I Am Sick of This Car – Dealing with Negative Equity

 

 

 

 

 

I have a Dodge Intrepid and I am looking to trade it. I have outgrown my car and am looking for something new. This week has been full of dealerships, long hours of waiting, “shady dealers”, caring dealers, and research. Some people believe that it is impossible to trade-in a vehicle with high negative equity; nevertheless, it is possible through the use of strategic methods and research. I am going to share my experiences and the knowledge that I have gained throughout this process.

1- Trading a vehicle is very tricky. The first thing that you need to do is KNOW YOUR PAYOUT AMOUNT! Call your lender to receive this information. Once you know your payout amount, find the value of your trade. There are multiple ways to receive this information. Use Kelly’s Blue Book, the Black Book, and Auto Trader. Compare all quotes. Be honest with yourself!!! Do not say that your car is in “fair condition” when you know that you are missing a door and a headlight! Take a copy of your quotes to the dealership; prove that you have done your research. For example, you owe $9,000 (negative equity) on your car. Your trade-in quote is $1,000. Subtract $1,000 (trade value) from $9,000 (payout amount) = $8,000 (total amount that you need to officially get rid of your trade/negative equity). WHO IS GOING TO PAY?

2- Someone has to pay off the negative equity. Your lender will not let you out of your contract without full payment for the vehicle. There are a few ways to handle this expense. You could pay out-of-pocket, get a loan, sell your car privately, or receive assistance from the dealership.

Paying out-of-pocket can be very expensive. In the end, it is your choice. I do not recommend this option. I am also against getting a loan from the bank. Why? When you get your new car you will owe 2 bills instead of 1, a monthly car payment and a loan payment. Think about it like this … $250 (new monthly car payment) + $150 (bank fees for loan) = $400 a month. You could sell your car privately, but this is very time-consuming. I think that this a great option for people who have extra time on their hands and little to no negative equity. If you have high negative equity, I really believe that going to a dealership is the best option.

A dealership can assist you, but only so much. They are not going to pay off your debt, but they usually offer rebates!! They also have the ability to pay you more for your trade. Here is an example of how it all works:

$8,000 (amount that you owe in negative equity) – $2,000 (the dealership decided to give you an extra $1,000 for your trade-in) – $3,000 (rebate for a new vehicle) = $3,000 (new negative equity balance).

Having high negative equity, means that you will not get the luxury of leaving the lot with “no money down.” Remember, someone has to pay the negative equity! Be prepared!

3- Go to the largest dealership in your area. They have more cars, rebates, and connections (banks). Dealerships can negotiate a cheaper payout amount with your lender. Remember that the more you shop around, you decrease the chances of a dealership being able to decrease your payout amount. Why? After the lender has received multiple calls, they get stubborn! Imagine your lender saying, “I already told 3 dealerships that you owe $8,000 and I am not going to change my mind!”

4- When you go to a dealership, ask for the Senior Sales Consultant (SSC). Why? They know all of the tricks! They can find you more money to finance a vehicle and help you develop a strategic plan to fix your credit. I call this the two for one deal!!

5- Be honest. Lying is a waste of time. You have to have faith in your SSC, but they also have to have faith in you. Think about it like this, would you loan a lying friend $100?

6- Dealers will need to know your credit score, payout amount for your trade, current car note, total mileage on your trade, amount you pay in rent, your gross salary (bring a recent paycheck stub), how long you have been at your job, how long you have stayed at your residence, how much you want to pay a month on your new vehicle, and the money that you have for a down payment. Whew!!! Seems like a lot, but at least you know now! You will also have to sign paperwork to give the dealership permission to verify your information, so don’t lie.

7- Some dealerships ask for references. Your references will be contacted if you are behind on your monthly payments. If they cannot locate you, they will call your references! You may need 2 – 7 references, depending on the dealership. You should collect full names (first and last), addresses, and phone numbers now! Always ask your references for permission to use their information.

8- Your paperwork is complete and you have been logged into the system. What’s next? The dealer is ready to assess your trade and determine the value. Please make sure that your car is clean, smells good, and all of your lights (engine light, malfunction light, etc.) are off. The appearance of your vehicle can increase or decrease the trade offer.

9- The next step is finding your new car and test driving it. WARNING: Do not waste your time driving cars that you cannot afford!! You will be at the dealership all day! To save time, research the car that you are interested in before you go to a dealership. Pay attention to pricing and BE REALISTIC!

10- You selected a car, drove it, and you’re satisfied. Now what? It is time for your SSC to create a “package” for the General Manager’s (GM) approval.

11- The package consists of the:

- Price of your new vehicle

- Trade amount offered by the dealership

- Remaining balance of your loan (negative equity)

- Rebate

- Fees for the title, tax, and tags

Once the package is created, your SSC will disappear for a couple of minutes. If the GM feels that you are worthy and approves the package, it’s is all up to the banks!!!

12- Now for the wait. Why does it take so long? If you don’t have the best score and have a lot of negative equity, the dealership will need time to negotiate with multiple banks and convince someone to give you a loan.

As you can see, I have asked a lot of questions and visited too many dealerships! I hope that this information helps you on your journey.

Good luck!!!!

Photo Credit: http://cashforclunkervouchers.info/wp-content/uploads/2009/06/cash-for-clunker-new-car-1001nights1-300×198.jpg

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6 thoughts on “I Am Sick of This Car – Dealing with Negative Equity

  1. This is great information Strategic for consumers who don’t know what direction to take when in a negative equity situation. We called it “upside down in your trade” when I sold cars years ago.

    Excellent job!

    • Thanks! It is still called “upside down.” When I first read those words, I didn’t know what they were talking about, but now I know!

  2. These are fantastic tips! I recently was able to get out of a negative equity situation with my car- and it did involve some major deal hunting. I had about $4000 of negative equity and took the approach of looking for a used car that was marked down around $2-3k under blue book! It was hard, buy I found the car, and managed to get the dealer to knock another $500 off at the dealership. What helped with the negotiation was going in during the month if February (shortest month if the year to make sales goals)- the last day of the month when the pressure is on them to make sakes goals and a rainy day (they have way less customers)-, this helped Mt positioning. I also bought a Honda on a Toyota lot. They are often deeply discounted because they don’t want the competitor car swaying customers. Lastly I went to a VW dealership and got a trade in quote for my car and insisted they match it. All together I got my negative equity down to $300!! Plus I got a newer car, with better fuel efficiency, lower miles, better interest rather, cheaper maintenance and a lower payment. Great article, keep them coming!

      • I didn’t! I did know that I needed a basic 4 door sedan, with great fuel efficiency and low miles. I researched what was out there that fit my needs- then proceeded in cars.com to do a very specific search for what was available on the market. I ended up purchasing a 2010 Honda Insight (blue book- $16k for $12k)!

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