First time poster, just started poking around these forums.
I thank anyone for their time and attention on this, and apologize in advance for my ignorance.
So, my current situation is as follows:
I have a 2015 Dodge Dart that I bought new. When I bought it new, I had to roll in a lot of negative equity from a vehicle I purchased when I was 19, with terrible credit. I currently owe ~ $15,000, and it is worth about $6,500 (Carvana/KBB). Obviously, not an ideal situation.
The Dart currently runs very well, and my payments are manageable at ~$375/month. My concerns arise from the fact that I am so very underwater in equity, and the vehicle is now out of warranty. My fear is the vehicle starting to act up while I still owe so much.
My credit has been up & down for the past year with some high balances on credit cards due to personal hardships, but those balances are steadily decreasing while my score climbs.
Info for background:
I have 3.5 years left on the Dart, at 5.21% financing.
I do not need more than 10k-12k miles per year.
My credit is ~ 700, and stabilizing.
I may be able to scrounge up some money down, if that helps at signing, or paying down the initial payoff on the Dart.
My questions are along the lines of:
Does it make sense to try and find a lease with a lot of manufacturer incentives that can try to bury the negative equity on a lease, allowing me to walk away in 3 years, or should I stick with the $375/month, & risk being out of warranty?
Does potentially finding a loaner BMW or Mercedes (since I’ve read that luxury brands may have “house money” to get the LTV right) make sense to try and offset some of this negative equity? (Open to lower quality vehicles as well, maybe a Chevy/Kia/Subaru/Hyundai lease special?) Or does “sticking it out” seem to make the most sense here?
(Open to all suggestions, conversation, and potentially constructive ridicule. Again, I thank you for any help on this.)
Wow, $15K on a car worth $6.5K is deep. Is that $6.5K value trade in or private party value? If it is only trade, I would suggest looking into the private party value. If the car is worth enough to where it would make some sense, try selling the car yourself.
At a glance, I would say that leasing is not for you. I don’t know the whole picture, but it seems your credit isn’t ideal…so you will be paying more (MF) than many of the hackers on here. You’re also talking about trying to bury ~$8.5K into a lease. It would be possible if the conditions are right, but it could also be argued if you’re saving money or not. Also, leasing the “luxury” vehicles may seem cheap at first glance, but there are other sizable costs that can go into it.
I would recommend biting the bullet and paying down the debt on the Dart. As for the worry, it is a 2015. If you’re taking halfway decent care of it, there shouldn’t be any major issues anytime soon.
Yeah…certainly painful. Was young, dumb, alone, and had no options.
As for the care of the car, and the worry; thank you. You’re right, as I do take very good care of it, and it has low (maybe average?) mileage at ~ 34,000 across 42 months, so far.
My credit is probably not solid enough at this point for an enticing MF, but still would love to hear all input. The main thing that peeks my interest with “burying” the negative equity is being able to walk away and be under warranty for the next 3.5 years (even if the cost per month is slightly higher than my current $375) vs. just holding my breath on the depreciating Dart.
A 2015 with 34k miles should have a solid 75k or more miles before you really start gettting problems.
Put whatever extra $ you have to the principal. FAithfully applying even $50 extra to principal consistently will help payoff the negative equity.
Your only sensible option is to pay off the note you currently hold. If you make a move now, whether it’s trading or selling or leasing, you’re just kicking the can further down the road. You’ll roll even more upside downness into another car, and it’ll have negative long-term effects on your financial well being.
It stinks, but you’re in a low mileage car, and it should last till you are in a better place. Try to be patient.
Sorry if I sounded like a dad. (I can’t help it)
Definitely stick it out… on the bright side, the car’s value can’t drop much more so you’ll start closing the gap rather quickly. If you have a car out of warranty, a rather generic domestic car is a good option since repairs/maintenance should be relatively cheap vs. a luxury foreign cars. You also will have better options when you wipe out some of that negative equity including selling it privately.
If at some point you decide to bit the bullet and lease something, pick a brand with a low money factor like Toyota or Infiniti since that is your interest rate. You can definitely get a loaner BMW cheap, but base MF is close to 5% for tier 1 credit so would defeat the purpose, plus you are going to repay sales tax on the amount you are underwater, resulting in a 10%+ interest rate.
You don’t seem to be where you need to be from a credit perspective anyway, so focus on 12 months on improving your credit and paying down the loan as much as possible and reassess next year. The negative equity should drop signficantly and be in a better financial position. If you are even debating rolling that amount into a new lease, you should be able to afford at least $500/month that should all go towards your current loan.
Shit happens, but don’t make the same mistake again…Good luck!
Keep in mind that rolling the negative 8.5k into a lease means you will be paying that amount over the lease term. For instance, on a 36 month lease, you will be paying $236 just for that negative portion on top of the lease payment on the new car. So, say you get a basic car at $199 a month. That’s close to $450 a month (15.6k) for something that you get nothing at the end of 36 months. On the flip side, if you hang on to your car and pay it off, in that same 36 months, you have paid off the car that you outright own and probably can sell it for something. If not, at least you have 3,000 lbs of metal.
If you roll it into the lease you’ll be paying the tax again, increasing the amount due.
Seeing all the deals people get here is probably making you want to make a move, but given your financial instability to this point, it’s a good idea I hold until you’re more stable.
Even if you wait 1 year and pay off $5k, I’m sure the car value won’t drop $5k so as many have said above, your best bet is to keep paying this loan down.
Maybe in 12 months when you’re only $4-5k underwater you can start considering rolling it in. But it’s never good to roll negative equity into a new lease.
He’d still have to come up with the remaining monies to pay the car off after sale. If he has that extra several thousand lying around, he should put it toward principal now instead. At best, there’s another 2k in it if it’s a trade vs private party on the 6500 he said it was worth.
I understand that. I was saying if he were to get rid of the car (which some people there is no talking out of)…he would likely be better off selling himself and minimizing the blow. He would be paying either way.
It sounds like you have some maintenance concerns about the vehicle, even though there isn’t any obvious evidence anything is currently wrong with the car. I agree with the general sentiment that paying down the current vehicle is the best thing for you to do.
Some are advising you to pay extra towards the principle - I think that is a good strategy. Another option would be to keep making your regular monthly payments of $375 and then set up an automatic transfer each month of $50-$100 each month into an auto maintenance account. Call your bank and ask them if another savings account can be created - if not, open an account with Ally bank - I really like their website and their savings rates are decent.
This way you would have some money set aside should your vehicle need any repairs and you won’t worry as much about something going wrong with your Dart. If after the next 3.5 years go by and your Dart is paid off and you want to purchase a vehicle, you’ll have some money for a down payment on the vehicle or you can afford a lease that will be a bit nicer. Having an on-time auto loan paid off and taking care of your credit cards will greatly help your credit score.
I would suggest to get a new car, with a manageable payment…meanwhile you should try to privately sell the Dart, and at least get an extra 2-3k vs trading in. You will have 2 car payments, but that leftover 4-5k you will pay it off within a year or so.
Not trying to be mean here but I think that is terrible advice. To pay off the 4-5k in a year that’s over $400/mo and you can’t just sell the car without a way to completely close out the loan. He’d need to either finance it via a credit card or personal loan which have crazy high interest rates. Ride out the dart until you can at least break even but I’d just ride it out until the end provided you’re aren’t throwing money into fixing it which i wouldn’t think you would be.
Agree with you. That is the best option (but OP is worried about expensive repairs)…and pay it off quicker. Instead of 375, pay 575-600…to pay it off much quicker.
