Upside down on car loan

[acfan]

Hi, I am about $5,000 upside down on my car loan. My car is running fine, but it has 80,000 miles and the extended warranty has run out. I am afraid of repair bills and the car becoming unreliable. The reasons that I am upside down are high milege( car is 3 years old), paying 12% interest, no down payment and I bought the extended warranty ($1,200). So, I was going through my options of keeping the car and paying it off in another 3 years and risk a breakdown (transmission, motor) or trading it in and getting the 0% option. I have much better credit now (733 score). I know I would be paying money on a car I no longer own if I trade it in, but I would be paying 0% on the money instead of 12%. Any ideas would be great. BTW, it is a 2006 Pontiac Grand Prix.

[InBruges]

If you have gap insurance and an air bag, you could run into a tree.

 

Otherwise, I think the trade-in may be a good bet as long as you can afford the new payments.

[lavenderdove]

If i were you, I'd just keep driving it until you get some indication it is having problems. Many 'young' cars like that can get higher miles without problems. And if you do diagnose an expensive problem, then you can drive it right into the dealer (without fixing it) and trade it in.

[avman]

Decent, reliable cars can easily get 150-200,000 miles. However a Grand Prix isn't what I'd consider a very reliable car when it ages.

 

Putting another $5,000 into another car loan will keep you upside down throughout that loan too. Is there any chance you can refinance your current loan to a lower interest rate and then pay it off quickly? You should probably try to nurse your current car as long as possible and get that loan balance down before considering another car.

[shes2smart]

I've been working in the office of a car dealership for the last year and a half.

 

It's rarely a good idea to roll over the remaining balance of the loan on your current car into a new loan. Doing stuff like that is how people get themselves in financial trouble and end up with car payments larger than my house payment. Some lenders my employer works with stopped approving deals structured like that in the last year due to economic conditions....even if the borrower had a good credit score.

 

Based on what I've seen in my job, you'd probably be better off to put any extra money toward paying down your current loan and not get into something else until you've either gotten it paid off or you can get what you still owe (or more than you owe) in trade.

[InBruges]

12% is high, though. Wouldn't paying off $5000 at 0% be much better than at 12%, even if it's rolled onto another car payment? Especially if the new car is more reliable.

 

Although I agree with avman, that refinancing the current loan is the best option if possible.

[acfan]

I checked on refinacing and the most they will do is 120% of the value and I'm over that amount.

[shes2smart]

12% is high, though. Wouldn't paying off $5000 at 0% be much better than at 12%, even if it's rolled onto another car payment? Especially if the new car is more reliable.

 

You are a lender....a bank or other financial institution.

 

Someone comes to you wanting a loan for, say, $22k. They also want an additional $5k beyond the selling price of the item. They want the loan structured so they do not pay any interest.

 

You are being asked to pony up $27k on an item that is worth less, pick up the costs associated with creating, tracking and administering the loan, and get ONLY the $27k back over the next 48 or 60 or 72 months.

 

Would you make a deal like that?

 

A lot of lenders did...and it has come back to bite them in the butt. Hard. So some of them aren't lending more than the item cost anymore. The ones who are will do so -- at a profit (meaning the interest rate the borrower pays) Last time we did a 0% incentive, the loan could not be for more than the cost of the vehicle being purchased. This pissed off some people who wanted to roll over existing loan balances, and they could not understand why they couldn't get this deal.

 

If the OP is a high mileage driver, what happens in another 3 or 4 years when the new vehicle is in the same situation as his current one? 80k miles...and now, because of rolling over the old loan, he's more like $10k or more upside down. I have seen situations where people have rolled over 2 or 3 previous loans, need another vehicle and they are just screwed because they're so far upside down.

 

Seriously, with the stuff I've seen in this job, I am really hesitant to take out another car loan without a substantial downpayment. Better yet, I'd prefer to outright purchase my next vehicle in cash. My current car is an 02 with 70k miles, and paid off. I'm keepin' it til it falls apart. It's had routine maintenance (which is one of the keys to vehicle longevity) on schedule, and similar models, well-maintained, have commonly reached 150k miles plus before giving up the ghost.

[Pressfit]

Is it a GXP model? There have been reported problems with the transmissions in some of them with high miles. The fix is a Shift Kit. Outside of the trans, it's probably the same 3.1 litre V6 thats in Buicks, other Chevys... GM cars.

 

But, since the car is running fine I would keep with the perodic maintenance schedule and keep the car. Clean oil and air filter is the life of the drive train/engine. Highway miles are easier than city miles so 80,000 is not that bad if you do most on long distance.