Exploring Options, and Hoping for Some Insight

Ask the Hackrs
1

Hello All,

New here, but have been reading for a short while prior to joining. I have been able to find some insight from existing posts, but think my specifics would be more helpful to really get a better idea. This will be a little lengthy, but I thought it best to be detailed for better advice.

Starting from the top, I have never leased a vehicle. In hindsight I really should have been considering that I seldom keep a car more than a year or two. Generally speaking my habit of car swapping when pretty well until 2016. 2016 was kind of a perfect storm for my family and I. In Tennessee I was a manager of a large investment firm, doing pretty well overall. In the middle of the year we found out my wife was pregnant, things changed quickly. At the time we only had one auto loan, which was for my wife BMW Z4, and I owned a 1967 Porsche 911. Knowing our cars were not ideal for a child we went shopping. I sold my 911 for a modest profit and used the proceeds to pay most off the negative off my wife’s Z4. We still ended up rolling a little into one of the loans, which was for a new RR Evoque Coupe for her, and I picked up a 335i Sedan for myself. Several months later my wifes health began to decline from her difficult pregnancy, and we decided to sell our home in Nashville, and move to Ohio to be closer to her family. Once settled in Ohio our daughter was born healthy, and several month’s later my wife’s health improved as well. I had transferred to another office in our firm nearby, and things were going fine.

A couple of month’s later my investment firm decided during restructuring to move the Ohio office to Chicago. I elected to leave, as we had just gotten comfortable, and opened up my own business locally. This decision resulted in a pretty decent pay cut, but with our reserves we were still pretty comfortable.

Here’s where I could have planned a little better. First buying a 2 door Evoque was very stupid, and the modifications I had made to my 335i for trackdays did not agree with butchered Northern roads we now travel. We decided to trade our cars, that at this point we had for less than a year, for something a little more practical. My wife got an new Explorer, and I picked up a preowned Raptor. We rolled a quite a bit into the new loans, more than we had imagined at the time, and because I had recently opened a new business my income wasn’t appealing to the banks anymore. We ended up taking some pretty bad rates to get the deal done.

As a year or so has past since these events my wife, and I are starting to realize that when we decide to have another child our current home will be too small for our needs. I’m starting to plan for the next couple of years, and know that my new erratic income schedule, and our increase debt to income will be problematic when it comes time to purchase a new home.

Now that all the dust has settled I’ve realize how bad we really did on these cars, and I’d like to clear the air. On the Explorer, between what we rolled into the loan, and the depreciation from the lot we are about 11k underwater. We have begun to pay aggressively to clear this negative equity, and should have it cleared up in about 2 years. As for my Raptor, I’m sitting around 13k upside down, and am considering using a lease to help move the ball forward a little more quickly.

All of our extra income is going into the Explorer, as my wife will likely actually keep her car longer than I ever have, and of the 2 payments her’s is significantly lower. On my truck I’m paying just shy of 1k a month, but because of my 9% APR my principal isn’t moving down very much at all and I’d like your insight on the idea of using a lease to help rectify my lapse of judgement.

What vehicle’s do you all think could potentially absorb my negative equity so that at the end of the lease I could walk away clean?

Ideally I would like to reduce my payments, but who doesn’t. In my mind an automobile at the right price, compounded with other incentives could possibly lead to something in the luxury sedan/SUV sector around the $350/400 price point, then adding in what I would assume to be $200-250’s in negative on top leading me into a $600ish payment area.

I’m not picky about the car itself, but I have been looking at the luxury sector assuming the higher price point would allow for more negative to be assumed into the terms of the lease, but since this is a new world to me I’m not sure if my notions are correct.

Another thing I don’t know is what is allowed when trying to compound multiple incentives, and rebates into a deal. I have seen, various offers for leasing from companies such as Costco, and USAA, but how high can you stack them, and furthermore when should that be addressed during the structuring of a deal?

I hope my candor has given enough information to allow for your input, and thank you for taking the time to share your thoughts.

2

I don’t understand this part, why aren’t you paying down the loan with the higher APR?

3

Sorry for the confusion, same APR on both with Ford Credit. Figured we would just Dave Ramsey snowball it by clear the smaller balance loan first.

4

The neg equity on your Raptor alone will be $400+ and that’s with a low MF. If you’re paying 9% to finance who knows what rate they’ll want on a lease with so much neg

5

So just being a little realistic here. Just take away needing to lease a car, if you are 13k negative that alone adds $361 to a lease payment. Then you need to find a car that would allow you to put that much negative equity on which I don’t think is possible. Especially if you are looking for a luxury car. If you are planning to snowball at this point pick the smalls loan you have and put everything towards it and then move to the next loan. I don’t think leasing will get you out of this situation. Best of luck!

6

Hate to say it, a bunch of really bad choices were made here. Atleast you own it, so that’s the first step. Personally, I would take advantage of the current “Encore” leases, roll in the negative, and take the sting for a few years. Kiddo is small enough yet for this size/class vehicle. No good answer here, but gonna have to pay the piper one way or another.

7

That’s a tough pill to swallow paying 500/mo for a base Encore, IF GMF would allow that much to be rolled in, which is doubtful.

8

Thanks for all your comments. In retrospect I certainly would have done things differently. At the time the bad choices were made my income was good enough I became pretty complacent. I figured that it leasing couldn’t work magic, but the rumor mill makes leasing seem like the holy grail in these situations. As I said before, I was looking at the Luxury sector because I thought the value to loan would help eat some of the negative equity. I knew it wouldn’t have been a get out jail free card, but after reading some of the magic you guys are working on these deals I figured it couldn’t hurt to ask.

I certainly wish we would have looked into leasing prior to the bad deals we made, but I’ll make damn sure to not repeat my mistakes after it’s done with.

For the sake of learning, how do you all combine all of the incentives on these deals?

What had me believing something could be possible was this car specifically:
https://www.bmwoftoledo.com/new/BMW/2018-BMW-i3+with+Range+Extender-7864d76d0a0d0c14192947e2e2134df9.htm

It appears that BMW is currently offering $10,000 cash back on these, and BMW Finance Services provides a $7500 credit as well. Then I saw an offer for another $2000 from USAA.

From there I was the impression that I could add them all up, I didn’t see in the fine print I couldn’t, and that would make the car go from the MSRP of $51,945 to provide me with a potential Capitalized Cost of $33,926.

Thats where I started thinking I could add the negative into the deal to make the Loan to Value an acceptable risk while reducing my payment.

Where is my logic failing me?

9

Certainly would teach me enough humility to not repeat my mistakes lol

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10

Why not just refinance the current cars.

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11

On a lease, you’d get the 7500 lease credit. 10k cash back is for purchase. 2k USAA is for purchase, but 500 on a lease. The car would have to be brand new though, and not punched as a loaner they are now trying to sell/lease.

Some states also offer additional rebates/tax incentives, however, Ohio isn’t one of them, I believe. So the 50/mo i3 deals you are seeing in NJ can’t be replicated in Ohio

12

I may have missed this somewhere but do you currently own a house?

I understand what you’re trying to do but I have to wonder if it wouldn’t be better trying to take out a secured loan to pay down the negative equity before trading in. Secured loans, even a home equity loan, would get you below 2% APR generally. In this way you’re almost refinancing.

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13

I haven’t written that off the list of things to look into, but at the time of the deal my Loan to Value was pretty borderline, and I’d imagine that hasn’t improved enough to make it worth the hassle quite yet on my truck at least.

14

We do. That thought hadn’t even crossed my mind to be honest. Aside from the concept of just sucking it up and paying leasing is the first thing I researched because my understanding is very limited with it.

I will certainly look into that next. Thanks for the suggestion.

15

That makes alot more sense. I was sitting there thinking I had discovered fire for the first time when I saw all of those incentives.

Being a new resident of Ohio I haven’t a clue about any state level credits. Since we live in metropolitan area that doesn’t require emissions testing I can’t imagine these would care enough to offer an alternative energy credit.

16

Another thing I’m not grasping completely is where the negative equity is added into the deal when possible.

Through my eyes the available rebates for new i3’s would be able to assume about 10k of negative against the MSRP. I can’t imagine thats correct, but I don’t see alternative.

17

They would more or less offset the discount/rebates, so you’d be paying more depreciation/rent + tax for the duration vs someone who had no neg equity

Rudimentary example without taxes/interest…

Assume you are buying a car for 50k MSRP with 50% residual over 3 years

Sales price before incentives is 40k (Base cap cost)

Add in your fees (acquisition, doc, trade inequity, etc). Assume your 13k + 1000 acq + 500 fees + 40k base cap) = 54,500 (Gross cap cost)

Discount your rebate of 7500 from Gross cap cost = 47,000 (net cap)

Residual on your 50k car @ 50% would be 25k

Rent charge (depreciation) would be net cap (47k) - residual (25k) = 22k

Divide that by 36 to equal 611/mo.

Now, same scenario without negative equity, your gross cap would be 41,500. Net cap would be 34k

Net cap (34k) - residual (25k) = 9k

Divide that by 36 to equal 250/mo

18

9% is gruesome. I don’t think it’s just your income and LTV, must be your credit also.

19

Not awful, but not great either, high 6’s if I remember correctly at the time. They were pretty fixated on the income if I recall properly. They wanted pay stubs and I hadn’t paid myself since I had opened the new job yet, elected to leave it in one of the funds I managed until the new year since I knew my bracket was going to drop greatly. Ended up having to show bank statements for proof of funds to make it work.

20

I think you should try to find a better refinance rate instead of leasing. Even 2-3% should make a big difference.

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