I have an excellent rate (1.9%) on a loan that has 3 years and roughly $8900 left on it. I’m not sure how I got such a great rate on a 6 year loan but here I am. Anyways I would like to get a new car. Somehow I owe more than the car is worth (we’ll say it’s worth about $7500 as a trade in). It’s a compact sedan and I am looking to get a midsized pickup or SUV. Anyways I would love to somehow ditch the car yet keep the loan. Like if I could sell the car, use the cash as a down payment, and keep paying the 1.9% on that cash/down payment that would be ideal. Even though I have great credit I don’t see myself getting that rate again. Maybe I am over or under thinking this and that the decision is easy but any help would be greatly appreciated!
The reason why you owe more than the car is worth is due to the long term of the loan. The longer the term the more likely you will be underwater. The used car price is dropping due to the age of the vehicle, not just due to the mileage of the vehicle.
The lender will require you to pay off the loan completely when the vehicle is sold. The car is their collateral. They are on the title and won't release it until they get all their money. So you have to have that extra cash on hand, or the new car dealer has to be willing to throw in the extra cash when you buy the new car.
You say that you owe $1,400 above the value of the first car, so that will mean that the new loan will be purchase price + $1,400 - down payment. But if you will have the money for a down payment you should just send the money to the lender for the first loan.
You should checkout the loans available from your bank/credit union to see what rates and amounts you qualify for before you visit the car dealer. You can also get an estimate of the value of the first car from some large regional car dealers, their estimate is good for a week or so. That allows you to sell the car in a transaction separate from the purchase of the new car.
Getting the loan approval and the solid estimate before negotiating with the new car dealer will actually simplify the new car transaction because you won't be negotiating price, trade in value, interest rate, and length of loan. You will only be negotiating price.
You got the low rate most likely because you bought it from a dealer as an incentive for you to buy their car. No bank I am aware of gives 1.9% loans right now.
If you buy a house, the loan uses the house as collateral. You can sell the house and in some cases the bank will let the new buyer continue paying on the existing loan.
This is not what you are asking. You want to get rid of the underlying collateral and transfer the remaining portion of the loan to the new car. That is not going to happen. The loan follows the car. There is no mechanism I am aware of that allows this in the US.
However, all is not lost.
Under any scenario, you will have to payoff the loan. So additional money will be needed.
But after that, all you have to do is find a dealer who has a similar rate to your old loan and buy the car from them. It isn't particularly hard. Pretty much every dealership these days has some subsidized interest that can make you happy. Just shop around before you buy.
The real issue likely is whether you can trade in your car if you keep the loan, not whether you can keep the loan if you trade in the car. If you have a car loan, then they probably have a lien on the car, so when you try to sell it, the dealership will notice that you don't have a clean title. If you don't pay the loan back, then the bank can repossess the car. So for the dealership to buy the car would mean that they would give money to you in exchange for a car that the bank can claim if you don't pay the money. Why would they agree to that?
You have nothing to sell. You have negative equity in your car. You're essentially just renting the car from the bank for $170/year.
Suppose I have a house worth $400k with a $500k mortgage on in. Would you be willing to pay $400k for a house that still has my mortgage on it? If your logic worked, you could buy a $500k house for a $100k down payment, sell it for the full $500k, use the money as down payment for five $500k houses, sell those, etc.