Car Question

[FromRedToBlack]

Advised to sell my car to save money as I’m upside down.I have a 2014 Honda Pilot with 67k miles. I’ve been to several dealers and highest offer so far is 19k (others have ranged between 14,900-17k)  I owe 22,990. I’ve looked online and people are selling them around the same or less because the car now has a new body style and people want that. Dealer says he can get me in a lease in a Civic sedan and with incentives eliminate a lot of the negative. Does his make sense to do if I either negotiate the purchase at the end and keep that car long term (total out the door for 18k) or just buy a cheap car at the end. I don’t have 4-8k to put up to pay the difference. I know everyone says private party but in this case I don’t see much point when the price is close and the headache seems less at the dealer. For reference I also have 2 kids one 20mo old and one 8. My husband says to do it as the maintenance will be included during the lease the payment may be similar but gas and overall total will be less. It just seems like it’s not that big of a deal.
 What are your thoughts? Thx

[use2betrix]

What’s wrong with your car? It’s not mustachian but if you don’t have the rather small sum to put down to get out from under it, there’s other concerning problems.

The idea to sell your vehicle to save money is to get something cheaper. Not to sell it and get a brand new car of a nearly similar value. A lease is very rarely the best option.

If you actually wanted to save money, it’d be something like selling yours, paying off what your upside down, and then getting like an $8k Honda Fit. I don’t think either of your options your giving are worthwhile.

[tyler2016]

First, good job in getting out of the upside down situation.

Without knowing more, it is hard to give good advice. I'd buy a 5 to 7 year old car, consolidate the loan for both vehicles to a single loan to the lowest rate possible and throw every spare penny at it until you are right side up.

The sales person's job is to extract as many dollars from you as they can. Get it in writing and run the numbers yourself to determine what it will actually cost in the long run. If you have any high interest debt, consider the opportunity cost of extra interest paid by not paying this debt down. If you're not making taxed advantaged accounts, you have the cost in extra taxes to consider.

[frugaliknowit]

Don't get sucked into a lease.  You need to get off the "perpetual car debt merry go round".

Sell the car private party.  It might not be as convenient as taking it to a dealer, but hey, you've got negative equity...!

[tyler2016]

Frugaliknowit,

The problem with a private party sale is the lein holder might not release the lien to the new owner until the loan is paid off. You may have to get another type of loan to make up the difference. Consider HELOC, unsecured bank loan, 401k loan, etc.

[RWD]

Dealer says he can get me in a lease in a Civic sedan and with incentives eliminate a lot of the negative.

Ugh, don't do a lease. There's no magic to make up the $4k difference you'll be paying for it one way or another no matter the route you take.

However, you can reduce your overall vehicle expenses going forward by switching to a cheaper, more efficient vehicle. For example, let's say you trade in your Pilot for a 2010 Civic (expected dealer price $7k). This will cut your fuel costs by about a third. Your new loan will be ~$11k so assuming a similar interest rate you will be paying about half as much in loan interest (in addition to freeing up cash flow with a lower payment). You will also cut your depreciation costs by about half. Depending on how much you drive and other variables this could save you ~$3k per year. So even though you would still be upside down on the loan you would be in a much better position.

[chasesfish]

What are your daily/weekly/monthly car needs?

There's about four lines of thought that are debated on here and all seem reasonable, but it really depends on your car needs.

- Buy small/new, run the wheels off
- Buy 5 years old, run the wheels off
- Buy a fully depreciated vehicle and tinker with it yourself
- Ride a bike

How much do you drive?  Do you have to see clients for work?  Do you need off-road capability like the Pilot has?  What do you have to haul weekly?  People and stuff?

[Taran Wanderer]

Why does it matter than you are upside down in the Pilot?  It’s current value to others is only relevant if you need to sell it. Just because someone says you should does not constitute a need to sell.

The important issue right now is what your costs will be going forward, and it might be worthwhile to think about what car you may need in 4 to 5 years when the Pilot still only has ~125,000 miles on it.

Project your costs and payments out for 5 years for the various options and then use that to inform your decision:

1.  Pilot:  payments + fuel + insurance + maintenance
2.  Civic:  loss on Pilot + payments + fuel + insurance + maintenance
3.  Fit:  loss on Pilot + payments + fuel + insurance + maintenance
4.  Others?

Remember, the only way you lock in the loss from being upside down on the Pilot is to sell it. Still, after you do the projection, you may find that taking the loss puts you in a better position in the long run. YMMV.

[ChpBstrd]

This is a nightmare! Almost $23k in debt (interest rate not specified)! Driving a very high cost vehicle! Unable to save up even $4-8k to escape the loan because the payments are eating you alive!

HAIR. IS. ON. FIRE.

As @RWD points out, if you can somehow switch to a used economy car now, you will save much of that difference within a couple years. However, it sounds like you lack the liquidity to eat your losses and make that move. I assume this lack of cash flow is related to making payments on a Honda Pilot. This is a debt spiral. If you can't afford to escape this, you're also in no position to handle a health issue, insurance deductible, or unforeseen liability.

Your only option is to come up with the cash to sell the Pilot AND buy a well-used subcompact from some external source (or, much better, go down to a one car family). @tyler2016 mentions a home equity line of credit. Is that an option to escape this mess? Do you have any toys such as boats, campers, etc. that the Pilot was purchased to haul?