January 20, 2006

Hi Tony,

I have a 2004 Lancer Sportback that is way too small for my family. I'm looking to trade it in through the dealership that I bought it from and get a 2005 Endeavor.

The salesman I am working with says he will try to get me the vehicle at invoice price which is around $24,500, then minus the $3,500 rebate. My current car has a pay-off of $20,000, with the trade-in value at $10,700.

He is trying to get me to put money down. The way I look at it, is that they can hide my negative equity in the current car loan. I just want to make sure when I go to the dealer in the morning that I can have everything worked out and he won't know what hit him!

Here are the numbers as I see them:

24,500 Invoice
-3,500 Rebate
=21,000 Sale Price

-10,700 Trade-in
=11,300

+9,300 Negative Equity
=20,600 Total Price

Just wanted to get your opinion. Thanks, love your website.

Cyra

Answer:

Hi Cyra,

If you're happy with the numbers this dealer is giving you then buy the vehicle if that's what you want to do.

You're numbers are slightly off though. They should read as follows:

24,500 Invoice
-3,500 Rebate
=21,000 Sale Price + Tax and Title Fees

-10,700 Trade-In
=10,300

+20,000 Pay-Off
=30,300 Total Price + Tax and Title Fees

In your numbers you added the negative equity instead of your full payoff. That isn't going to work! You have to add the full pay-off amount to the new loan.

The reason they want some money down is to cover some of the negative equity. However, if your credit rating is strong enough you should be able to finance the full amount. Of course, you'll be buried in the new vehicle for the full length of the loan!

You had better get yourself GAP insurance on the loan. This is vital protection for someone in your position with that much negative equity. To read more about GAP visit: The Truth About Gap Insurance

All my very best...

Tony Iorio