Upside down on car loan

[robsmom]

Well, I was upside down and that's why the payments ended up being so high. My house payment is very low(less than my car payment) I am refinancing, which will increase my payment, but will incorporate a higher interest loan as well. I am not having trouble paying my bills at all, just disheartened that I am so upside down.

I can buy out the lease, but I owe $7K more than the blue book value. No bank will loan me that much more than a car is worth. At this point, I will keep paying and try to pay extra whenever I can. Once I get to the point that I can finance the van through my credit union, I will buy it from the lease. Then I can either drive it or sell it and get something newer.

Not going to DIsney is not an option for me, at least for this year. Renting a car may be an option. To me, it doesn't make sense to rent a car for a week to drive to the beach--it's around 400 miles round trip, 15 cents a mile in overage would be 60.00, while renting a car would be more than that. Besides, if I follow my plan, I don't need to worry so much about mileage, right?

Thanks for all the advice. I'll definitely consider it all. And I will finance through the credit union next time; they have been truthful with me everytime I have dealt with them.

Marsha

A few thoughts. There is almost no scenario in which buying (or leasing) a new car is going to improve you finances. You may be able to kid yourself by lowering a payment but you are just pushing the problems off to the future. As someone has said, your rolled your last upside down value into this car.You say that you are not having trouble paying your bills which is good. In that case, if you have good cash flow, stick with this car and put the extra money you would pay on the new mortgage into the bank to pay your buy out. If you mortgage it, you are paying for a car you don't have for the next 30 years. You are upside down because you are driving a car that is nicer than the amount you are paying per month. Consider it a lesson learned. You made a great point that no bank will give you a car loan for more than the car is worth - basically that is what the car dealer did on the second loan when the rolled it in. Going forward with your mileage, you need to buy cars on 3 yr loans not 5 yr loans or leases. this means paying more each month for the van. If you can't afford the 3 year payments you need to buy a cheaper car.

 

[disneymom3]

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!

I have to say that this is the most helpful explanation of a lease I have ever heard. Awesome post! Wish I had read it about 12 years ago when DH and I learned the lesson about leases the hard way. (Young, naive kids is what we were!) However, my point of posting is to say that our learning experience in leasing was also with a Toyota thankfully. I say thankfully because we did buy out hte car at the end of the lease and continued to drive it for another 4 years. It was painful to feel like we had "lost" so much money but we just had to bite the bullet and deal with it. We are now very strongly 2-3 year old car converts.

Kate--thanks for the info on 2004 Honda vans being so available. Might have to get one of those next!!

 

[Nicolepa]

I have two questions about leases:

1. If you buy the car at the end of the lease period, do you still have to pay for excess mileage?

2. Is it possible to negotiate the sale price to buy the car at the end of the lease or is that fixed? If you are over the mileage

If you buy the car then the excess miles does not come into play. The bank will tell you how much you owe on the car and you get them a check. Mileage, wear and tear, damage etc are not an issue. The bank will not even look at the car.

Most of the time the car is a set price at the end of the lease. In an instance where the current selling price is a lot lower than the residual on the lease, then yes, sometimes you can negotiate a better price with the bank. Sometimes the residual is a lot lower than the cars are currently selling for. Then you want to condider buying the car even if you don't want to keep it because you could then sell it and make a profit. Although they have gotten so good at calculating the residual these days they are usually pretty close.

 

[Stein]

I can buy out the lease, but I owe $7K more than the blue book value. No bank will loan me that much more than a car is worth. Marsha

Give it a try, you already found one bank that would loan you $7k more than it is worth!

I don't think I would borrow against my house, but I certainly would borrow on a credit card to get me out of a sinking ship. I would rather owe $10k on a card and have a $3k car than owe $20k or whatever on a car.

If you are going to owe $4k in excess mileage, you will be almost forced to buy the car anyway, might as well take the hit now and start the recovery than wait a couple of years.

 

[Microcell]

Let me tell you about my Dodge experience..

We are upside down on our current car thanks to a Dodge. The engine blew at 76,000 miles on our 2001 Intrepid, a common occurance with Dodge Intrepids I found out when we owed 5,000 on the car and had no car.

Some chain went on it and then ruined the entire engine. An honest Mechanic told us that. He actually quoted us 3,000 cost to repair and said "If I were you I wouldn't fix it. It cost so much because we have a hard time finding these engines it is so common. Then we couldn't tell you how long the next engine would last because it is common for this to happen at 100,000 miles. If I were you I would take the 3,000 and get another car."

 

[ClarabelleCowFan]

It is true though. Law requires dealers to keep the MSRP sticker on new vehicles. If you get a better price than that good for you. You did your homework, or you negotiated well, or you just plain got lucky and they were having a bad day and you got a good deal. But the MSRP is posted clearly on the vehicle.

I can understand you being defensive since your DH works in the business but ask him what "ADP" means on the invoice. Car dealerships are notorious for finding ways to pad the invoice like mysterious initials like that and things like "undercoating". Finance managers also can find ways to make even more money for the dealership with things like extended warranties and creative financing. There may be 1 MSRP but there are usually 2 invoices on every vehicle - the 1 that shows the true cost to the dealership AND the one that goes on the car - the one on the car is always a much higher cost then the secret one filed in the back that the customer will never see.

One of my closest friends is the GM of one of the largest car dealerships here in town and I dated a top car salesman for 3 years. I have heard the stories, seen the tricks of trade in action and don't trust most car salesmen as far as I can throw them. Trust me, car salesmen hate to see me coming because although I am female I can see thru their double talk and know the way things work. I also don't hesitate to pick up my cell phone and call my friend (the GM) and question him on book values (dealerships dont use the Kelley Blue Book, NADA or Edmunds - they have their own "secret" book) and financing and call the bluff of the salesmen and the finance managers.

OP - years ago I was where you were at and just had to bite the bullet and pay off my junky van and literally drove it until it died. I hated that van by the time I got rid of it but it was a lesson that will never leave me. I have learned to secure my own financing ahead of time and know exactly what I am willing to pay and what a vehicle is worth (don't be afraid to walk away from a car you like - there are always more out there).

Educate yourself. Ask friends and families for recommendations for dealerships - there are some out there that aren't full of sharks - and the names of the salesmen they used if they seemed happy with the deal they got.

Bottom line is that car salesmen work on commission - any money that is discounted from the vehicle is money that comes out of their pocket so they will usually do or say whatever it takes to convince you to sign on the dotted line. The turnover rate in this field is VERY high because of the high pressure the dealership puts on them to sell at high profits on a consistent basis.

Don't EVER finance a vehicle with negative equity. It NEVER goes away until you pay it off - it just gets rolled up into the new loan and you sink deeper into a hole that you will most likely never get out of.

Good luck!

 

[kt_mom]

I can understand you being defensive since your DH works in the business but ask him what "ADP" means on the invoice. Car dealerships are notorious for finding ways to pad the invoice like mysterious initials like that and things like "undercoating". Finance managers also can find ways to make even more money for the dealership with things like extended warranties and creative financing. There may be 1 MSRP but there are usually 2 invoices on every vehicle - the 1 that shows the true cost to the dealership AND the one that goes on the car - the one on the car is always a much higher cost then the secret one filed in the back that the customer will never see.

One of my closest friends is the GM of one of the largest car dealerships here in town and I dated a top car salesman for 3 years. I have heard the stories, seen the tricks of trade in action and don't trust most car salesmen as far as I can throw them. Trust me, car salesmen hate to see me coming because although I am female I can see thru their double talk and know the way things work. I also don't hesitate to pick up my cell phone and call my friend (the GM) and question him on book values (dealerships dont use the Kelley Blue Book, NADA or Edmunds - they have their own "secret" book) and financing and call the bluff of the salesmen and the finance managers.

OP - years ago I was where you were at and just had to bite the bullet and pay off my junky van and literally drove it until it died. I hated that van by the time I got rid of it but it was a lesson that will never leave me. I have learned to secure my own financing ahead of time and know exactly what I am willing to pay and what a vehicle is worth (don't be afraid to walk away from a car you like - there are always more out there).

Educate yourself. Ask friends and families for recommendations for dealerships - there are some out there that aren't full of sharks - and the names of the salesmen they used if they seemed happy with the deal they got.

Bottom line is that car salesmen work on commission - any money that is discounted from the vehicle is money that comes out of their pocket so they will usually do or say whatever it takes to convince you to sign on the dotted line. The turnover rate in this field is VERY high because of the high pressure the dealership puts on them to sell at high profits on a consistent basis.

Don't EVER finance a vehicle with negative equity. It NEVER goes away until you pay it off - it just gets rolled up into the new loan and you sink deeper into a hole that you will most likely never get out of.

Good luck!

Okay, I'm not going to argue this with you. I will say this though, there's no "secret" invoice in the back. There is an invoice for the car that's usually filed in the car's folder which we kept in the accounting office. Then there is the MSRP sticker that is on the car. They are two different things and therefore they have different prices. Its no conspiracy there.

And alot of dealerships do use Blue Book to value their trade ins. I know ours did b/c I paid the subscription to it and I've watched them quote prices out of it to customers. If you want to get for your trade what you could sell it for then take your time and spend your money to go out there and sell it yourself and then go buy a new car. If you don't then accept the fact that when you trade it in to the dealership that they have to sell it themselves and they will compensate you for it accordingly.

I would never go into another dealership on my own and buy a car for myself. I don't want to take the time to do the research. They would probably make a bit of money off of me. But we have bought cars from other dealerships before. My DH wanted a 5 series which is not what his store sells so he shopped around and got an awesme deal. Not from our local dealer though. He ended up buying it out of state. But they would do the numbes he wanted. We had a great car with awesome payments for two years and then we turned it in and walked away. We like leasing, it works for us. A car payment is one thing that we always plan to have. At least for my car, DH doesn't have to have a payment anymore.

I have negative equity in my lease b/c we got some money back on the deal. But its figured in and when the lease is up I will walk away except for my overage on miles.

You can get a great deal on a car. You can get screwed on a car. I'm not trying to say that you can't. They are there to make money and if you don't pay attention and do your research then they will make their money.