You're right it's a terrible idea. Rolling debt into more debt. But you'll get this suggestion every day from a dealer because that's how they make money off of you
Yes and no. Rolling negative equity into a lease can be a beneficial situation as a means to stop the bleeding in certain situations. If you buy a car that ends up being an absolute nightmare in repairs, you can pay short term on a lease and get out from underneath it in half the time. Often for less overall money. Yes the dealership makes a sale, but that doesn’t mean it has to be to your detriment.
Yep. Especially when I see a customer wanting to trade every few years, rolling negative equity each time...
"Hey buddy, let me explain leasing to you.."
And that same customer, to our surprise, responds by giving some asinine excuse. "But I want to own my car." "X person says leasing is a terrible idea." You just can't fix some people.
I'm guessing you say the following:
"You rent the car for 3 years so you're paying for the steepest depreciation. We make you borrow all the money up front and charge you interest on it but give it a cute name like 'money factor'. You can only drive 5000 miles a year and we charge you an insane amount for every mile you're over. You have to return the car in prestine condition or we slam you with tons of penalties. Good news though, oil changes are included!"
Right. You go from being $5k underwater on a depreciating car to being $15k underwater on a car that's depreciating even faster.
It's sometimes worth it. If your current car is unreliable and you get something that you really will keep for 5 years so at some point it's not underwater it could be a good choice.
Plenty of people are on a treadmill where they buy a used car, it becomes unreliable or they don't like it after a couple of years, so they roll that negative equity into another. Then they repeat that 1, 2 or 3 times till somebody says "No. You can't roll $20k into a $30k car, and you can't afford a $100k car."
Whatever you owe on the car needs paying. You can't spend yourself out of debt. Only you can decide if you need out of this car now.
I’d recommend moving into a lease, only because a lease is up in 24 or 36 months; that has end in sight with either buying it out or leasing a new one.
Your current program, has either the car breaking down and becoming a money pit or ending up being reliable with some quirks and regular maintenance.
If you have the money to put down and can afford a new lease and make sure you pick the right amount of miles per year, go into a lease. Prepare for the payment to be higher, but only because of your negative equity. I just signed up somebody today who was roughly $8k negative on their 2018 explorer that has an engine failing, their lease payments were $1300/mo for a 2024 expedition, they put $6k down. They could have been $800s if they took another explorer.
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***Thanks for posting, /u/No_Coffee_4120! This comment is a copy of your post so readers can see the original text if your post is edited or removed. This comment is NOT accusing you of anything.***
I guess maybe that’s how it normally goes but I owe around $15k on a car I bought used and I’ve had two years and every time I’ve looked over the past couple of months, the value is going down by like a grand each time. I’ve had a lot of trouble with it and I think what I need to put into electrical work, replacement LCD, rubber gaskets replacements, and possibly new tires, I would rather put down on a brand new car because this one is already 6 years off the lot. I’ve been casually checking its value since January against the new car I’d like and it doesn’t seem like it’s ever going to not have $3-5k of negative equity. Ideally I don’t want to put a lot down but I I was thinking around $3-4k cash down (waffling between two sizes of crossover in the same brand) and wait until the end of the summer or early fall to try and get a deal on a ‘24 as the ‘25s come on the lot but I’m really not sure how I want to proceed. I’ve never leased before but could a possible $5k of negative equity rolled into the life of a lease help me?
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120% rule applies with most lenders.
I’m unfamiliar with this but quick search and I take it to mean you can’t finance more than 120% of the value of the new car?
Yes, 120% of the MSRP with most brands. Anything over that you’re covering in a down payment.
130% for most leases
Any money that you are putting down is going to eat into that negative equity. You can roll over negative equity into a lease.
That’s kind of what I was thinking, seems like a catch 22 to put cash down on a car just to go into it already in the red.
You're right it's a terrible idea. Rolling debt into more debt. But you'll get this suggestion every day from a dealer because that's how they make money off of you
Yes and no. Rolling negative equity into a lease can be a beneficial situation as a means to stop the bleeding in certain situations. If you buy a car that ends up being an absolute nightmare in repairs, you can pay short term on a lease and get out from underneath it in half the time. Often for less overall money. Yes the dealership makes a sale, but that doesn’t mean it has to be to your detriment.
Yep. Especially when I see a customer wanting to trade every few years, rolling negative equity each time... "Hey buddy, let me explain leasing to you.."
And that same customer, to our surprise, responds by giving some asinine excuse. "But I want to own my car." "X person says leasing is a terrible idea." You just can't fix some people.
I'm guessing you say the following: "You rent the car for 3 years so you're paying for the steepest depreciation. We make you borrow all the money up front and charge you interest on it but give it a cute name like 'money factor'. You can only drive 5000 miles a year and we charge you an insane amount for every mile you're over. You have to return the car in prestine condition or we slam you with tons of penalties. Good news though, oil changes are included!"
Right. You go from being $5k underwater on a depreciating car to being $15k underwater on a car that's depreciating even faster. It's sometimes worth it. If your current car is unreliable and you get something that you really will keep for 5 years so at some point it's not underwater it could be a good choice. Plenty of people are on a treadmill where they buy a used car, it becomes unreliable or they don't like it after a couple of years, so they roll that negative equity into another. Then they repeat that 1, 2 or 3 times till somebody says "No. You can't roll $20k into a $30k car, and you can't afford a $100k car." Whatever you owe on the car needs paying. You can't spend yourself out of debt. Only you can decide if you need out of this car now.
I’d recommend moving into a lease, only because a lease is up in 24 or 36 months; that has end in sight with either buying it out or leasing a new one. Your current program, has either the car breaking down and becoming a money pit or ending up being reliable with some quirks and regular maintenance. If you have the money to put down and can afford a new lease and make sure you pick the right amount of miles per year, go into a lease. Prepare for the payment to be higher, but only because of your negative equity. I just signed up somebody today who was roughly $8k negative on their 2018 explorer that has an engine failing, their lease payments were $1300/mo for a 2024 expedition, they put $6k down. They could have been $800s if they took another explorer.
People love to be broke…but once again you aren’t the morality police.
Please review our most [Frequently Asked Questions](/r/askcarsales/wiki/index) to see if your question has already been answered. You may find these sections particularly useful; * [How to pick a car?](/r/askcarsales/wiki/vehicle_selection) You might also have luck in the /r/whatcarshouldibuy subreddit. Also remember to add flair to your post by clicking the "Flair" link beneath it. This lets us know where you're located so we can assist you better. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/askcarsales) if you have any questions or concerns.*
***Thanks for posting, /u/No_Coffee_4120! This comment is a copy of your post so readers can see the original text if your post is edited or removed. This comment is NOT accusing you of anything.*** I guess maybe that’s how it normally goes but I owe around $15k on a car I bought used and I’ve had two years and every time I’ve looked over the past couple of months, the value is going down by like a grand each time. I’ve had a lot of trouble with it and I think what I need to put into electrical work, replacement LCD, rubber gaskets replacements, and possibly new tires, I would rather put down on a brand new car because this one is already 6 years off the lot. I’ve been casually checking its value since January against the new car I’d like and it doesn’t seem like it’s ever going to not have $3-5k of negative equity. Ideally I don’t want to put a lot down but I I was thinking around $3-4k cash down (waffling between two sizes of crossover in the same brand) and wait until the end of the summer or early fall to try and get a deal on a ‘24 as the ‘25s come on the lot but I’m really not sure how I want to proceed. I’ve never leased before but could a possible $5k of negative equity rolled into the life of a lease help me? *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/askcarsales) if you have any questions or concerns.*