April 08, 2007

Hello Tony

I have a situation I could use some advise on.

My 23 yr. old son bought a new pickup (2006 model) without my input and with his Mom's co-signature, also without my input!

Long story short is that he isn't earning enough to cover his note and his other obligations. I now temporarily have possession of it in order to try to effect some sort of swap for a cheaper car that he will be able to afford. He owes almost $30,000 to GMAC. I believe the wholesale value of the truck is about 21,000. I figure that puts him 9,000 upside down (loaded Silverado crew cab w/all the bells and whistles).

I figure a new car worth, say 12,000-14,000, is where son should be. Figuring the 9,000 he is inverted, that'll put him at 23,000 for a 14,000 car. Will a dealer go for that? Can it even be financed under these conditions?

Ordinarily, I would get the car dealer to commit to my price on a replacement car, THEN spring the trade on them. Would you recommend the same approach in this instance?

Any insight you could provide would be appreciated. I don't need to end up paying for this truck which is where it is now headed.

Richard L.

Answer:

Hi Richard,

You'll be lucky if the loan is only $9,000 upside down. my guess is the truck is worth less than what you think. He may be $12,000 to $15.000 upside-down!

First thing to do is to look over the loan contract and see if there is any extended warranty and or credit life or credit disability insurance on the loan. If so these coverage's can be canceled through the Finance Manager in the dealership where the truck was purchased.

These items can add thousands to the loan, so if there are any additions such as these on the loan by canceling them you can reduce the payoff accordingly. If there is anything you can cancel make sure to follow up on a regular basis with the dealership until the cancellations are complete. They tend to drag their feet on these cancellations, because it means charge-backs to the Finance Manager's and the Sales Manager's commissions.

As far as refinancing the overage on a new car it depends on the bank and how the Finance Manager structures the numbers on the deal. Obviously the banks don't want to see a ton of negative equity being added to the loan. Even a creative Finance Manager will be limited to how much the bank is actually willing to loan on a particular vehicle. If for example, a car stickers for $16,000 then adding an additional $9,000 or more to that is a very tall order to get the banks to buy.

Choose a vehicle that is in great supply. A model that the car dealer is willing to sell at or near invoice and one that has a decent rebate on it. This may help get you over the hump.

One more thing, make sure your son puts GAP insurance on the new loan. You can find out more about this at: The Truth About Gap Insurance. This is very important when financing more than a vehicle is worth.

When negotiating the deal you might as well be up front with the car salesman as to what you are trying to accomplish. You'll probably save yourself a lot of time like this. Tell them you know they are going to give you wholesale for the truck, and make them tell you what they are really putting in the truck so you can keep track of what they are doing.

Another option you have is to sell the truck privately, then go buy another car. You will still have some negative equity to deal with, but you should be able to sell the truck for more then what a dealer is willing to put into it thereby chipping away at the negative equity even further.

Good luck!

All my very best...

Tony Iorio