[mfstrby]

I am curious how the trading in a financed car works, especially early in the financing period.

Let's say I have financed for 35K for 5 years through BMWNA. After 6 months in the 5-year period, I decided to purchase another vehicle for 45K (total price). After 6 months, I owe 32K in total. Assume both cars are CPO so no brand new car purchase or leasing. New car would be financed through BMWNA as well. My questions are;

1. Does this look like a good idea from a financial perspective?
2. I presume the calculation is 45K - (32 - current price of the car) but is there any other actor involved while calculating the price?
3. If there is anyone went through a similar case; experiences? any unexpected fees?

[kern417]

Typically it doesn't make financial sense, it just depends on if the car is worth more than you owe. For a financed car just make sure there are no pre-payment penalties and if everything is going through the same finance company then it should be fairly simple.

[jim256]

The primary concern will be what your current car is worth on trade versus the $32k balance. Unless you had a large down payment, it is likely the balance is greater than the car is worth. The situation then will be that your new car is $45k but you owe a balance on the traded car as well. The reason that occurs is that the interest is being earned by the finance company on the large, $35k balance that is only declining gradually, so most of your payment each month has gone to interest. Same idea as a mortgage. Therefore, you may be in a situation where you are asking to buy a $45k car but the balance on that plus the deficiency on the old car will be larger than the new car is worth. The finance company will not finance more than the worth of the car so you'll need to add cash to the deal.

[bimmer456]

You might be able to make this work if you use a HELOC for the down payment so you're using your house as collateral.

[boggtj01]

As a branch manager for a credit union, doing this almost never makes sense financially. As another stated unless you had a larger down payment to where you're not going to be rolling negative equity into the newer vehicle purchase then you're going to be even further upside down. Mathematically the equation looks like this: $45000-trade value of vehicle + sales tax + loan amount owed on traded vehicle= amount being financed for new vehicle.

[YeaG30]

No offense to the OP, but this is a legitimate reason why people get upside down in car payments because they never understand the math from the start. Car salesman pitch you the final monthly payment and not the maths behind the deal.

I knew someone who was driving a used Honda Accord that was 3 years old and had a car payment of like $700 because of negative equity. Be very careful with what you do next because negative equity can destroy you financially if you get into an accident and the car is totaled.

[mfstrby]

Originally Posted by YeaF30

No offense to the OP, but this is a legitimate reason why people get upside down in car payments because they never understand the math from the start. Car salesman pitch you the final monthly payment and not the maths behind the deal.

I knew someone who was driving a used Honda Accord that was 3 years old and had a car payment of like $700 because of negative equity. Be very careful with what you do next because negative equity can destroy you financially if you get into an accident and the car is totaled.

None taken Thanks for the answers, I have been wondering this for a while. Like others said it doesn't make sense to follow this through unless there was a big down payment.

[xlover]

Originally Posted by colonel_bagshot

None taken Thanks for the answers, I have been wondering this for a while. Like others said it doesn't make sense to follow this through unless there was a big down payment.

It is even simpler than that, because you bought cpo there will be less initial depreciation vs a brand new car. You should approach this in 2 steps

Step 1 current vehicle: (trade in or private party sale value of current vehicle) - (balance remaining on loan) = current equity
Let's say your current trade in value is 33k so 33k - 32k = 1k of equity

Step 2 new vehicle: negotiate best price on new vehicle (45k) then choose to apply equity to new vehicle 45k - 1k = 44k or you can choose to just pocket the 1k. Obviously the new vehicle will have all the taxes and fees of a purchase specific to your state

The big X factor is the value of your current vehicle, say it is only 30k then 30k - 32k = -2k. In this case you have to either provide an additional 2k in cash to pay off your loan or ask the dealer to add the 2k to your new vehicle loan meaning for a 45k vehicle you will be paying 47k loan which doesn't make much financial sense

[BLACK HAWK DOWN]

Originally Posted by xlover

It is even simpler than that, because you bought cpo there will be less initial depreciation vs a brand new car. You should approach this in 2 steps

Step 1 current vehicle: (trade in or private party sale value of current vehicle) - (balance remaining on loan) = current equity
Let's say your current trade in value is 33k so 33k - 32k = 1k of equity

Step 2 new vehicle: negotiate best price on new vehicle (45k) then choose to apply equity to new vehicle 45k - 1k = 44k or you can choose to just pocket the 1k. Obviously the new vehicle will have all the taxes and fees of a purchase specific to your state

The big X factor is the value of your current vehicle, say it is only 30k then 30k - 32k = -2k. In this case you have to either provide an additional 2k in cash to pay off your loan or ask the dealer to add the 2k to your new vehicle loan meaning for a 45k vehicle you will be paying 47k loan which doesn't make much financial sense

Not to complicate things more, you can also take into consideration interest rates. If you're currently paying let's say, 5% and you can roll some small amount of negative equity into a 0% loan. Might this not be worth considering?

[jmg]

Originally Posted by colonel_bagshot

None taken Thanks for the answers, I have been wondering this for a while. Like others said it doesn't make sense to follow this through unless there was a big down payment.

You are still out the down payment. So either way, financially, you will take a big hit. I've done this with a 3 month old new 340i. I took a big hit, but it was worth it for me.

[YeaG30]

Originally Posted by jmg

You are still out the down payment. So either way, financially, you will take a big hit. I've done this with a 3 month old new 340i. I took a big hit, but it was worth it for me.

I've driven that B58 and it's almost worth having negative equity

[Billfitz]

Originally Posted by colonel_bagshot

Like others said it doesn't make sense to follow this through unless there was a big down payment.

It doesn't make sense to buy unless you plan on keeping the car for at least 3/4 of the term of the loan. That's when you'll be at the point that you'll have enough equity in the car that you can end up with no down payment on the next one. I always buy, but I also keep my cars on average seven to eight years. That gives me a few years with no payments and plenty of equity to make a good sized down payment on the next car.

[oonowindoo]

Originally Posted by colonel_bagshot

None taken Thanks for the answers, I have been wondering this for a while. Like others said it doesn't make sense to follow this through unless there was a big down payment.

No, it still does not make sense to do this, especially with a big down payment.

Down payment or upside down are all your $$.


as many have said, if you are very serious about this for whatever reason, get an appraisal first on how much your current car is worth. Then compare it with your Buy it Now price from BMW.

If you owe $32k and your car is only worth $25k, you are going to have to eat that $7k upside down. You can either roll that into your new car, which will increase your monthly payment signfinicantly and paying more for interest in the process on your new car.

Or you can pay it up front. Either way you are paying.

If you put a big down payment on your current car, then maybe you can break even with your current car's value vs. buy it now price. But that conclusion is deceiving, because of your big down payment that you will never see again.

[donkey]

Originally Posted by oonowindoo

No, it still does not make sense to do this, especially with a big down payment.

Down payment or upside down are all your $$.


as many have said, if you are very serious about this for whatever reason, get an appraisal first on how much your current car is worth. Then compare it with your Buy it Now price from BMW.

If you owe $32k and your car is only worth $25k, you are going to have to eat that $7k upside down. You can either roll that into your new car, which will increase your monthly payment signfinicantly and paying more for interest in the process on your new car.

Or you can pay it up front. Either way you are paying.

If you put a big down payment on your current car, then maybe you can break even with your current car's value vs. buy it now price. But that conclusion is deceiving, because of your big down payment that you will never see again.

^ This. I put down about 50% upfront and it still doesn't make sense for me to sell my car until it's paid off

[bri1042]

I mean no harm. But. Trading in a financed car, or any car, at six months of ownership always has financial negatives. At some point in this transaction, you are going to lose money, and probably a bunch.

This is not something that a fine person should do if they need to ask questions on a forum oriented towards cars that basically make no economical sense. It's something that someone should ONLY do if they've been through enough financing of stuff in life to not NEED to ask questions on a forum. I really do not mean to be mean, but asking this question is an indication that the OP is going to make a mistake, and probably a big one.

Run this past yourself: If you posted all of this on Reddit's Personal Finance subreddit, filled with nothing but folk who think you should never buy anything at all and if you have to it has to be the cheapest version of that thing you can possibly buy, would anything that they'd throw at you surprise you?

Ask this question there to really get an honest, no-punches-held list of all the reasons this will hurt you. If you are OK with all those reasons, do as you wish.

[mfstrby]

Originally Posted by bri1042

I mean no harm. But. Trading in a financed car, or any car, at six months of ownership always has financial negatives. At some point in this transaction, you are going to lose money, and probably a bunch.

This is not something that a fine person should do if they need to ask questions on a forum oriented towards cars that basically make no economical sense. It's something that someone should ONLY do if they've been through enough financing of stuff in life to not NEED to ask questions on a forum. I really do not mean to be mean, but asking this question is an indication that the OP is going to make a mistake, and probably a big one.

Run this past yourself: If you posted all of this on Reddit's Personal Finance subreddit, filled with nothing but folk who think you should never buy anything at all and if you have to it has to be the cheapest version of that thing you can possibly buy, would anything that they'd throw at you surprise you?

Ask this question there to really get an honest, no-punches-held list of all the reasons this will hurt you. If you are OK with all those reasons, do as you wish.

No harm at all. I actually asked to see if anyone did this before and is there anything to know other than the obvious negative equity.

I am not planning to do this myself, I like to keep my car for as long as I can