Overhaulin'

upside down loan?

my step daughter and her husband (she's 24) are about to make a huge mistake I think. She wants to trade in her 2000 Jeep cherokee that she has only had for 3 months and she owes $5900 on for a 2004 Hyundae XG350 that is $10,700. The dealership told her they would pay off her jeep and her car payments would only be $130 a month at an interest rate of 13%. This is with no money down and neither one of them have very good credit or very good jobs. She barely makes over minimum wage and doesnt even work full-time. He only works when the weather is nice. She is wanting to live like everyone else that works hard for nice things without the hard work. I think they are not telling us the whole story. Are they lying to us or is the dealership ripping them off? This happens to be a major dealer in our area and very reputable.

Public Comments

1. They will carry over the balance she owes on her Jeep onto the new loan. So instead of owing 10,700 for the new car, she'll owe that PLUS the balance on her Jeep. They don't pay it off, but it makes the paperwork to the bank look like they did.
2. She's 24, you won't convince her she is making a mistake. All she sees is "New car, low payments" and she isn't factoring in the cost of insurance, taxes, plates, and all the things that drive up expenses. Just say "That's nice dear" and change the subject.
3. http://www.score.org/downloads/Loan%20amortization%20schedule1.xls Go here and learn how much that will cost her @ 130 per month. Figure the payout on the one she has. 13% interest? WOW! She will pay a fortune, forever. It will always be worth less than the balance. She alreay has a used car. Who needs another one? It's already 4 years old, and if built in 2003, 5 years old. Think of new tires, maintenance, which may not have been done regularly. Battery. Tune up. Etc. $130 per month, it will be worn out before it's paid. What? Another 7 years? Or longer? The car will be 10 years old or more when paid. From my experience with kids, you can't stop a speeding train. Good luck.
4. Something is not right here. She owes $5900 on a 2000 Jeep. So she has very little, if any, equity in the car. $10,700 car, 13% APR - that does NOT give you a $130/month payment over the entire term of the loan. Something is fishy about the math. They may getting one of Hyundai Motor Finance's 'stepped' loans. The paymetns are $130 for the first 2-3 months, after that they go way up. Its basic math - the most any lender will go on a conventional loan is 72 months. Unless you are buyin a high end exotic, luxury, or motor home, that is your longest term 72 x $130 = $9360.00 Thats AFTER interest, taxes, fees, etc. There is NO way in hell she is getting a car worth almost $11k, 0 down, trading in a car with a lien against it, 14% APR -- and $130 payments. Not going to happen. Either she is not telling you everything, or the dealer is not telling HER everything. Either way -t he math simply does not add up. At the end of the day, though, she is an adult. She can make these terrible decisions on her own. As long as you are not cosigning on the deal, you really can't get her to do anything. Hopefully she wises up before putting ink on paper, because this has 'disaster' etched in stone.
5. Why would you immediately think that the dealership is ripping them off? 130 a month sounds good. If they were trying to rip her off then thge payment would be a lot higer and the interest rate would be something like 30%! some states have a maximum cap on rates and some peolpe have credit so bad that the BANK not the dealership qualifies them at 24-30% People naturally assume that because they are financing at the dealership that they are the ones sticking them with the high rate. IT IS THE BANK, not the dealership. Plus prime rates right now are around 7%. 13% for a person with bad credit is very good. I would take the deal, get out of the cruddy chrysler product and get a hyundai with a good warranty.