Hello, asking for a dear friend; he was offered a lease deal $431 a month ( 24month) , he has a car financed with negative equity, he is upside down $2500 that he wants to roll in into the new car. Broker is telling him that his payment will encrease to $598( $2500 ÷24 plus some interest on the $2500) , does that makes sense and what interest he is talking about $60 a month?
Thank you
Has he done his hw to verify it’s actually $2500 underwater?
I beleive so but not sure(why?) Explain please. The main question if there is something like interest on negative eq and how much
I think @GOAT was basically asking if your friend has obtained quotes on how much the car is now worth vs. how much they still owe. B/c, if your friend hasn’t done the former, then they actually no idea if and how much negative equity there might be.
Yes, there is effectively interest on the negative equity. If your friend rolls that into the new lease, that presumably becomes part of the capitalized cost (so whatever the MF is gets applied to that negative equity, too). That’s why rolling negative equity is generally not a great idea.
also what’s the new lease car? I can find the MF and calculate additional rent change for rolled in negative equity.
No way there’s an increase of $62 in rent charge with a cost increase of $2500, that would equate to an APR of 59.5% or 0.0248 money factor.
You (I mean your friend) should just write a check for the 2,500 if they really want a new car. Rolling neg equity rarely works out well and is simply perpetuating a debt trap.
unless money factor is dirt cheap. always have to evaluate all sides of deal.
You’re assuming OP’s friend is going to invest the money instead. My point is really if you cant afford to write a check for the 2,500 getting a new car isn’t probably the wisest decision.
Residual 72%
MF 0.00314
APR 7.56
Residual 72%
MF 0.00314
APR 7.56
Thank you
You also get to pay tax on the negative equity.
This definitely shouldnt be bumping up to $598 though. Probably more like $550
My personal suggestion is to first visit major car selling platforms to get an appraisal. Confirm whether this car truly has no possibility of gaining any trade-in value. In this situation, the best approach would be to cover the $2500 himself, otherwise, if they roll the negative equity into the monthly payments, your friend will still have to pay taxes upon it. It’s like having a monthly debt with interest.
How many months/payments are remaining on the current loan? Can they make extra payments to cover the negative equity? $2500 is not a lot of money compared to other folks with 5-figure in negative equity.
The interest formula is (cap cost + residual) * money factor, so adding 2500 to cap cost is basically adding 2500 * 0.00314 = $8 per month of extra interest. So it should be $105 per month for the negative equity + $8 interest + taxes. I personally wouldn’t roll in $2500 negative equity, better to pay that off in cash.
Thank you… so it turns out its not even $2500 its $3000. So how much that would be extra a month for 24 month?
Perhaps show friend the thread and allow him to do the math himself? It’s only 15 (well, I guess 16 now) posts. It’s not a lot for him to read through.
I’m going to go out on a limb here but I’m guessing it’s 3,000/24 plus interest!! As always the lease calculator is your friend if you want an exact answer.
Dont forget to add tax as well
Thank you and all other for your replies.