Author Topic: I need advice on my upside-down car loan.  (Read 3434 times)

bradonw

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I need advice on my upside-down car loan.
« on: November 22, 2013, 05:07:15 PM »
Hi Everyone,

Forgive me if this has been asked before, but I need help with my car loan.  I bought a new 2012 nissan versa.  I owe $14k and it's "blue book" value is $11k.

My plan is as follows:
  • Save $3k while continuing to make regular payments
  • Buy beater car with saved cash
  • Make extra payments on car loan until it's down to $11k
  • Sell car for $11k

I'll end up paying $6k instead of $14k.  Is this a good idea?  Anybody want to buy a used Versa for $11k?

gimp

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Re: I need advice on my upside-down car loan.
« Reply #1 on: November 22, 2013, 05:47:49 PM »
Have you calculated how much money you'd be getting out of the sale and how much your downgrade would cost?

Not saying you shouldn't downgrade, just asking if you've done the math to see what kind of money we're talking here.

PS - I drove a newish nissan versa. Well, I drove a hatchback that was utterly horrible, but I drove a newer sedan too. Really fun car. Tiny engine, but also weighs nothing, and corners like a pro. Empty roads around Mount St Helens made for a very fun drive. My car corners better but it's much heavier and feels like it'll slip, whereas this car just felt really zippy. It's the only small car I've driven (out of 10+) that I enjoyed. This is not on topic, just felt like sharing.

daverobev

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Re: I need advice on my upside-down car loan.
« Reply #2 on: November 22, 2013, 07:11:23 PM »
Hi Everyone,

Forgive me if this has been asked before, but I need help with my car loan.  I bought a new 2012 nissan versa.  I owe $14k and it's "blue book" value is $11k.

My plan is as follows:
  • Save $3k while continuing to make regular payments
  • Buy beater car with saved cash
  • Make extra payments on car loan until it's down to $11k
  • Sell car for $11k

I'll end up paying $6k instead of $14k.  Is this a good idea?  Anybody want to buy a used Versa for $11k?

I'd say make extra payments on the loan *first* assuming it's not 0%, THEN save the cash for the beater. No point owning the beater at the same time as the current car, right? In fact, sell current car then finally buy beater.

bradonw

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Re: I need advice on my upside-down car loan.
« Reply #3 on: November 24, 2013, 11:27:45 AM »
Have you calculated how much money you'd be getting out of the sale and how much your downgrade would cost?

Yes, I'd pay $3k to get the versa loan down to $11k.  Then sell the versa for $11k and pay off the loan completely.  A beater car should not cost me more than $3k. 

I can dedicate $1600 to this each month if it does make sense.  By doing it this way I'd pay $6k out of the $14k I currently owe.  I would also get rid of this debt in 4 months instead of 12 months. 

So my question is does it make sense?

daverobev

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Re: I need advice on my upside-down car loan.
« Reply #4 on: November 24, 2013, 03:58:05 PM »
Have you calculated how much money you'd be getting out of the sale and how much your downgrade would cost?

Yes, I'd pay $3k to get the versa loan down to $11k.  Then sell the versa for $11k and pay off the loan completely.  A beater car should not cost me more than $3k. 

I can dedicate $1600 to this each month if it does make sense.  By doing it this way I'd pay $6k out of the $14k I currently owe.  I would also get rid of this debt in 4 months instead of 12 months. 

So my question is does it make sense?

Factoring in any registration fees? Any decrease in insurance costs?

At the end of the day it's your call. If you like the car, feel it'll last you a long time, and are dependent on it it may not be an amazing idea. Not a bad idea, don't get me wrong - being able to do anything more cheaply but for the same effect is good - but...

How much of a 'pants on fire' issue it is depends on your other debts, your savings rate, etc. It does make financial sense to sell and get something cheaper-but-reliable.