|Posted by: MELISA Jan 27 2004, 09:00 PM
|MY FIANCE AND I JUST PURCHASED A NEW HOME. WE CAN MAKE ENDS MEET BUT IF WE DIDN’T HAVE OUR $500 CAR PAYMENT WE’D BE BETTER. WHAT CAN WE DO W/ THE EXISTING LOAN WE OWE $24,000 ON. CAN I TRY AND REFINANCE I HAVE A 5.7% LOAN FOR 5 YEARS OR TRY AND TRADE IT IN FOR A CHEAPER CAR.
|Posted by: loanuniverse Jan 28 2004, 12:16 AM
Well, there is not enough information in your post for me to give you any advice. In fact, I am not a consumer lender so even if you had given me all the information, I am not the person to go to. Nevertheless, I can make some general comments about people in similar situations.
You can either get the short version of the comments or the long version.
The short version: The situation is not good. Chances are that there is not enough equity in the house to replace the auto loan with a home equity loan that could qualify for tax deductibility. It is also very likely that the trade in value or even the average retail value is less than the amount of money owed on the car. This is what people call being ”upside down”. Therefore, changing into a smaller car at this stage would probably cost you some money up front.
The long version: I could make it really long and go over the time value of money and discounting the difference in the payments, but I will just concentrate on the ”upside down” situation. In order to do this, I will use a website to use a real life example so that the whole thing can be illustrated.
That site is: http://www.nadaguides.com/ to find out the value of the car and its trade in value.
Lets imagine that you bought a 2003 Maxima SE for about $27,000 about six months ago and you have made 5 payments leaving you with that $24,000 balance that you talk about. The problem that you face can be summarized by the following:
The trade in value for that car according to the nadaguides.com site is about $17,000 and the average retail value is about $20,500. This means that a dealer taking the car for a trade in will give credit for less than what you owe. The difference will be tacked on to the loan on the new car. If the difference is $7,000, and the new car is $10,000, you will end up with a smaller loan but will basically end up with a $17,000 loan on a $10,000 car. If your credit is good enough you will find lenders for this loan.
In conclusion: Yes it is possible to trade in your car for a cheaper one and end up with a lower payment. However, chances are that it is not the best thing to do. In addition, with a rate of 5.7% there is not going to be a lot of improvement by refinancing and there is probably not enough equity in the house to at least get the interest deducted in the taxes.
Hope this helps.