Maybe the next LH blog post can be about how buyers with vehicles that are underwater can effectively roll negative equity into a lease. You know the coming months are going to be full of people popping out of the woodwork having paid ADM with bad loans, but are now trying to get out of their vehicles and loans.
I think if someone’s loan on their previous car was at 1.9% APR or less, then it’s likely that staying in that loan and paying it down over the remaining term makes financial sense. Plus it’d be the simplest way to operate.
However, there are likely a bunch of people who may be Tier 1 or Tier 2, but sitting on some bad car loans with higher APR. Plus they could be massively over-paying on ADM that isn’t building value by running the loan installment payments through to maturity.
Many folks on this forum half-joke that the easiest way out of negative equity is to max their insurance then park in a flood plane, tackle a snowy offramp at 100mph, or blindly cruise into the back of a Mirai and watch a big hydro bomb.
But a decent solution in my eyes would be to roll negative into a 0.000X money factor lease (like the EQS in March or this Explorer ST example I just posted). Even if they take this new dump-lease to maturity, at least they’re paying nearly 0% effective interest on the negative they rolled. So they’re at least paying back a debt instead of having the insurance company do it.
One benefit (it can easily become a curse, which is why a blog post would help) is that someone who exits a bad loan and goes into a LH-worthy low-MF lease will stop having to make principal payments. So, they’ll save quite a bit of cash on a monthly basis that is tied up in their auto payment. Of course, the ultra-smart move would be to save this differential amount instead of spending it … but we know nobody on LH reading a blog post is going to do that haha.
And as TheVolvoGuy indicates, most lease programs let someone exit a vehicle lease early and basically abandon the last 3 to 6 payments if they then roll into another smart lease in 3 years. A portion of the neggy eggy just vanishes! Magic! Auto Loan Servicers hate this one trick!
I know a lot of folks on this forum hate the lease treadmill (leaving one lease to go to another without building equity). But when done smartly (thanks to LH!) I think rolling negative could be a good idea.
Thank you for everyones input and advice I learned a lot about leasing and what to do and not to do.
I did the math in a biweekly payment calculator with an additional 400 (200 extra biweekly) a month to my payment and I would pay off the vehicle in essentially 42 months. This obviously would be the better route because I end up with something in the end vs a 36 month lease.
What is the total you’ll pay into your current loan over the next 36 months if you put an additional 400 a month plus paid the monthly loan installment payment? Call this value “A”
And how much total will you pay for a lease on a car you’d be ok with AND rolling in the negative equity for the next 36 months? Hopefully this car would have a super low MF like that Ford Explorer ST I posted above. Call this value “B”.
If the total difference between A and B is very large (let’s call it value “C”), then you may still want to go with the lease option.
In my mind, it may not be a terrible idea to get into a new lease, and put the extra $400 monthly you were going to ram into your car loan instead into a savings account or brokerage account. I just don’t know the value of C.
I estimated (for a cheaper vehicle, if even possible the mustang) the negative equity would be about 450 a month on top whatever the lease is. The lease estimator on Ford is about 425 for 15k 36 month so comes out to about what I am paying now (890). Not counting about 3-4k Id have to put down towards taxes.
I am thinking of still going and getting official numbers on the mustang just to check.
Putting 400 towards my current loan would be 1290 a month. Comes out to 14400 more I would be paying over the course of 36 months. But, Id have a paid off vehicle.
If you become a Super Supporter here (perhaps as a way to give back to the community that has provided you some valuable advice!), you can find the RV and MF using Rate Findr in the calculator.
You can also find RV and MF on the pertinent Edmunds lease forum for a specific model yr and model.
Those lease estimators always leave out a lot more than just taxes. There are generally thousands in fees not included as well.
It ia highly unlikely that on a cheap mustang the lease would even fund with $16k in negative equity rolled in. You should be prepared to have to come a lot more out of pocket to make it happen.
While you are figuring this out use that purely electric range as much as you can - dont waste $ on gas! I do think you will find yourself closer to a leveling off point of the value of the 4XE soon. At $34-36K you are nearing gas wrangler prices of the same year.
Yeah I see what you’re saying… if I take one of @IAC 's iX* in Texas as an example but slam in $16k of negative (with $1k extra savings from PHEV conquest!) the $1,240 monthly after tax is really close $1,290 monthly on this Jeep… and the DAS on the lease just breaks the comparison.
Note* : I picked the iX since it has enough MSRP to support a negative roll of this magnitude.
So Option A (Jeep loan + $400 a month) and Option B (lease an iX) doesn’t have enough of a difference to make swapping worth your while.
And it doesn’t look like the Explorer MF in TX is anywhere near as low as it was in Florida. So that option seems off the table.
Is that actually the case, though? I mean, they’re burying some of the negative equity, they might be effectively refinancing the negative equity at a lower interest rate, but they still have to make some sort of auto payment, right? The advantages are the allocations of the funds and that the negative equity is reduced (but that you have then taken on a new financial burden w/ the lease itself).
If you are willing to draft a blog post, maybe the site owners can consider it.
But I think there are 4 main points (which may or may not “need” a blog post): not expecting leasing to be a magic bullet; looking for a car w/ a large discount and/or incentive and an very low MF/APR; needing to do the math for themselves to determine if a lease vs. additional payments results in lower overall cost; and not rushing into anything.
My own take is that there is a lot of unspoken reasons why someone gets trapped into a negative equity cycle and that the reasons are not, truly, fundamentally mathematical in nature.
Yea the math is basically if you can find a new lease where the depreciation is so low/rebates so strong that you can tack on negative equity at a better interest rate vs continuing to pay down the current rate on the loan and come out ahead. The $50 a month Chevy Bolt deals from years ago would be a good example.
My contributions to this forum are mostly in the landfill and in the meme lounge. I’m sure someone else (or generative AI) would be better to write an exciting neggy-eggy post.
Bah, I suck at this LH calculator thing totally messed up my calc… So rolling negative of this magnitude seems like a bad idea all around unless you have a time machine to go back to a 0.0002 MF EQS with $400 monthlies before the negative shows up.
