for another cheap car, so we'd still end up with a monthly payment. Why does he make it seem so easy when it's not? And I sure do remember him telling everyone to get 2 or 3 more jobs. At the expense I guess of not seeing your family or sleeping!

Sorry to hijack the thread, we're in the same sort of situation and would love to get rid of the truck, but it doesn't make sense to me to get rid of a vehicle that works great just to get a cheaper crappier car.

 

[Golf4food]

You can cut down the mileage on your van - don't drive it to the beach or Disney. If you must go, then check your local rent-a-car companies for specials and rent a vehicle for those trips - it will likely be cheaper than paying the over the mileage penalty at the end of the lease.

Leases do not pay down anything except depreciation, so if you are upside down to begin a lease you will be upside down to end it as well because NONE of your payments have gone towards the true value of the vehicle or towards your old negative equity. ALL lease payments go towards paying the manufacturer (or dealer, technically) for the value of the estimated depreciation of the vehicle. So if you lease a $20,000 vehicle and they estimate that in 4 years it will only be worth $12,000, you will make payments equal to $8,000 in depreciation. If you rolled $5,000 negative equity into it, guess what - you are still only paying towards that $8,000 of depreciation value so that at the end of the lease you will owe not $12,000, but $12,000 + $5,000 = $17,000. In essence you are just pushing out that money you owe into the future without making payments today - but losing interest the whole time.

If buying out the lease is too expensive, then keep the van until the lease expires and find a way to save some money between now and then to pay towards the negative equity. You should also be setting aside a few hundered dollars each year in your budget for vehicle repairs so they don't blind side you - we save $500 per year whether we use it all or not - if not we'll just have that much more next year because eventually something will break and we will need to repair a $300 pump or valve, etc. It is a hidden cost to most people, but setting aside $41.67 per month (equals $500 per year) is a heck of a lot easier than finding $500 out of nowhere...

And if you do buy that new van with the cash back, etc. you will wind up in the same place, as has already been mentioned - you will be at zero when you sign your name and back with $5,000 in negative equity the second you drive off the lot due to depreciation value on that "new" van. So all that would have happened is that you would have "wasted" $4,000 that you could have used on your home - value that you would actually retain or possibly gain value on when you sell the home - in order to "stay" with $5,000 in debt. Not a wise financial decision, really.

Good luck! I hope everything works out for you!

 

[bnorm27]

Don't put a downpayment on a car into a refinance or home equity loan. You'd be paying that $4000 for 10, 15, 20 or even 30 years! Granted, it will be a small amount of the refinanced loan, but it is not worth paying for over such an extended period of time. $4000 on most car loans would add about $100 a month to your payment. Your car will be long gone before you pay off the loan!

 

[nbodyhome]

I never think a lease is a good deal.

That said - if you go to the beach, rent a car for it. I'd NOT use the vehicle you have for long drives.

 

[CarolA]

For those of you quoting Dave Ramsey, I listened to his radio show a lot and never could understand his attitude towards getting rid of your car and making it seem so easy. He always tells his callers with a car loan to sell the car and buy a new cheap one with cash. We have a truck that we owe $12,000 on. We wouldn't get $12,000 if we sold it, so we'd still have a balance on that loan, then we'd have to come up with money for another cheap car, so we'd still end up with a monthly payment. Why does he make it seem so easy when it's not? And I sure do remember him telling everyone to get 2 or 3 more jobs. At the expense I guess of not seeing your family or sleeping!

Sorry to hijack the thread, we're in the same sort of situation and would love to get rid of the truck, but it doesn't make sense to me to get rid of a vehicle that works great just to get a cheaper crappier car.

Dave lives in a strange world. In Dave's world as soon as you sell that car you will SEND him money... Money to buy his books, Money to buy his envelopes, money to access his "super secret" web site, etc. Dave is fine with you getting out of debt as long as he gets HIS share..... (And the MAIN qualification of Dave's selected Financial Advisors is willingness to PAY Dave LOL!)

 

[luv2go2disney]

We ended up in this same situation when we bought out our leased car about 6 years ago and a few months after we bought it the value on the car dropped $7,000!!! We then got sucked in on a dealership saying that they were able to roll in that cost to a new vehicle...STUPID!!!! We were very young and naive! We have finally got out from under the upside down payment. We just had to ride it out and make the payments, I know it stinks but the more you try to get out from under it, the worse it seems to make it. That is what happened for us anyway. We finally got our new-used Suburban a few months ago. Good luck, I know it stinks but be patient.

BTW we had a Dodge Grand Caravan and they DO NOT hold the value, if you think you are going to roll in some negative equity! You also have to keep in mind that when you trade in a vehicle the dealership will give you as little as possible for your vehicle, usually way less than Blue Book! Keep that in mind as you try to make your decision.

 

[WendyisDarling]

Can you take the car to Car Max to get a good figure of what the car is worth. If that dealership lied before (obviously they did), I wouldn't believe them now.
I don't know much about leasing, but if Car Max says they will pay more for the car, maybe there would be benefit to buying the car out of the lease and selling it to Car Max. They seem to be pretty fair and generally pay more than typical dealerships. I'm sure you would still have a loss, but maybe not as much as this dealer. I don't necessarily think using HE is a good idea for a vehicle, but if you are going to do it anyway...
It seems to me when there is some sort of bargain with new cars the dealerships figure out a way to negotiate your purchase price less or give you less for your trade than it is worth...all kinds of little tricks. Plus, given your situation I wouldn't buy a new car. If you buy your Toyota our of the lease, sell it (maybe not even through Car Max, but on your own --you'd probably recoup more of your lost $ that way) and get a different vehicle, I would find a good used car.
I think the suggestion by others to use a rental for your Disney and beach trips rather than put miles on a leased car is a really good idea.
Good luck. I hate dealing with car dealerships.

 

[TnTWalter]

I have been there and done that. And I have tried to justify it with all the reasons you have. Doesn't work.

Can you sell the car and get a small loan for the difference? Buy a very reliable garage sale car for $500-$1500 and save money to buy a good used car in the future? Trading in cars at dealers, leasing, buying brand new are not good ideas. Cars lose up to half their value no matter the make or model within 2 years. So even if a dealership is offering $4k off or 0% interest, it's NOT a good deal.

Using home equity to buy vehicles or pay off credit cards is never a good plan either.

I suggest reading Millionaire next door, Totoal Money Makeover, and Automatic Millionaire to learn how to win with money.

It is hard to delay gratification but soooo worth it.

This is my humble opinion. You can take it or leave it.

Best of luck to you.

Trish

 

[NotUrsula]

I don't know what you traded in, but I'd be very surprised if a well-maintained Toyota started generating major repair bills at 60K miles for anything except the consumable parts (belts and hoses, battery, etc.) They generally are quite reliable.

You said that you are clueless about these things, so do yourself a favor -- stop trying to game the system. Leasing simply is not a good choice for people who are high-mileage drivers. You were had -- consider it a lesson learned and don't fall for it again.

As to what to do with the Toyota? Keep it, maintain it, and save to buy it when the lease ends. Then keep it longer so that you don't have a car payment until you have gotten your money's worth out of what you paid for it. (When I buy cars I pay for them over 3 years and keep them for at LEAST twice that long; just about effectively halving my monthly investment in operating a vehicle.) Do your best to cut your mileage anyway; it is costing you in gas and wear-and-tear. Trip-chain whenever you can, rent for the beach trips, and fly to WDW *if* you can get a good sale fare (if not, don't go.)

 

[kt_mom]

Everyone hates car dealerships because they make a profit. I'm sorry that they won't sell you a car at what it costs to make it. I don't mean to sound mean or hateful, but its a retail business and retail businesses are there to make money. It is a well known fact that cars are depreciating assets.

That being said, if you like new cars then a lease is a good deal because at the end you turn it in and pay any overage miles and your done. You can get a new car. My DH drove a beautiful 5 series for two years with an unbelievably great payment loved it and turned it in when he was done. Now he has a great Acura. He bought it used, negotiated the price and did a used car lease. He actually was several thousand dollars in the positive at the beginning. If he had sold it within the first year he could have made money on it.

I don't know what the terms of your lease are but I would save my money to pay the miles and ride out the lease. You should be able to turn it in at the end of the lease and not owe money other than miles or damage. I think they will have figured your inequity into your payments. We did that with a truck once and rolled our negative equity into it. We ended up getting out of it about 5 months early though by selling it ourselves and paying off the lease. We were way over the miles but didn't have to pay b/c we sold it to someone else instead of waiting to turn it in.

Do your research before you shop for a car. But don't expect them to hand you the car at cost. If that was the case they wouldn't be in business. Its a big ticket item and I think the consumer is obligated to know what they are getting into. Read the fine print, its a contract like any other. Research the cars, you can look at new car prices and prices of cars on autotrader or in the paper used and see how quickly they are depreciating.

Many dealerships will use blue book as a guide to how much they give you for your trade. You also have to consider the condition of your car as well. (smoking in it makes a difference too, that smell is hard to get out.) Negotiate with them, or try, that's your right. If you don't like what they want to give you for your car then wait to buy and sell it yourself. That's your right. But if you decide to trade, then the dealership has the final decision on what they will offer you for your trade. But you can't complain, you have the option of selling it yourself. But of course that would take your time and money to do.

OP good luck to you, I hope that things work out. Whatever decision you make, I wouldn't use home equity loan to finance a car and please do your research. I suggest though saving to pay the miles on your current lease and sticking out a few more years till your done. I'm in a lease and I would love to get into something else now, but I have two more years on it and some inequity so I have to stick it out. But in two years I'll be free and clear and can buy whatever I want. Good luck!