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I purchased a car a little over 1 year ago a 2012 Dodge Avenger and recently went to get it refinanced and found out that because I'm so upside down that I can't get it refinanced I still owe over 15,000 and the car is only worth about 8000. I'm so bothered by this a few days ago I received a pre-approval letter from capital one bank for 35,000 so how can I go about doing this if I trade the car in I will have to put down a substantial amount of money in order to get out of this car. Can I just get the other car and turn the other one in. What should I do

  • What "other car"? – BrenBarn Feb 27 '15 at 5:04
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    Why do you want to get rid of the car? – Joe Feb 27 '15 at 15:19
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    This should be noted on your pre approval letter but just to clarify: that letter makes a number of assumptions and should generally be treated as a "best case scenario." They WILL require you to apply and qualify for a loan, you might qualify for less than the stated amount, if you roll the balance of your current loan into your new loan, it will reduce your buying power, qualifying for a loan doesn't mean you should accept it or can afford the payment and you may be able to get better financing elsewhere among other considerations. – geewhiz Feb 27 '15 at 16:28
  • You have a loan where you still owe $15,000. It doesn't matter if the car is worth $30,000 or $3,000 of $0 - you still need to pay the loan off at some point. You could sell the car for whatever someone will give you, and then pay off the rest. Or you could keep the car and continue payments. – Joe Strazzere Mar 24 '16 at 10:18
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You're not going to like this answer.

You might be able to get out of the car. You probably won't be able to get out of the loan.

Option #1 - Sell the car privately (you'll get more in a private sale) and get a private loan for the difference between the sale price and what you owe.

Option #2 - If you go to a dealership that advertises that they will take any trade no matter how much you owe, they will roll your balance, less your trade in value, into your new loan. So for example, Let's say you buy a car for and borrow $20,000. The dealership gives you $6,000 for your trade because that's what they do that leaves $9,000 on your loan and you will end up borrowing $29,000 to buy a $20,000 car.

Dealerships can be surprisingly accommodating but a lot of car buyers don't understand the terms of what they're getting into. I actually knew someone a few years ago who left a dealership with a new car and couldn't tell you anything about the deal beyond her monthly payment.

Option #3 - Hang on to the car and throw every extra penny at it to get the balance down on the loan until you can get it to the point where you can sell it, trade it in or refi it without putting out a big one time cash payment.

  • For the record, those are your best options. There are others but they are less attractive considering that it sounds like you want to buy another car in the (possibly near) future. If you want actual advice, I'd suggest option 3 first because it's credit neutral (it doesn't require a new loan right now). It's a good choice as long as you don't have to get a new car. Option 1 would be my second choice in a pinch and option 2 would be a last ditch effort if all else failed. – geewhiz Feb 27 '15 at 3:19
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    I think understanding option 2 is super, super important here - so much so that I would encourage it to be highlighted in neon and perhaps even expanded on with one thing: 1 year from now that $20,000 car will be worth maybe $12-15k at best, but you'll owe around $24,000 dollars. In other words, the situation will have become way more upside-down. – BrianH Feb 27 '15 at 21:10
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    @BrianDHall - You're absolutely right. This is where the trap of the never ending car payment comes from and it's why people are taking out 6 and 7 year loans on economy cars. – geewhiz Feb 27 '15 at 21:25
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Short answer: If you bought the car -- as opposed to leasing it -- there is no one to "turn it in" to.

The reality of cars and car loans is this: The value of a car tends to fall rapidly the first couple of years, then more slowly after that. Like it might lose $2000 the first year, $1000 the second, $500 the third, etc. What you owe on a loan falls slowly at first, because a lot of your payment is going to interest, but then as time goes on you pay off the loan faster and faster. So you may pay off $1000 the first year, $1100 the second, etc. (I'm just making up numbers, depends on the value of the car, and the term and interest rate of the loan, but that's the general idea.)

Combining these two things means that in the first few years after you buy a car, if you had a small or no down payment, you might well owe more on the car than it is worth. That's just how the numbers work out. If you keep the car long enough, eventually you hit a point where it is worth more than you owe. Keep it until you've paid off the loan and you owe $0 but the car is still worth SOMETHING, exactly how much depending on its condition and other factors.

If you just use the car and pay off the loan, i.e. if you don't sell the car or refinance the loan or some such, then this doesn't matter very much. You make your loan payments, and you have use of the car. What difference does the book value of the car at any given moment matter to you?

If the idea of owing more than the car is worth bothers you in principle, then in the future you could make a larger down payment. Or make extra payments on the loan the first couple of years to knock the principle down faster. That's about the only things you can do. Well, you could buy with cash so you owe zero and the car is always worth more than you owe.

But given that you are where you are: If you just keep the car and keep driving it and keep paying the loan, then you are exactly where you thought you would be when you bought the car, right? I mean, the day you bought the car, you presumably weren't thinking that at some future date you could refinance at a lower rate. How would you know? So I think the easy answer is: Don't sweat it. Just enjoy the car and pay your bills.

  • The last paragraph is absolutely the right answer. You are no worse off now than you were before you decided to investigate refinancing. You still have the car you were planning to keep. You aren't paying more, you just aren't paying less. Relax and enjoy the car. – keshlam Mar 24 '16 at 12:13

protected by Chris W. Rea Mar 24 '16 at 2:58

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