Any car salesman around here??

[rick snagwell]

sooo i have a 2011 bmw 3.28i. it has 62k miles on it and we are upside down on approx 5k according to edmunds.com.

so we are going to buy a new suv for for room...kids.

we have about 6k cash to:

a) pay to bmw financial to not be upside down, would be able to trade in the bmw being equal, not upside down.

b) trade in a upside down bmw, and then offer about 6k down on the new car.

hope i explained it well. please give me advice, and if i need to give anymore info...not a prob.

thanks for all help!

 

[yg17]

I don't think it matters which one you do, the math will work out the same for both in the end.

 

[maflynn]

I'd go with option B, why bother pay down the loan when you're only going to pay it off by way of trade in.

Also you're negating the fact that you may negotiate a better deal and will not need to use the entire 6k. If you pay down the loan then you've committed all of your funds when you may not needed too.

 

[S.B.G]

What Mike said above, option B. Plus, you'll get the SUV with more room for the kids that you need.

 

[heehee]

Find a hugely discounted new 2015 SUV. I was upside down on my MINI (before lease ends) and it needed new tires, fix windshield stone chip and various door dings.

Went to Lexus and Toyota to see what they can do, both wanted me to pay $3,000 just to return the MINI's lease. No way I'm going to do that. Went to MB and they bought my MINI out and gave me $3,500 discount on a new C. I dont think it make sense to pay to trade in a new car.

 

[Apple fanboy]

Personally I never borrow money for anything. Pay off the loan, and pay cash.

 

[rick snagwell]

good stuff guys, thanks for the input. gonna head to the dealership and tell them im upside down and i will buy a car off their lot and see what kinda offers i get!

 

[A.Goldberg]

good stuff guys, thanks for the input. gonna head to the dealership and tell them im upside down and i will buy a car off their lot and see what kinda offers i get!

I think this is your best bet. Finding the car with the right incentives could change what makes sense. Run the numbers for each car you're interested in at each dealer.

The thing that makes the most sense financially in the big picture is to just hold onto the BMW. What vehicle(s) are you looking into purchasing?

I'm not a salesman, or a businessman, but I asked my father who is a financial guru (investment banker). I know someone was in a similar situation, interestingly also with a BMW. He said the most common cause of this upside-down situation is not putting down an adequate down payment. Financially it probably makes the most sense just to keep the car if you can manage. Putting the balance of your car into the new loan is probably the next best option but obvious it sucks that you're paying interest on top of interest. If you've run into this issue before, then you're further compounding the issue. If you took $5k to pay off the loan, you'd prevent having to pay interest on interest, but then you run into the issue of not having a downpayment (perhaps your issue in the first place, though you probably didn't anticipate buying a new car now). Depending on your credit, this may not be an option. It may be an option if the car you're looking at has a financing special with a low downpayment and low interest. So there are some instances where that may work out to a better deal. You should just run the numbers at each dealer.

Another option: the greatest depreciation occurs in the first few years, you might want to consider holding off until your BMW's value breaks even with what you owe. You'd probably have to do some research into when that might happen and if waiting is actually feasible depending how far off that point is. Your best bet (depending on the car) is to by a slightly used or demo model to save on the depreciation- CPO's often get better warranties if you're looking to keep the car long term. If you go with the Japanese brands you're pretty sure to have a car with excellent residual value.

 

[maflynn]

Personally I never borrow money for anything. Pay off the loan, and pay cash.

I'd love to do that myself but cash flow and other priorities usually mean that's not a feasible option.

 

[Apple fanboy]

I'd love to do that myself but cash flow and other priorities usually mean that's not a feasible option.

I hear you. When we borrowed money for our house, we made paying the mortgage the number one priority. Then instead of it taking 25 years, it took around 7.
Just means I'm putting the rent/mortgage money into savings every month so I can buy things like cars with cash.

 

[mscriv]

Another option: the greatest depreciation occurs in the first few years, you might want to consider holding off until your BMW's value breaks even with what you owe. You'd probably have to do some research into when that might happen and if waiting is actually feasible depending how far off that point is.

I'm not following this line of thinking. Are you saying that the numbers will eventually balance on their own?

If a car has already depreciated to the point that its value is less than what is owed on it then that trend is never going to reverse or balance. The car will continue to depreciate and the loan will continue to be more than the worth of the car based on the routine payment schedule. The only way to balance the numbers would be to make a larger routine payment toward the loan or a lump sum payment that erased the discrepancy.

 

[A.Goldberg]

I'm not following this line of thinking. Are you saying that the numbers will eventually balance on their own?

If a car has already depreciated to the point that its value is less than what is owed on it then that trend is never going to reverse or balance. The car will continue to depreciate and the loan will continue to be more than the worth of the car based on the routine payment schedule. The only way to balance the numbers would be to make a larger routine payment toward the loan or a lump sum payment that erased the discrepancy.

That is potentially the case, thus why I said he'd have to look into where the depreciation is headed. The depreciation is not linear (you lose a lot more in the first few years than the next few after that), but the payments are. It's possible they may balance out as he continues to make payments on the car over time, but that might not be until the car is worth far less than it currently is worth.

 

[yg17]

I'm not following this line of thinking. Are you saying that the numbers will eventually balance on their own?

If a car has already depreciated to the point that its value is less than what is owed on it then that trend is never going to reverse or balance. The car will continue to depreciate and the loan will continue to be more than the worth of the car based on the routine payment schedule. The only way to balance the numbers would be to make a larger routine payment toward the loan or a lump sum payment that erased the discrepancy.

The first couple years, yes, but towards the last year or two of the loan, the loan balance will only be a couple grand while the car will be worth more.

 

[mscriv]

That is potentially the case, thus why I said he'd have to look into where the depreciation is headed. The depreciation is not linear (you lose a lot more in the first few years than the next few after that), but the payments are. It's possible they may balance out as he continues to make payments on the car over time, but that might not be until the car is worth far less than it currently is worth.

The first couple years, yes, but towards the last year or two of the loan, the loan balance will only be a couple grand while the car will be worth more.

I understand what you guys are saying in terms of how things will even out toward the end of the life of the loan, but that is not what the OP was asking about. I guess that's where I got confused. I thought you were saying it would even out on its own at some point in the near future.

 

[A.Goldberg]

@bunnspecial should buy this car. He's looking for something similar.

I understand what you guys are saying in terms of how things will even out toward the end of the life of the loan, but that is not what the OP was asking about. I guess that's where I got confused. I thought you were saying it would even out on its own at some point in the near future.

Yes. I'm not entirely sure what the numbers are, so but I will estimate the car is worth somewhere $15,000 (trade in) and the OP therefore owes $20,000.

Looking at the prices of used cars right now, this may level out "in the near future" (pretty vague, right) depending on the term of the loan. I'm not sure if you could easily find an 8 yo 3-series with 100k for much less than $10,000. BMWs in general have resale value that plummets, but in the end maintain a very high resale value compared to other things.

Yes, he does want to sell his car quickly to buy a new one. Financially speaking, the best is to keep the car. Again, how desparatly does he need an SUV? Only he can answer that. Otherwise he's stuck paying interest on interest.

If I'm anywhere close to the trade in value of the car, I'd recommend, if you can, selling the car private party. It's a pain, but you will be much closer to closing the gap. I can't imagine selling a 4yo BMW with 60k miles will be too hard.

 

[sdilley14]

I would figure out which loan has the lower interest rate and apply the money to that loan. More $$ will be applied to principal rather than interest.

Look around hard enough and you can find deals on pre-owned vehicles that are $2k-$3k+ under "book value" (autotrader.com with 300-500 mile radius search works great for me). Even if you're not willing to travel that far for a vehicle you can at least leverage those offers with local dealers. This will help to wipe out some of the negative trade equity. Keep in mind you'll have to pay tax + title + license + doc prep fees, etc., so that will likely add another $1k-$2k? on to the loan.

 

[JerryGarciaBandFan]

I hear you. When we borrowed money for our house, we made paying the mortgage the number one priority. Then instead of it taking 25 years, it took around 7.
Just means I'm putting the rent/mortgage money into savings every month so I can buy things like cars with cash.

Very nice. Must feel good.

I'm working on paying off some bills and going cash only. Except for larger ticket items. (Cars)

 

[Apple fanboy]

Very nice. Must feel good.

I'm working on paying off some bills and going cash only. Except for larger ticket items. (Cars)

It certainly does. When I got made redundant 8 years ago, it was nice to know I didn't have to worry about the mortgage.

 

[Sythas]

@bunnspecial should buy this car. He's looking for something similar.



Yes. I'm not entirely sure what the numbers are, so but I will estimate the car is worth somewhere $15,000 (trade in) and the OP therefore owes $20,000.

Looking at the prices of used cars right now, this may level out "in the near future" (pretty vague, right) depending on the term of the loan. I'm not sure if you could easily find an 8 yo 3-series with 100k for much less than $10,000. BMWs in general have resale value that plummets, but in the end maintain a very high resale value compared to other things.

Yes, he does want to sell his car quickly to buy a new one. Financially speaking, the best is to keep the car. Again, how desparatly does he need an SUV? Only he can answer that. Otherwise he's stuck paying interest on interest.

If I'm anywhere close to the trade in value of the car, I'd recommend, if you can, selling the car private party. It's a pain, but you will be much closer to closing the gap. I can't imagine selling a 4yo BMW with 60k miles will be too hard.

Yes the value of the car will equal the loan, but he will have paid 10K$ more for the car too....

 

[A.Goldberg]

Yes the value of the car will equal the loan, but he will have paid 10K$ more for the car too....

And he would have the use of the car in that time period, not be taking out a bigger loan, not be paying interest on interest, and not be digging a deeper hole. If he pays interest on his interest, he taking out a bigger loan, he will probably find himself in the same boat as he is now with the new car, owing way more than it's worth.

From a financial standpoint (somewhat in a vacuum- not considering repairs, maintenance, insurance differences, etc) it would be wiser just to hold onto the car.