How to buy a car with negative equity in a trade

I have received several emails lately from customers in some pretty serious negative equity situations. One customer was told by a car dealership that she had $14,000 negative equity and there was no way that they could get her approved with that kind of negative equity. So how does she buy a new vehicle?

First off, I'd like to say that this is an extremely difficult situation and with this much negative equity will be tough to accomplish. It's all going to come down to finding the right vehicle that can absorb the negative equity and still be in line with the lenders loan structure.

1) You can put $14,000 as down payment.
Obvious one, but unlikely possible for most customers.

2) You can buy a new truck or SUV and finance with the manufactures financing arm.
Trucks and SUV's have some rather large rebates currently available on trucks and SUV's. Manufacturers are eager to move these units, so they are offering big rebates and flexible financing to help them sell. This obviously does you no good if you don't want a Truck or SUV, but unfortunately cars are stronger right now and manufacturers aren't offering rebates as big.

3) You can buy a late model used Truck or SUV.
These are selling very cheap at the auction and dealers are buying them, in some instances, for half of book value. Again, it does you no good if you don't want a Truck or SUV. There are some late model cars that come to mind that may also work in this scenario, the two that really stick out are Cadillacs and Pontiacs.

4) You can refinance and lower your interest rate so that more of your payment goes to principal.
This is probably going to be your best option. Unfortunately, this means you'll have to keep your current vehicle for awhile longer, but you may not have a choice. If you're not able to get a new vehicle with the above options, you're going to be stuck with the vehicle anyway, so you might as well have lower payments and make each one of those payments count. By count I mean have more of your monthly payment go towards principal then to interest. Refinancing is FREE and you could have up to 60 days to your first payment.

If you're interested check out my Auto Loan Refinance site. The average customer is able to lower their payments by over $60 a month and lower their interest rate by close to 4%.

You may be wondering how you'd be able to refinance your vehicle, but not be able to buy a new. Basically, let's say your vehicle has a book value of $28,000 and you owe $32,000, but do to current market conditions it's only worth $18,000 to a car dealership. Well most lenders are going to use the book value to figure how much they will lend and not what they sell for at auction. So it can be done. Of course, all approvals are OAC. If you are in an extreme situation like this, it certainly can't hurt to try.

In the mean time...

Take care and beware,
J the Car Guy