Overhaulin'

Should I get into an upside-down car loan?

So, I have a 2004 Nissan Altima. I checked KBB and it said it worth around $7000, but I still owe a little over $8000. I'm thinking of trading it in for a 2010 Nissan Maxima. I'm thinking of saving up $2000 for a down payment to go to the car, but my main question is this: If the previous loan is added onto the new loan, will the monthly payments be the same as if I put that amount as a down payment or would I have higher monthly payments than I would have gotten with just a down? Also, I'm planning to send more a month for my current car until I gather that money (maybe 2 months) and telling them to pay the principal with the extra money. Oh! I just thought of another question while typing this lol If I DO trade in the car, will the entire loan be added or will they buy my car and add only the $2000 remaining to the new loan?

Public Comments

1. No. You should not get into an upside-down car loan. Even if the payments are the same, you will be paying longer - which means you will be paying more. Do yourself a favor, find out the interest rate you would be paying and calculate the total cost of trading in your 2004. My suggestion is keep the 2004 until after it's paid for before considering trading it in - and even then, don't trade it in - sell it yourself.
2. They will take the trading difference and then add all the state fees and then add you pay off. You are very much likely going to need more than $2000.
3. This is how it works. When you trade in your car the dealer is essentially buying your car from you. If they offer you $7000 and your loan payoff is $8000 then you still owe the bank $1000. That money comes directly out of your pocket. If the lender allows it you may be able to roll that balance into the new car. So instead of paying $28,000 for a new Maxima you'll pay $29,000 for it. If you still have $2000 for a down payment then you'll end up financing $27,000 for the new car. Either way you're out of pocket $1000. Here's the big question, did you check the wholesale value with KBB? Were you honest when it comes to condition (no car is classified as excellent, 99% are average). I think your KBB value is way too high. I believe your car is closer to $5000 value not $7000.
4. As far as the payments go that all depends on the terms. There are plenty of websites that can calculate that for you. However it is not that simple. You have to look beyond the monthly payments to see how much trading in that car is really going to cost you. When you make payments on a loan, with each payment as your balance decreases so does the amount you pay in interest. The longer you have been paying the loan the more of your payment goes toward paying off your balance. When you trade in a car you are starting the process all over again so the payments you are making will go in someone else's pockets instead of yours. Trading in cars is a great way to stay in debt, especially if you are upside down. Hopefully that is not your plan. With that in mind do your homework. You may want that car now but in a few years you make look back at it as the dumbest thing you ever did.