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Somebody explain negative equity in dumbass terms

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CowboySkibop
Posts: 3522 - Karma: 28,270
Hey y’all,
so last spring I bought a vehicle I thought I could afford cuz I was makin big money at a job, but unfortunately the company kinda went under 2 months after I got the car. I owe about 23k and making payments with rent has been kinda a struggle.


I am loooking to ideally get payments under $300 by going back to the same dealer and trading my car for a car listed at half what I owe on my current one.



woukd this accomplish what I need? Or is it a smart deal?
Oct 10 2023 2:14PM
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SlushSeason
Posts: 708 - Karma: 5,421
Negative equity is when your car/house is worth less than the balance on the loan. Is your car worth less than $23k now?
If it's worth more than 23k, your best bet is to sell it, pay off the loan, and buy something cheaper. Maybe going through the dealer will be best or maybe selling to a private party will be better, shop around.
If you're actually underwater (negative equity) on the loan, then that sounds like a decent way to get out of it.
Oct 10 2023 3:42PM
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CowboySkibop
Posts: 3522 - Karma: 28,270
SlushSeasonNegative equity is when your car/house is worth less than the balance on the loan. Is your car worth less than $23k now?
If it's worth more than 23k, your best bet is to sell it, pay off the loan, and buy something cheaper. Maybe going through the dealer will be best or maybe selling to a private party will be better, shop around.
If you're actually underwater (negative equity) on the loan, then that sounds like a decent way to get out of it.


Thank u brother, but I’m guessing it is worth less than 23k yeah
Oct 10 2023 3:48PM
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Lonely
Posts: 6684 - Karma: 60,669
Check kbb (even though I think they just choose random numbers these days) get an idea of it's value.

Let's say it's worth 19k now but you still owe 23k on it. Let's say you find a decent used beater at a dealership for 7k. Then potentially what you can do (not all dealerships or lenders will do this but some will) is roll whats left of what you owe in the trade in into the next loan.

Owe 23k, dealership gives you 19k for it on trade, you purchase the new vehicle for 7k plus the 4k difference that would be left in your loan for a new total loan value of 11k.

It's not ideal, but it does lower your payment and total principal. You'll still be underwater with the next car, but with a lower monthly payment.

You could also do it privately, but that becomes a bit of a nightmare since until you pay it off, it's titled in your name AND the banks name. It can become a bit of a mess with timing since you'd have to have the money to pay it off from the buyer, go to lender to clear the lien and pay off the car, then go and transfer the title to the buyer. And that's only if you can get a buyer that will pay 23k.

I'm not a fan of dealerships, and you'll get less than you might privately for it, but all that will be taken care of and they will work with a lender to roll over the loan.
Oct 10 2023 4:43PM
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CowboySkibop
Posts: 3522 - Karma: 28,270
LonelyCheck kbb (even though I think they just choose random numbers these days) get an idea of it's value.

Let's say it's worth 19k now but you still owe 23k on it. Let's say you find a decent used beater at a dealership for 7k. Then potentially what you can do (not all dealerships or lenders will do this but some will) is roll whats left of what you owe in the trade in into the next loan.

Owe 23k, dealership gives you 19k for it on trade, you purchase the new vehicle for 7k plus the 4k difference that would be left in your loan for a new total loan value of 11k.

It's not ideal, but it does lower your payment and total principal. You'll still be underwater with the next car, but with a lower monthly payment.

You could also do it privately, but that becomes a bit of a nightmare since until you pay it off, it's titled in your name AND the banks name. It can become a bit of a mess with timing since you'd have to have the money to pay it off from the buyer, go to lender to clear the lien and pay off the car, then go and transfer the title to the buyer. And that's only if you can get a buyer that will pay 23k.

I'm not a fan of dealerships, and you'll get less than you might privately for it, but all that will be taken care of and they will work with a lender to roll over the loan.


Sick, I’m really not worried about the being underwater part as much as I am about having lower payments. Like if I’m already underwater with a 23k loan I would rather be paying less and be able to pay a loan off quicker
Oct 10 2023 4:49PM
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CowboySkibop
Posts: 3522 - Karma: 28,270
Ngl I kinda did the math. Starting my job at the hill in a month where I’ll be making $7 more an hour than my job now. I also spend a shit ton in gas cuz my current commute is 30 miles while the hill is like 5 blocks from my house. So come November my car will be affordable again. What I probably will do is wait and refinance once I pay off a fair amount more of my loan. I also don’t wanna deal with maint costs of a cheaper and older car when I have a basically new Honda that is on warranty

**This post was edited on Oct 10th 2023 at 7:27:48pm

**This post was edited on Oct 10th 2023 at 7:28:38pm
Oct 10 2023 7:25PM
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C.R.E.A.M
Posts: 2974 - Karma: 4,514
What's your payoff on the loan? What vehicle did you buy? Accountant and former banker here.
Oct 10 2023 7:45PM
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CowboySkibop
Posts: 3522 - Karma: 28,270
C.R.E.A.MWhat's your payoff on the loan? What vehicle did you buy? Accountant and former banker here.


Hmm right around 23,000 or so. And it’s a Honda CRV
Oct 10 2023 8:48PM
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C.R.E.A.M
Posts: 2974 - Karma: 4,514
How upside down are you in the loan? Do you have any savings? What year and trim level is your CRV? How many miles?

The long and short of it is that if you intend to go back to the dealership, they will take your negative equity and give you a loan on a new vehicle however, you are setting yourself up to be in an even worse version of the same position you are in now. Negotiating a car based on the desired monthly payment is a dealerships dream, it allows them to bend the numbers around in ways to their favor.

You may be close to not being upside down in which case you may be able to sell the car private party. Hondas hold their value very well so that is working in your favor.
Oct 10 2023 9:21PM
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BradFiAusNzCoCa
Posts: 6813 - Karma: 58,941
It’s when the value of what you own is less than what you bought it for aka the loan amount. Just another COVID economy boom casualty
Oct 10 2023 11:36PM
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Non_State_Actor
Posts: 4673 - Karma: 16,373
C.R.E.A.MWhat's your payoff on the loan? What vehicle did you buy? Accountant and former banker here.


Also what's your interest rate? Interest rates on used cars especially are fucked right now.
Oct 10 2023 11:39PM
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Funnel
Posts: 7811 - Karma: 1,464
CowboySkibopHmm right around 23,000 or so. And it’s a Honda CRV


Unless you really let them work you over at the dealer, newer CRV seems like a tough car to be underwater on. Those hold their value very well. Hang onto it if you can.
Oct 11 2023 12:02AM
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iH8pow
Posts: 1772 - Karma: 7,487
I think you get it now. But I have to agree with comment above ^

keep the car, just work harder. I know it sounds like stupid advice but you’re gonna get ripped off on resale value, get ripped off on next car… keeping it is always best option, people just get emotional. Don’t sell the bottom sort of speak, you already took most of the hit
Oct 11 2023 2:24AM
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CowboySkibop
Posts: 3522 - Karma: 28,270
C.R.E.A.MHow upside down are you in the loan? Do you have any savings? What year and trim level is your CRV? How many miles?

The long and short of it is that if you intend to go back to the dealership, they will take your negative equity and give you a loan on a new vehicle however, you are setting yourself up to be in an even worse version of the same position you are in now. Negotiating a car based on the desired monthly payment is a dealerships dream, it allows them to bend the numbers around in ways to their favor.

You may be close to not being upside down in which case you may be able to sell the car private party. Hondas hold their value very well so that is working in your favor.


Just crossed over 100k, it’s the top trim level from 2015, I’m honestly not super upside down, I kinda was just panicked about money for a sec and monthly’s.

but honestly I start a job in a month that I’ll be making way more money, and won’t be spending all my money on my gas for commuting to my current job. That alone will save me more money than trading in for like maybe a $100 cheaper a month payment. If anything I will wait a year or so and refinance my car when I have a lil more paid off
Oct 11 2023 11:31AM
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C.R.E.A.M
Posts: 2974 - Karma: 4,514
Thats fair sounds like you got it under control. As a general takeaway always look at the cost of financing when you are buying a car. There are some mandatory disclosures that the dealership gives you right at the end that show how much interest you pay over the life of your loan. This is the number to consider when buying your car as it is what you actually pay over the life of it.
Oct 11 2023 3:49PM
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partyandBS
Posts: 3934 - Karma: 60,136
how does negative equity work with insurance? like if there was an accidental fire that totaled the car would insurance pay the current value or would they pay whats owed?
Oct 11 2023 3:58PM
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Lonely
Posts: 6684 - Karma: 60,669
partyandBShow does negative equity work with insurance? like if there was an accidental fire that totaled the car would insurance pay the current value or would they pay whats owed?


It's called gap insurance, usually a good idea if you don't have a large down payment or have a long loan. I'm sitting at about even with my car but I still have it.
Oct 11 2023 4:00PM
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C.R.E.A.M
Posts: 2974 - Karma: 4,514
partyandBShow does negative equity work with insurance? like if there was an accidental fire that totaled the car would insurance pay the current value or would they pay whats owed?


In an instance where you don't have gap insurance, you would make payments on the remaining amount that insurance didn't pay.
Oct 11 2023 4:04PM
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PacificRimJob
Posts: 24725 - Karma: 29,939
This is why I refuse to get a new car on loan.

Cars depreciate faster than a coffee cools. As soon as you drive it off the lot, you end up in negative equity on the loan and you are bound to struggle to pay for it if any life-hiccups happen.

God damn dude, fuck needing to drive a car to get to work and being at the mercy of mechanical failure or gas price/electricity cost increases. Not to mention other drivers crashing into me in one way or another.

Cars are always such a god damn frustration. Just give me trains that arrive on time so I can reserve my car for trips to go skiing or escape civilization for a few days.
Oct 11 2023 9:43PM
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CowboySkibop
Posts: 3522 - Karma: 28,270
PacificRimJobCars are always such a god damn frustration. Just give me trains that arrive on time so I can reserve my car for trips to go skiing or escape civilization for a few days.


this is my wettest wet dream
Oct 11 2023 11:58PM
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skiP.E.I.
Posts: 7734 - Karma: 21,281
The good news is used vehicle prices are astronomical so your CR-V will remain pretty valuable. I don't have a car at the moment. My Civic crapped out for good in July and I can't bring myself to pay $5000+ for a shitbox. Luckily I live close to work so I don't have to drive and there's no way I'd finance a new car.
Oct 11 2023 11:59PM
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jompcock
Posts: 1491 - Karma: 10,830
Rip the e brake so you stop without the brake lights going on so someone rear ends you. Claim neck pain and get a fat settlement check. Or find another job idk.
Oct 12 2023 1:17AM
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mikem
Posts: 883 - Karma: 7,859
I sold Toyotas for like 4 years if you need help pm me
Oct 12 2023 2:08AM
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Funnel
Posts: 7811 - Karma: 1,464
C.R.E.A.MThats fair sounds like you got it under control. As a general takeaway always look at the cost of financing when you are buying a car. There are some mandatory disclosures that the dealership gives you right at the end that show how much interest you pay over the life of your loan. This is the number to consider when buying your car as it is what you actually pay over the life of it.


This. Negotiate on out the door price, never a monthly payment. Car Edge YouTube channel has some great tips for dealing with car dealers.
Oct 14 2023 10:13AM
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PeppermillReno
Posts: 4775 - Karma: -653
Sell it the minute you pay it off and get something cheaper for cash and pocket the difference. I think you'll regret any other option. Interest rates are way too high to refinance or anything.

Can you list it on Turo to maybe get some money? Everything is pretty cheap on there though.

I have the same situation with my car put way too many miles on it driving for work and my neighbor scraped the side of it and I don't quite have the extra 6-800 to make it look nice again. 3.5 years until its done.

Luckily I no longer have to drive 40,000 miles per year for work though so will ride it out. If I hadn't changed jobs it would have hit 300,000 before being paid off.
Oct 14 2023 10:58AM
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PeppermillReno
Posts: 4775 - Karma: -653
jompcockRip the e brake so you stop without the brake lights going on so someone rear ends you. Claim neck pain and get a fat settlement check. Or find another job idk.


Nah he should just hide behind another car and then jump in front of a nice car in a crosswalk. He'll get way more money and still have a ride that works.
Oct 14 2023 11:03AM
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CowboySkibop
Posts: 3522 - Karma: 28,270
PeppermillRenoNah he should just hide behind another car and then jump in front of a nice car in a crosswalk. He'll get way more money and still have a ride that works.


this, injury settlement bag here we go
Oct 14 2023 11:18AM
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