Negative Equity Question

[Gunmetal Speedster]

I'm bored at work and haven't done much posting on here as of late so I thought I would bring this idea to the table, hopefully someone can shed some light. So the other day, a buddy of mine and I were talking about trading cars in. He said the one thing that is stopping him is the negative equity he has on the car, because if he doesn't pay it off, it will just keep adding up throughout vehicles that you trade in on. So we got to thinking about it, and we came up with an idea that to us, makes sense. However, I'm sure there is some sort of variable we are forgetting as this would be almost too easy and a way out of negative equity essentially without paying off the full loan amount or having the car totaled and using GAP insurance. So here is the idea below, sorry in advance if I don't explain this well;

In case you haven't had the misfortune of dealing with negative equity (seriously, good for you) because you pay your car off, how it works to my understanding through experience is that whatever amount you still owe after the trade in cost is deducted, gets applied to the cost of the vehicle you are trading in for.

We will use my camaro for example. Note that these aren't real numbers, but fictional ones used for the purpose of the explanation. Nice round numbers are easy to deal with haha. Say I owe $25,000 on my camaro still. The place I'm trying to trade it into deems that it is only worth $15,000. That's $10,000 negative equity (ouch). Instead of trading in towards a higher priced, better car that I want that costs $30,000, making it $40,000 with the negative equity tacked on, what if I did the opposite and aimed for the bottom of the barrel $2,000 beater on the lot. Apply the $10,000 negative equity to it and it's now $12,000. They are giving me $15,000 for the camaro, so hypothetically I should make $3,000 back and no longer have a loan with negative equity, right?

Question is, what am I missing? Because then instead of adding the $10,000 negative equity to the $30,000 car you want, you could take the beater car you traded for and the $3,000 you just made and use both toward a down payment on the $30,000 car, making the total of the new car now $27,000 (minus whatever the cost they give you for the beater) instead of making it the original $40,000 you would have with negative equity.

I'm sure there isn't a "loophole" in the system/an easy way out, I just can't think of what I'm missing so I'm asking you guys to help out Also note there is no tax included in this, once again I used nice even numbers for the point of the post and to (hopefully) explain the idea thoroughly. Let me know what you guys think! Look forward to hearing your thoughts

[pyroguy]

Hey Gunmetal, glad to see you’re still around. Haven’t argued over what headers are best with you in a while.

As for your conundrum, the piece of the pie you’re missing is that you owe $25,000 on the car before anything else. If they give you $15,000 for your car even if you only buy the bottom beater on the lot you’re still only getting $15,000 for your car. So now instead of trading in for a “nice” $30k car for $40k you now have a $2k beater for $12k. The $10k doesn’t go away just because you get a less expensive car.

[HOJO]

Your $2000 dollar beater is now a 12,000 beater. You trade it in and they will probably only give you a grand. So now your in the whole 11 grand and not 10. You can never get rid of negative equity unless you pay it off. Either way ay it sucks to be upside down on anything.

[Windycity]

You will not get a car loan like That for multiple reasons first of which you will not find a $2000 beater on any sort of dealers lot because any dealer that has new vehicles will hand over a beater to an auction house to get it off their lot because they will not try to sell a piece of junk on their lot

Plus I doubt that you will get financing for that much over the value of a beater car because finance companies don’t want to get screwed out of the money

You can avoid this hassle by putting enough money down on the car to begin with or start making double payments to get the Pay off amount closer to the value of your vehicle.


Sent from my iPhone using Tapatalk

[briancamaross]

So the way to help get rid of the negative equity is to buy a car with rebates. Been there done that a few times in Florida .

[Gunmetal Speedster]

Originally Posted by pyroguy

Hey Gunmetal, glad to see you’re still around. Haven’t argued over what headers are best with you in a while.

Yeah buddy, just been living a very busy life. New house, got married, full time work and full time student

As for my initial post and question, thank you all for the clarity! Not sure why I couldn't see that before, but I knew there had to be a flaw in the logic I was using

[pyroguy]

Originally Posted by Gunmetal Speedster

Yeah buddy, just been living a very busy life. New house, got married, full time work and full time student

As for my initial post and question, thank you all for the clarity! Not sure why I couldn't see that before, but I knew there had to be a flaw in the logic I was using

Congrats on getting married and the new house! Full time job and student definitely are enough to keep you busy by itself on top of everything else.

Sometimes it just takes an outside view to solve a problem. It seemed like a good idea, but the unfortunately you can’t make negative equity disappear without paying severely less than the next car is worth. For example getting the $30k car for $20k THAT would eliminate the negative equity.

[motorhead]

Originally Posted by briancamaross

So the way to help get rid of the negative equity is to buy a car with rebates. Been there done that a few times in Florida .

While that may make it possible for you trade a car that you owe more than its worth, you are still losing the money by using the incentives to get you out from under the trade. Now you will be upside down in the new car almost immediately because cars with large incentives lose their value immediately because of the incentives. You are are still effectively carring that debt with the new car. There is no excape other than to put enough down on a car that you wont be upside down.

[Stingr69]

The first law of thermodynamics is "there ain't no free lunch" and it applies here.

You owe the negative equity NO MATTER WHAT and they "could" apply (add) it to the new car loan. Not likely to pass the scrutiny of the credit department (they might be foolish enough to agree to do such an upside down deal if the interest rate is high enough).

Game the system? -HA!

Your payment will be very high for a really crappy car.

[Donald]

Originally Posted by Gunmetal Speedster

I'm bored at work and haven't done much posting on here as of late so I thought I would bring this idea to the table, hopefully someone can shed some light. So the other day, a buddy of mine and I were talking about trading cars in. He said the one thing that is stopping him is the negative equity he has on the car, because if he doesn't pay it off, it will just keep adding up throughout vehicles that you trade in on. So we got to thinking about it, and we came up with an idea that to us, makes sense. However, I'm sure there is some sort of variable we are forgetting as this would be almost too easy and a way out of negative equity essentially without paying off the full loan amount or having the car totaled and using GAP insurance. So here is the idea below, sorry in advance if I don't explain this well;

In case you haven't had the misfortune of dealing with negative equity (seriously, good for you) because you pay your car off, how it works to my understanding through experience is that whatever amount you still owe after the trade in cost is deducted, gets applied to the cost of the vehicle you are trading in for.

We will use my camaro for example. Note that these aren't real numbers, but fictional ones used for the purpose of the explanation. Nice round numbers are easy to deal with haha. Say I owe $25,000 on my camaro still. The place I'm trying to trade it into deems that it is only worth $15,000. That's $10,000 negative equity (ouch). Instead of trading in towards a higher priced, better car that I want that costs $30,000, making it $40,000 with the negative equity tacked on, what if I did the opposite and aimed for the bottom of the barrel $2,000 beater on the lot. Apply the $10,000 negative equity to it and it's now $12,000. They are giving me $15,000 for the camaro, so hypothetically I should make $3,000 back and no longer have a loan with negative equity, right?

Question is, what am I missing? Because then instead of adding the $10,000 negative equity to the $30,000 car you want, you could take the beater car you traded for and the $3,000 you just made and use both toward a down payment on the $30,000 car, making the total of the new car now $27,000 (minus whatever the cost they give you for the beater) instead of making it the original $40,000 you would have with negative equity.

I'm sure there isn't a "loophole" in the system/an easy way out, I just can't think of what I'm missing so I'm asking you guys to help out Also note there is no tax included in this, once again I used nice even numbers for the point of the post and to (hopefully) explain the idea thoroughly. Let me know what you guys think! Look forward to hearing your thoughts

Understood, but the one kink is the loan. Put yourself in the bank's shoes... Would you loan someone $12k on a car valued at $2k? Most banks have a cap of 125% of the vehicle's book value.

Donald

[Burt]

The quickest way I've heard to get rid of the negative equity, if you can afford the payment, is to roll it in to a 24 month lease, so that at the end of the lease you have no equity either way and can start over

[Tyl3r]

You can't rollover only the negative equity to the new car AND keep the $15,000 received for selling the original vehicle. Equity is the value of assets minus liabilities. Remember, you owe $25,000 on the vehicle, not $10,000. Example options: rollover $25,000 loan and keep $15,000 cash, or rollover $10,000 negative equity, no cash. Either way you are in the hole $10,000. I hope my image attached helps you visualize this.