Best strategy to get out of an upside down car loan?

[wysiwyg6000]

What is the best way to get out of an upside down loan? 2 years ago, I was 22 and stupid and decided to buy a pre-owned BMW with a monthly payment of $500 a month for 60 months (I didn’t put down a down payment towards the principal which is why it’s high…was advised against that in case the car gets lost or stolen and I would be out that money). The car was is next to brand new condition and was about 30% less than a new one, so it seemed like a wise move compared to buying a new one. I drive too much to lease, so that's out of the question. I’ve been trying to shop it off for the past year, but they keep quoting me at the wholesale value of the car, which is several thousand less than I owe. This time last year (a year into payments) I owed about $21,000 and they were willing to give me $17,000. Now a year later, they want to give me about $13,500/$14,500 when I owe about $14,500. I don’t want to sell this car privately because I don’t want to deal with the public…there’s too many crazies out there. I want to get into a cheaper car because this thing is too much money and I view this thing as a colossal waste. However, it’s weighing me down because of the negative equity. I’m still covered by the CPO/extended warranty for another year for just about everything but tires, so I really want to get rid of this thing before the warranty is up next year and I have to start going out of pocket (see also: a lot of money in maintenance/repairs). Obviously, if I can get my price now I’ll get out while I can.

I almost feel like by making extra payments towards the principal I’m just wasting money when I could potentially talk up a sales person into giving me a higher trade in value than wholesale, without building the monthly payments up (with those deals, I would still be getting screwed on the trade in, just over a monthly installment plan..but they make it look like they’re giving me a good deal). I know at one point the depreciation curve will intersect with what I owe, but it’s been tricky to calculate the depreciation of this thing. Some of my projections have put me as far out as around the 50 payment mark! I make enough a year to comfortably afford this car well within my means…but I still don’t want to waste money on a car, I’d rather invest it in a Roth IRA or put it towards a graduate degree. The reality is I have enough cash to pay off the entire thing and own it outright, but then I’d really be throwing away money because if I payoff $17,000 and the car is worth $14,000, I’ll automatically lose $3,000 right there. But then I think to myself, if I keep this car for another year, I’m going to be out $6,000 over a year + whatever in negative equity. Help! I’m so upset with myself that I was stupid enough to buy this thing and I kick myself everyday for getting myself in a multi-year financial mess like this.

[tripods68]

Your best bet to sale this car is going to be a private party. Dealers will always low ball their bids to make profits. You don't have many options from what you're saying. Good luck.

[disneysteve]

I agree. If you want the best price, you need to sell privately. A dealer will never give you the "private party" price because the dealer needs to be able to turn around and resell the car.

If you really don't want to sell privately, how much are you willing to lose on the deal? $100? $500? You may decide it is worth it to sell at a modest loss in order to get out of the deal. Not the wisest financial decision in the short term, but it will ultimately save you hundreds or thousands once you have a less costly car.

[Pitman]

Since you don't feel like dealing with the public and the "crazies". I say sell it to the dealer, and take the $3K hit. Chalk it up as a lesson learned. I say its worth it, than waiting longer for the dealer to offer you less than $14K, and for the warranty to run out, and you will be paying out the @$$ in maintenance fees. My friend has a 5-series, and his oil changes are $120 alone, I could only image how much a regular Tune-up will cost.

[maat55]

Sell the car for as much as you can, even to the crazies. Meet them at your bank with their funding and you have the title and a bill of sale. Have the bill of sale notorized there. Ask them to bring a cashiers check and have it varified before signing. It's not that big a deal, it's just doing business that can save you thousands.

[Tree0164]

I would sell the car and you will need to pay the difference in loan. Some car dealerships will let you roll that into a new car loan. However I would advise you to pay that difference in cash.

Going forward, buy a less expensive car.

[jIM_Ohio]

Even with a new car, you would probably owe more than the car is worth. I think you have this misguided notion that cars are an investment which should make you money.

You have 3 years of $500/month payments. The question I would ask is

a) would the car last more than 3 years? Meaning will you have years (how many?) of $0 car payments and low car maintainance when you finish paying it off. This might improve cash flow better than dumping the car- depending on number of miles you drive.

b) if you sold the car and bought a cheaper one, how long would it take you to pay that car off? Replacing a $500 payment for 3 years with a $300 payment over 5 years is still having you shell out $18,000 in both cases. If you kept the beamer, you would also have $12000 in cash flow to show for the car payment being paid off over same 5 year period (3 years of $500 payment left and 2 years of $500 payment which goes into bank account).

c) if you bought a paid for used car (around $2000) how long would you have the car last with all the driving you do for work?

d) what kind of job requires the travel? Maybe the answer is a lease- and drive the car for WORK ONLY so as to deduct the payment as a business expense. The buy a $2000 used car for personal use.

My wife leases her car- she puts around 20k of miles on car per year. In 1 year we will turn car in and get her another lease, probably. We use my truck for personal use, so her car is used only Monday-Friday. We don't deduct the lease payment (because the nature of her job prevents that), but the moment she leaves her current job and consults on her own, we would do this without thinking twice.

[autoxer]

Originally Posted by wysiwyg6000

The reality is I have enough cash to pay off the entire thing and own it outright, but then I’d really be throwing away money because if I payoff $17,000 and the car is worth $14,000, I’ll automatically lose $3,000 right there.

You are already out the $3,000, because it has already depreciated to $14k. That fact wouldn't change if you paid it off right now, or waited until the whole payment schedule was over. Look at the bigger picture not just the cash flow. The bigger picture is your net worth. Paying off the entire balance now will save you money in interest, but it won't change how the car depreciates.

Your real costs are the cost of depreciation and the cost of interest. You are paying interest each month on whatever balance you owe... Look at how much they charge you in interest each month... If you pay that off, you can stop that bleeding right now. What interest rate are they charging you?

If you wanted to stop the depreciation, then you could sell the car. But you would probably have to buy another depreciating car...

Originally Posted by wysiwyg6000

What is the best way to get out of an upside down loan?

By paying it off.

[Squeezing Pennies]

Originally Posted by wysiwyg6000

What is the best way to get out of an upside down loan? 2 years ago, I was 22 and stupid and decided to buy a pre-owned BMW with a monthly payment of $500 a month for 60 months (I didn’t put down a down payment towards the principal which is why it’s high…was advised against that in case the car gets lost or stolen and I would be out that money). The car was is next to brand new condition and was about 30% less than a new one, so it seemed like a wise move compared to buying a new one. I drive too much to lease, so that's out of the question. I’ve been trying to shop it off for the past year, but they keep quoting me at the wholesale value of the car, which is several thousand less than I owe. This time last year (a year into payments) I owed about $21,000 and they were willing to give me $17,000. Now a year later, they want to give me about $13,500/$14,500 when I owe about $14,500. I don’t want to sell this car privately because I don’t want to deal with the public…there’s too many crazies out there. I want to get into a cheaper car because this thing is too much money and I view this thing as a colossal waste. However, it’s weighing me down because of the negative equity. I’m still covered by the CPO/extended warranty for another year for just about everything but tires, so I really want to get rid of this thing before the warranty is up next year and I have to start going out of pocket (see also: a lot of money in maintenance/repairs). Obviously, if I can get my price now I’ll get out while I can.

I almost feel like by making extra payments towards the principal I’m just wasting money when I could potentially talk up a sales person into giving me a higher trade in value than wholesale, without building the monthly payments up (with those deals, I would still be getting screwed on the trade in, just over a monthly installment plan..but they make it look like they’re giving me a good deal). I know at one point the depreciation curve will intersect with what I owe, but it’s been tricky to calculate the depreciation of this thing. Some of my projections have put me as far out as around the 50 payment mark! I make enough a year to comfortably afford this car well within my means…but I still don’t want to waste money on a car, I’d rather invest it in a Roth IRA or put it towards a graduate degree. The reality is I have enough cash to pay off the entire thing and own it outright, but then I’d really be throwing away money because if I payoff $17,000 and the car is worth $14,000, I’ll automatically lose $3,000 right there. But then I think to myself, if I keep this car for another year, I’m going to be out $6,000 over a year + whatever in negative equity. Help! I’m so upset with myself that I was stupid enough to buy this thing and I kick myself everyday for getting myself in a multi-year financial mess like this.

I am confused.... what is it that you actually owe?


The top makes it sound like you would lose $0-$1000 in a trade in and the bottom makes it sound like $3000????


Do you have the current pay off amount from the bank?