Author Topic: Upside down loan  (Read 4175 times)

Offline Bradmxz

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Upside down loan
« on: June 18, 2016, 08:36:25 pm »
Hey guys I have a question for some of the dealers out there. I have a truck that vmrcanada says has a wholesale value of $19560. I still owe $29500 on the loan. There is a dealer in my area that has a car for $5995. Can I trade my truck for this vehicle and come out on top? This is how I was thinking it could work but please correct me if I'm wrong as this is the reason I'm asking this question. The truck value minus the car value $19560-$5995 then the upside down portion of $10000 would come off leaving almost $3500. Is this how it would work? Would this be a viable deal? Just asking somebody with experience in these matters before I go and make a jackass of myself.

Offline mmret

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Re: Upside down loan
« Reply #1 on: June 18, 2016, 08:41:40 pm »
Oh I am torn between ridicule and honest advice. We have this other thread about terrible upside down loans...

But good on you for trying to figure it out.

The short answer is no. You are up :censor: creek.

Lets make the math easy. Car worth $20k, you owe $30k. Someone could take the car away and you still owe $10k. On top of that you want to buy another car for $6k...meaning you'd have to net cough up $10 + 6k  = $16k to make the swap. You do not get to take any money out.


Conceptually your math tries to apply the truck asset against two liabilities when it cannot even one of them (the loan) entirely. So its like double counting.

You can't just have your characters announce how they feel.
That makes me feel angry!

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Offline mmret

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Re: Upside down loan
« Reply #2 on: June 18, 2016, 08:42:10 pm »

Offline Bradmxz

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Re: Upside down loan
« Reply #3 on: June 18, 2016, 08:44:16 pm »
Ok thank you. I never thought about the total left owing. Thank you for saving me from being terribly embarrased

Offline mmret

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Re: Upside down loan
« Reply #4 on: June 18, 2016, 08:45:40 pm »
No no, thank you for being an honest debtor who is trying to learn and make right. :)

Offline Bradmxz

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Re: Upside down loan
« Reply #5 on: June 18, 2016, 08:48:55 pm »
So I guess the obvious thing to do is get right side up on the loan

Offline Bradmxz

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Re: Upside down loan
« Reply #6 on: June 18, 2016, 08:50:33 pm »
Love your avatar by the way. I'm a big fan of futurama. My favourite episode is where fry and the robot devil switch hands

Offline mmret

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Re: Upside down loan
« Reply #7 on: June 18, 2016, 08:52:48 pm »
Well, in general yes. Gotta think about it hollistically though. Like don't incur additional credit card debt to try and pay off the car faster, that's just a terrible idea.

I think your near term question is whether to dump this truck or not. Its a fairly complicated one. If you do dump it for cost savings (gas etc.) you pretty much have to downgrade into something really cheap and low running costs to make it work out...and with $10k upside down to be rolled into a cheap car that might be infeasible.

We have some dealers on the forum who might chime in. I am not overly familiar with consumer credit.


And yes, that is an awesome episode. :) My sig quote is from the Robot Devil.

Offline Bradmxz

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Re: Upside down loan
« Reply #8 on: June 18, 2016, 09:04:10 pm »
Lol the quote is from the same episode.


Yes my initial idea was to get rid of my gas guzzler and my monthly payment. But now I see that it wouldn't be possible. I wasn't thinking of the total loan. Haha I'm now sure why it's pretty obvious now
« Last Edit: June 18, 2016, 09:11:22 pm by Bradmxz »

Offline johngenx

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Re: Upside down loan
« Reply #9 on: June 18, 2016, 09:32:48 pm »
You're in the unenviable position of being significantly upside down - meaning of course that you owe quite a bit more on the loan than the truck is worth.  You have the following options...

1. Roll the $10,000 that you owe over the value into the next car loan.  This is often done, but not really recommended as in the long run, you're going to end up owing a LOT more than whatever you buy next is worth.  If you're trying to buy a $6K used car, you might not be able to do it at all unless you have stellar credit - you'll owe $16,000 on a $6000 car and $6000 cars aren't really considered decent collateral for a car loan.  You could buy something new, and then you're really headed into the hole.

2. Sell the truck privately - you'll probably get $3-5K more than your trade value.  I never trade my cars as I just don't wan to give away $5000 for the convenience of not selling my own car.  That said, you're going to still end up upside down and you'll have the outstanding balance to deal with - see if your bank will cover you on it.  Suppose you get $25K for the truck - and then buy your $6K used car - now you're $11K owing, so "only" $5000 upside down.  Better than $10,000 - but still not great.

3. Keep the truck and keep making payments until it's either paid off or you are no long under-water on the loan.

I get that the trick probably sucks gas - but if possible the least expensive way for you is going to be to keep it for some time yet - is there some other expense you can trim?  I know people with $700 car loans that complain about them but could find $300-400/month in other expenses they could cut until they pay down the car loan.

In the future, to avoid this again, think about only financing over shorter terms (say 60 months) and try to put money down to keep from getting upside down.  Also, it can be tough, but think about that with whatever you buy, you want to own it for the term of the loan.

Offline tooscoops

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Re: Upside down loan
« Reply #10 on: June 20, 2016, 05:12:49 pm »
as they are saying... not much you can do. and better to know and try to learn/plan for that next purchase.

what rate is your current loan at? really doesn't matter... try paying the max you can afford to get the loan down (unless the rate is 0% or something)...

if it is a serious cash flow issue, then fine... trade it in on something that will better suit you, but that negative 10 will just be added to whatever you buy... the good news is that as long as it is a vehicle under 19 grand, you will likely have lower payments.... the (very) bad news is that whatever car you are driving will be even heavier upside-down, so you would need to drive it into the ground to be free of the debt snowball.

selling private is the way to get the most cash, but not sure how you can do that as i would assume you don't have a big trunk of cash sitting around to pay the remaining loan out in full...

good luck.
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Online Great_Big_Abyss

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Re: Upside down loan
« Reply #11 on: June 21, 2016, 08:57:33 am »
I am certainly glad you came on here and asked before going and giving a salesman grief for giving you the bad news. 

One great source of entertainment on here are salespeople recounting stories of upside down customers insisting they can get money out of their vehicle by going to a cheaper one, likely in the exact way you imagined you could. 

You did the right thing by coming here first.  And Honestly, being Upside Down isn't THAT uncommon of a thing.  It happens to MOST people, especially in the first year or two of their loan, and especially to people buying NEW cars.  New cars depreciate so fast in the first couple of years that it takes the car loan a few years to 'catch up' to the depreciated value of the car.  The only time you're never upside down is if you put a significant amount of money down on the vehicle that you're buying.  Like 50% or some such amount.  So, having established that being upside down is 'normal', as long as you understand that if you keep your vehicle until the loan is paid off, or at least until you're right side up (usually a few years into the loan, depending on money down, interest rate, etc) then it shouldn't be an issue.

So, stick with it for a few more years and keep paying as much off as you can.  You'll soon be right side up.  The good news is that if you treat your truck well and don't put millions of kms on it, it shouldn't depreciate much more than it has (trucks in good condition seem to hold their value after their initial depreciation). 

Offline greengs

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Re: Upside down loan
« Reply #12 on: June 21, 2016, 10:13:45 am »
I thought Ram trucks held their value better than that?  That's horrible resale on a 2012 unless there's more to the story. 

Offline johngenx

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Re: Upside down loan
« Reply #13 on: June 21, 2016, 10:26:53 am »
Sounds right to me.  I did a search of 2012 RAM pick ups (the 1500, we don't know what trim he has) and there's lots of them for $20-25K ASKING RETAIL.  Seems to me that $20K wholesale is pretty close.  Sure, some people are asking WAY more for their 2012 RAM 1500s, but some of them are on crack and some are dealers asking near the top of the price range.  I think my suggestion that $25K or so retail is pretty close - it's my experience that wholesale is generally $5K or so under retail.

Online Great_Big_Abyss

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Re: Upside down loan
« Reply #14 on: June 21, 2016, 10:37:44 am »
Don't forget these trucks are now 4 years old, and effectively half-way through their life before being considered geriatric vehicles to be had for rock-bottom prices.

Offline ArticSteve

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Re: Upside down loan
« Reply #15 on: June 21, 2016, 12:12:59 pm »
Without knowing the exact terms of the loan and what Province it's not possible to BRAINSTORM this one.  :P

Offline neil

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Re: Upside down loan
« Reply #16 on: June 24, 2016, 02:09:04 pm »
1. Roll the $10,000 that you owe over the value into the next car loan.  This is often done, but not really recommended as in the long run, you're going to end up owing a LOT more than whatever you buy next is worth.  If you're trying to buy a $6K used car, you might not be able to do it at all unless you have stellar credit - you'll owe $16,000 on a $6000 car and $6000 cars aren't really considered decent collateral for a car loan.  You could buy something new, and then you're really headed into the hole.

Yeah I see folks try this occasionally, the problem in this case is this $6k car probably books for $3500-$4000, and going over 200% of book value isn't practical.

Quote
2. Sell the truck privately - you'll probably get $3-5K more than your trade value.  I never trade my cars as I just don't wan to give away $5000 for the convenience of not selling my own car.  That said, you're going to still end up upside down and you'll have the outstanding balance to deal with - see if your bank will cover you on it.

If it's a conditional sales contract, no they won't unless you take out a credit line or personal loan to cover the balance.  And it's something you would need to have lined up before you tried to sell it, as no smart buyer would buy it with an existing lien on it.



Offline neil

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Re: Upside down loan
« Reply #17 on: June 24, 2016, 02:19:47 pm »
I thought Ram trucks held their value better than that?  That's horrible resale on a 2012 unless there's more to the story.

Did he tell us what Model it is?  Ram 1500 run the gambit of pricing, like all trucks there is a $50,000 spread in msrp from base to balls to the wall.

Back in 2012/2013, there were nationally advertised SXT's Quad Cab 4x4 hemi's for under $30k brand new.  $10K depreciation for a 5 year old truck ain't bad.

Offline greengs

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Re: Upside down loan
« Reply #18 on: June 30, 2016, 11:57:44 am »
I thought Ram trucks held their value better than that?  That's horrible resale on a 2012 unless there's more to the story.

Did he tell us what Model it is?  Ram 1500 run the gambit of pricing, like all trucks there is a $50,000 spread in msrp from base to balls to the wall.

Back in 2012/2013, there were nationally advertised SXT's Quad Cab 4x4 hemi's for under $30k brand new.  $10K depreciation for a 5 year old truck ain't bad.

It doesn't matter what model he has.  He shouldn't be $10,000 upside down on his truck.  If he bought a $30k model, he wouldn't owe $29,500, 5 years later.  So something is definitely off.

Offline tooscoops

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Re: Upside down loan
« Reply #19 on: June 30, 2016, 01:33:21 pm »
my guess, this was purchased within the last year used... a 24995 or so mid level truck that had something such as rust/warranty added.

when you suddenly need cash flow like this, it doesn't take 5 years to suddenly not be able to afford it... it happens quick.