Negative equity vehicle trade in?
(2011-04-15 14:30:35) 1. Says: I'm trying to understand this and maybe you can help me.Car A
Finance with $28,000 owe to the bank
Car will be trade in for $16,000
$12,000 in negative equity
Trade in for Car B
Sale price $18,000 assuming taxes is added.
Now here is where i sortof don't understand.
Car A trade in for Car B so $2,000 is left to finance or payoff. But does the negative equity add on or does the whole $28,000 add on?
Will the total bill be $30,000 ($2,000*from trade in* + $28,000*total amount still owe*)
OR
$14,000 ($2,000*from trade in* + $12,000*from negative equity*)
Im guessing $30,000 is the right answer2. Says: It's really simple. The two transactions are not connected even though the dealer makes you think they are.
When you sell your car to the dealer (trade it in) they give you a cash offer. The money they give you goes to pay off the existing loan on the car. So if you owe more on the car then the dealer gives you you are going to lose money.
In your scenario above trading in your car will cost you $12,000 in cash. You owe the bank $28,000 and you are selling the car for $16,000. You're $12,000 short of paying off the loan. That money has to come from somewhere and that somewhere is your pocket.
Now if you want to buy a car that means you purchase the new car for $18,000 plus you still have that $12,000 from the old loan to pay off. So in reality you are paying $30,000 for an $18,000 car causing you to be instantly upside down again. You have a new car that is 2 days old that you paid $30,000 for that is only worth $18,000.
Most lenders won't even write up a deal that bad.
A poor financial plan any way you look at it.3. Says: You add the cost of the new car, plus taxes and fees and then add the negative equity.
I am hoping this is hypothetical, because no legit lender is going to let you roll that much equity into a new vehicle.
Noone will let you borrow $30K to buy something worth $18K (or $16K the second you drive it off the lot).
Be prepared to put down a ton of money as a down payment. It just isn't worth it. You need to stopp digging and pay off a vehicle. It's a downward spiral to roll negative equity,4. Says: Because of the amount of negative equity, I would just keep the car and apply for a refinance of the auto loan.
What kind of car is it?
Another option is to choose a vehicle with a SUPER high rebate to get you out of the car.5. Says: To get out of your current car A which is apparently only worth $16,000, you will need to pay that off with $12,000 out of your own pocket. To purchase Car B, you will need to arrange some down for that or pay that off in cash too. So yes, you need to come up with $30,000.6. Says: Where is the $2,000 figure coming from? You will owe $12,000 on a car that you no longer have and then add $18,000 to that for the car you buy. You then owe $30,000 on an $18,000 car. There is no way a bank will touch this. If you quit making payments they can not get the money back out of the car. You will have to add something else for collateral to the loan. Not a smart move at all. Tag: Negative equity vehicle trade in?