Overhaulin'

upside down car loan?

So, here is the short version, I got a car loan for my sister but the car loan is completely upside down, meaning I have negative equity. The car itself is worth $8500 but the car loan is for $16k. My sister ended up moving out of the country and I am stuck with this vehicle. Not a big problem for me since my car was recently totaled and I had this car to use. But, I'd like to trade the car in and buy an economical car which is $12k. I have $4k for a downpayment so I guess my question would be what would be the best thing to do. Do I put the $4k down on the new vehicle or pay my current loan down and allow the negative equity to roll over to the new loan? Current Car Loan = $16k Current Car Value = $8500 Negative Equity = $8000 New Car = 12k - 4k - $8500 + $8000 = $7500 New Car Loan???? (Did I do this correctly??)

Public Comments

1. You may not be able to buy with $8000 in negative equity and only a $4000 down payment. You would then owe $15,500 on a car worth $12k at retail and probably $9500-10,500 at best wholesale as soon as you drive it off the lot. The bank, after repo fees and costs stands you lose $6000+ if you never make the first payment. Very simply put, you may need several thousand more dollars down to stand a fighting chance nowadays. A few years ago, they probably would have done it for you. Maybe. How did she get SO FAR underwater ? Whats funny is you may be able to buy the new car with nothing down or just $1000. That might be worth considering. If you dont have a garnishable job or attachable assets. Buy the new one with as little down as possible, give the other one back. It will kill your credit, bu you just bought a brand new car that should last you for many years. By the time you need another one, your credit may be somewhat recovered from the hit its going to take if you let it go back. The other option is to try getting someone you know, with bad credit to make the payments. Just make sure they insure it and that the insurance doesnt get cancelled. Also, you probably want GAP insurance. If that care gets totalled, you owe big money to the lender, just like with a repo.
2. No you did not do the math correctly. You have to add back in the FULL amount of the loan payoff. You take the new car at $12K and subtract your $4000 down and subtract the $8500 they will give you for the trade. Then you have to add back in the money it will take to pay off the loan which is $16K (not $8K) 12,000 - 4,000 - 8,500 +16,000 $15,500 new car loan amount. Here's the problem (other than losing $8000 cash on this deal) No lender will allow you to borrow more than the car is worth. So if the car you want to buy is worth $12,000, banks will not lend you $15,500 to buy it. Nobody will.