Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I have a 2013 ford fiesta and while the car is worth about 5-6k the loan I have on the car is twice that. I would really like to trade the fiesta in but I'm wondering how it will work with owing so much on the car. From what I've read if you are upside down on the loan for a car and you trade it in the difference gets added on to the new loan. If I were to find a car that was around 5k and then the additional 5k left over from my loan was added unto my new loan, would I basically be paying the same thing?
I From what I've read if you are upside down on the loan for a car and you trade it in the difference gets added on to the new loan. If I were to find a car that was around 5k and then the additional 5k left over from my loan was added unto my new loan, would I basically be paying the same thing?
Yes it does. Depending on the terms of your existing loan, you will likely be paying more. Usually those rollover loans have much higher interest rates and origination fees. The lender goes into the deal knowing they are under-secured, that means a lot higher interest rates and fees to cover the risk. On top of that they may require GAP insurance (if you can get it - I am not sure you can get it if you are already starting upside down).
That is correct, you'll make up the difference in the next loan.
Sometimes it works, most of the times it does not.
It worked for my wife. Before we got married, she had filed for bankruptcy and the only loan she could get was for 16%
She got laid off about 8 months before we got married so I assumed the car payments. Despite paying $20-40 more a month, the principal seemed to never go down. A few months after we got married, we traded that car in with my credit and got .9% interest so that worked out very well. Also got rid of my paid off Corvette at the time as the car was aging (13 years old) and needed constant maintenance that I was tired of doing.
It worked out for us in that instance. Unless your interest on the Ford was ridiculously high and you can get a much lower rate now, it might not work out for you.
I have a sister who for years has done what the OP is suggesting - trading in a car where the outstanding loan was for an amount much higher than the car was worth. She now drives a 10 year old Hyundai subcompact and pays about $400 a month on a loan that's still not paid off - and she still is thinking about trading the Hyundai in for something 'better'. For the past ten years, she's been jumping from car to car and loan to loan, rolling over her ever increasing debt and paying interest rates over 15%.
My advice to the OP - suck it up, drive the Fiesta until it falls apart, and pay off that loan. Or, as Army Guy suggested, you can refinance to a lower interest rate; then suck it up and pay off that loan.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,585 posts, read 81,243,006 times
Reputation: 57825
Besides the higher interest rate, lenders don't like to lend more than the value of the vehicle. If there is a default, they cannot get back their money when they repossess. If you owe twice the value on the car now, why would you want to get into the same or worse situation? It sounds like you need $10,000, why not consider a personal, unsecured loan from a credit union? With good credit, either of my two credit unions will do that for about 10%, then pay off the loan, and buy the new car. I doubt the "upside down" loan will be available for less than 15-20%.
Take it from someone who has made this decision in the past...
DO NOT DO IT!!!!
You will enter a vicious cycle of having cars that you owe way more on that it is worth.. All it takes is an accident where insurance pays the amount it's worth and you are left holding the bag for the remainder of the loan...
I agree with the other posters. If there's no urgent reason to get rid of the Fiesta, and there shouldn't be, it's a perfectly fine car, you'll be chasing interest for years.
I've traded cars that I still owed on, but honestly, the first time I did it, I didn't understand the idea of being upside down in a loan. I thought the dealer essentially "bought" your car so as long as you bought a car from them. I didn't realize that isn't exactly how it works.
The second time I did it, I owed a third of what the car was worth, but the dealer can still ********* on the deal. They worked it out to where they didn't have to come down on the price of the new vehicle at all, so not only did they get full price and probably full profit from that, but essentially, it was as if they got my traded in car for free.
Honestly, the best thing to do is to tough it out, pay the car completely off, and then try to trade. Or either sell it.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
