Considering trading away an indebted vehicle

[GlockSpock]

Last year on 9/11 I purchased went into debt on a 2012 Ford Fusion. It's a great car. However, a few months afterword, I really got into the "debt-free" mindset and living within your means. I now have one of my topmost goals to purchase a house as soon as possible. So, here are the facts:

 

• 2012 Ford Fusion SE (~35,000 Miles)
• Indebted $10,745.70 at 3.24%
• Payments are currently at $230
• KBB Puts it at $11,919 (fair) to $14,019 (excellent)
• I'd say it is somewhere between good and excellent

It's a great vehicle, but after purchasing I realized that financially speaking I should have put more down (I put down roughly $800, the value of my trade in) and probably purchased a less expensive vehicle. Now, I've been more than doubled up on payments for a while now (making $500 payments instead of $230). I can have this vehicle paid off in likely a year and a half if I set my mind to it. However, instead of doubling up on payments I would rather divert that money towards the house fund. I do obviously need a vehicle to drive. What I am tempted to do (and would instantly do if it were easy) is find a reliable vehicle in the $5000-$7000 range. Assuming that I could get at least $12,969 (average between fair and excellent) for my Fusion, I'd have at least $2,224 to put down towards a "new" cheaper vehicle. If I could find a reliable but slightly older SUV for $8,000 or so, I could roughly come out owing $5000 instead of twice that. That appeals to me for several reasons!

 

However, I've never sold a vehicle I owe money on. It is currently owned by the local credit union. I suppose I could sell private party and then payoff the loan, and then give them the title once I receive it, right? But then I'd have to find someone willing to not only trust me but to work with me during the likely several weeks long process. I could, I suppose, take it to a dealership but that'd leave a sour taste in my mouth but it would probably be the easiest.

 

What are you all's thoughts? Mainly, I'm looking to trade the car for an SUV, lower my debt payments, while keeping reliability a factor.

[tnguy]

When I bought a bike with debt on it, we met at the credit union, I paid off the debt (as part of the purchase price) and when the debt was cleared, the rest of the sale proceeded as usual.

 

I would suggest that anyone wanting to purchase a vehicle with an outstanding loan at the completion of the sale was crazy so you might want to make sure you offer ways around that.

 

Another option would be the bridging loan.

 

With respect to your debts, Dave Ramsey recommends smallest to largest with usually the house the last. This makes a lot of sense in my book.

[GlockSpock]

I would suggest that anyone wanting to purchase a vehicle with an outstanding loan at the completion of the sale was crazy so you might want to make sure you offer ways around that.

Can you explain what you mean by that?
 

With respect to your debts, Dave Ramsey recommends smallest to largest with usually the house the last. This makes a lot of sense in my book.

Luckily I haven't been too foolish. The car is the only debt (except for the revolving credit card debt that gets paid off each month) that I have. My YNAB's looking pretty good right now. The number two problem is finding a vehicle I'd like.

[tnguy]

Can you explain what you mean by that?
 

 

Nothing too much. Just I have heard stories of people buying vehicles that still have money owing on them and then the seller doesn't pay off the outstanding amount and vehicle gets repossessed etc.

 

Not that I'm suggesting that you would do anything like that, just that anyone who would be willing to be a buyer in such a scenario isn't thinking straight. As such, you'd also probably be better off avoiding such a scenario as it increases the pool of buyers to you.

Edited December 19, 2013 by tnguy

[GlockSpock]

Nothing too much. Just I have heard stories of people buying vehicles that still have money owing on them and then the seller doesn't pay off the outstanding amount and vehicle gets repossessed etc.

 

Not that I'm suggesting that you would do anything like that, just that anyone who would be willing to be a buyer in such a scenario isn't thinking straight. As such, you'd also probably be better off avoiding such a scenario as it increases the pool of buyers to you.

 

In such, it'd be better to in some way pay off the vehicle and then sell it? That's easier said than done;)

 

If someone was to meet me at the credit union, I would assume that would remove nearly all risks that the buyer would be concerned about?

[2.ooohhh]

Don't be so quick to consider an older SUV a "cheaper vehicle" Before I got married my wife had a ford explorer and when it was wrecked I talked her into a mazda 3 as a replacement. I track mileage on all our vehicles and once showing her on paper that she was actually saving $3k a year in fuel she won't be going back.

 

http://www.fuelly.com/car/ford/fusion/2012/gas%20l4

 

http://www.fuelly.com/car/ford/explorer/gas%20v6

 

That said, I fully support your goal to be debt free just be sure to do ALL the math before considering a vehicle "cheaper". In the case of the mazda 3, the insurance, fuel, and tires are all cheaper than the explorer's were.

[Jonnin]

I think you have a good money chasing bad here.  

 

You bought it new, and if you could sell it today for 10k you would probably be doing well to get that much.   At a guess, that is a net loss of your wealth of $5k or more and you end up with no car, no debt, and no money to fund a replacement.  Not so good.  

 

I can't think anyone in their right mind would buy the car in a way to take over your payments AND give you ANY replacement car funds at all. 

 

So, unless you want to be down a car, I think you should keep this one.   If you have cash to buy a replacement after this one is gone, well if you dumped that into the loan you would cut a lot of interest and have a newer,  better car to keep the current one.   

 

Basically, I do not see any way to sell this thing and come out ahead at this time, its the *worst* time to sell a car --- still pretty new, but too used to get your money back out of it.  

 

I could be wrong --- run the numbers for yourself --- but I think you are financially better off keeping it at this point.

[tnguy]

In such, it'd be better to in some way pay off the vehicle and then sell it? That's easier said than done;)

 

If someone was to meet me at the credit union, I would assume that would remove nearly all risks that the buyer would be concerned about?

 

It should but you might still find some would be uncomfortable with that. It may be your best option though.

[tnguy]

I think you have a good money chasing bad here.  

 

You bought it new, and if you could sell it today for 10k you would probably be doing well to get that much.   At a guess, that is a net loss of your wealth of $5k or more and you end up with no car, no debt, and no money to fund a replacement.  Not so good.  

 

I can't think anyone in their right mind would buy the car in a way to take over your payments AND give you ANY replacement car funds at all. 

 

So, unless you want to be down a car, I think you should keep this one.   If you have cash to buy a replacement after this one is gone, well if you dumped that into the loan you would cut a lot of interest and have a newer,  better car to keep the current one.   

 

Basically, I do not see any way to sell this thing and come out ahead at this time, its the *worst* time to sell a car --- still pretty new, but too used to get your money back out of it.  

 

I could be wrong --- run the numbers for yourself --- but I think you are financially better off keeping it at this point.

 

If he could get what he was asking, it could be a good thing. Cutting debt by $5000 is no small thing. I'd suggest he might want to be even a little more severe if he really wanted to clear his debts quickly but I don't know his circumstances (an SUV or truck may be a requirement. For many it really isn't. But that usually sparks some irrelevant arguments).

[peejman]

If you could have it paid off in 1.5 yrs, do it.  I think you're better off keeping a vehicle you know than trying to trade down.  The used car market is crazy these days. 

[Lumber_Jack]

I wouldn't look at net present value of the investment of the car. What's done is done and what's spent is spent. Going forward I'd dump the car for as much extra cash as you can. Get a less expensive car, pay it off and run the wheels off of it. I would even consider a car you could pay cash for until you reach you other goals of being out of debt. The less money you sink into that car loan the better off you'll be. It depreciates faster than its worth. My father-in-law told me last night. "The cheapest car you can buy is the one you already own." Meaning buy cheap and repair it. It's less expensive than buying a new one.

[Jonnin]

Hmm.  FWIW the interest on the current situation is about 800 bucks.   So the "bulk" of the existing situation is not interest.

 

If he can sell it for 12k, pay off the loan, that pockets 1300 or so.   Buy a new one for 5k and fees, take 1300 out of that...  you have 3700 for a replacement. 

 

Total money spent, 3700, situation: used car that hopefully will be of good quality but runs the risk of being a money pit. 

 

Current situation:  Spent 11500 roughly to keep a car that is in a known condition.  

 

net result...   almost 8k saved.  

 

That may indeed be worthwhile but it hinges on 2 conditions --- he has to get the amount asked for on the current car, and he has to find a GOOD inexpensive replacement that does need constant work to keep it running.

 

So if those 2 things can be done, I was wrong.  A lot of my earlier thought, though, was that he would NOT get his asking price.  All you can do there is try.

[LawVol]

You can check to see how much Carmax will give you.  I've gotten Carmax offers to use in trade negotiation with other dealers, and the Carmax offer has always been very fair. You do get a tax break when you trade-in with a dealer, so that can be an advantage (along with less hassle) over selling privately.  

 

Personally, I'd stick with what you have.  You have a relatively low payment and low balance on a reliable, fuel efficient, late model vehicle.  That car will probably last you a long time.  Trading that for an older, likely high-mileage, SUV is a risk.  

[Dane]

[quote name="LawVol" post="1081415" timestamp="1387489521"]You can check to see how much Carmax will give you. I've gotten Carmax offers to use in trade negotiation with other dealers, and the Carmax offer has always been very fair. You do get a tax break when you trade-in with a dealer, so that can be an advantage (along with less hassle) over selling privately. Personally, I'd stick with what you have. You have a relatively low payment and low balance on a reliable, fuel efficient, late model vehicle. That car will probably last you a long time. Trading that for an older, likely high-mileage, SUV is a risk. [/quote] My last visit to carmax here in Chattanooga was a joke. I was looking to trade a car valued at 16k retail. They offered me 7k for it. They had a nearly identical model on the lot for 17k. I laughed and went to another dealer that was a lot more realistic with their trade values. I believe I got 13-14k trade value. Needless to say I won't be shopping carmax anytime soon. As for the OPs situation. I would keep the car. You have already paid a majority of the stupid tax (interest) and can pay it down in the next 18 months. Vs getting a slightly used car for 7k and paying a couple of grand in stupid tax on that one ending up in a net difference of near 0. Sent from my iPad using Tapatalk HD

[gregintenn]

I don't know what kind of money you make, but another option would be to really crank down and pay the car off quickly. Extra job, overtime, no splurging, etc. You said you liked the car and it is reliable. You always stand the chance of buying a lemon next time.

 

If you do this, forget about the house till the car is paid off. Then and only then do you start saving for the house. It'll suck in the short term, but you'll be really glad you did it in the long term.

 

Oh yeah, don't EVER borrow money to buy a depreciating asset again. :up:

 

 

Carmax.....I stopped at a Carmax once, and a lady stopped me before I got in the door and asked me if I'd ever been there. I told her no, that I just wanted to look at their cars. She told me she had to explain to me how they did things there before I was welcome to look around. She was quite snotty, condescending, and arrogant about it. I told her I was the one with the money they wanted, and we could do things my way or I could go elsewhere. We agreed the second option would be better, and I have never been to another one.

Edited December 19, 2013 by gregintenn

[partypilot1]

If you are going to purchase a house you best do it now because interest rates are only going up from now on.

[Sam1]

In short:

 

The majority of people buying a vehicle $10k+ are going to get a loan on it.  You just list it for sale and be upfront with what is owed, they run the numbers by their lender and if it's legit, then their lender contacts your lender directly concerning payoff and almost everything is handled by the old and new lien holder.

 

Sell it private party, don't even consider trading it in because you'll get raped on lost value.

 

As for the other part on what to do with a new one... that's what you have to decide because a 2005 ford escape for $4,000 may not last as long as a $4,000 1977 ford bronco.  With used vehicles you're taking a risk - and that is why they're cheaper.

[Patton]

I have bought and sold many of my vehicles, many with a loan on them. I actually made a great living selling cars in my early 20's. You are fortunate the lien holder is local, it makes life so much easier. Like someone else has mentioned never think of a "cheaper vehicle" really being a cheaper vehicle. Since you already own this vehicle my advice may be to keep it as long as it is a solid vehicle and meets your needs. Here are some things that come to mind, with a few exceptions cars over $8-10k are extremely hard to sale private party, I don't care what KBB or NADA says. You have already payed tax on the fusion, buy selling it you will lose that money and pay tax on another unless someone gives it to you. You may spend more on a different older vehicle you are not familiar with.

If that $230 a month is really that much money to you then you may be a ways off from home ownership. Edited December 20, 2013 by Patton

[DaveTN]

Forget the trading with a dealer, that will only waste your time; sell it yourself. Put it up for sale at whatever price you want. If it sells you are good to go, if it doesn’t; it isn’t worth that.

The buyer goes with you to the Credit Union and gets the title; no drawn out process.

[Patton]

I went back and read your post again. You want to put your equity down on another car, this never turns out for the better in your situation. You honestly will have not come out any better. And the bank will view it the same while getting pre-approved. If anything it will show as an inquiry and a new loan, not freeing up enough debt to income ratio to matter.

[Mike A]

Seems like your original question was more about the logistics of selling a vehicle with debt owed on it but as the thread has drifted, I’ll throw in my $0.02.
I’m all about reducing debt, but I question whether you’ll get the intended result for the following reasons:
1) KBB numbers are IMHO a fair bit on the high side.
2) I’ve never purchased a used car that I didn’t end up dropping money into within the first 6 months or so. The sweet spot on used car prices (i.e., where you’ve let the previous owner take the hit on depreciation) seems to be about the same point where stuff wears out.
I’m just afraid you’d be making a lot of moves for very little return and a lot of uncertainty.

The only way I’d do it is if I was willing to go really cheap on the replacement vehicle. I’m talking sub $2,000. You don’t often get much vehicle for that kind of money. You’re basically looking for a get you through car. I’ve done it back in the day. My hope was to get a month out of the car for every $100 I spent between purchase price and “true” repairs (i.e. catalytic converter replacement versus maintenance items like tires and batteries). That’s been a while so my numbers are probably unrealistic now.

In short, it doesn’t sound like you’re willing (or possibly able) to go that cheap. I’d suggest you may be better of keeping the current vehicle, paying it off like a madman and then driving it until the wheels fall off. I think even at $500/mo. you’d be out in less than 2 years.

After you pay off the car, stack up cash like crazy. Don’t stop at the down payment. Make sure you’ve got a good kitty to spare. People get house fever because well intentioned advisors tell them how they’re wasting money paying rent. Home ownership is great but it can be more curse than blessing when you forget to take into account that you have to buy a lawnmower, roofs leak and all that stuff that the landlord took care of is now your responsibility.

Edited December 20, 2013 by Mike A

[Patton]

Seems like your original question was more about the logistics of selling a vehicle with debt owed on it but as the thread has drifted, I’ll throw in my $0.02.
I’m all about reducing debt, but I question whether you’ll get the intended result for the following reasons:
1) KBB numbers are IMHO a fair bit on the high side.
2) I’ve never purchased a used car that I didn’t end up dropping money into within the first 6 months are so. The sweet spot on used car prices (i.e., where you’ve let the previous owner take the hit on depreciation) seems to be about the same point where stuff wears out.
I’m just afraid you’d be making a lot of moves for very little return and a lot of uncertainty.

The only way I’d do it is if I was willing to go really cheap on the replacement vehicle. I’m talking sub $2,000. You don’t often get much vehicle for that kind of money. You’re basically looking for a get you through car. I’ve done it back in the day. My hope was to get a month out of the car for every $100 I spent between purchase price and “true” repairs (i.e. catalytic converter replacement versus maintenance items like tires and batteries). That’s been a while so my numbers are probably unrealistic now.

In short, in doesn’t sound like you’re willing (or possibly able) to go that cheap. I’d suggest you may be better of keeping the current vehicle, paying it off like a madman and then driving it until the wheels fall off. I think even at $500/mo. you’d be out in less than 2 years.

After you pay off the car, stack up cash like crazy. Don’t stop at the down payment. Make sure you’ve got a good kitty to spare. People get house fever because well intentioned advisors tell them how they’re wasting money paying rent. Home ownership is great but it can be more curse than blessing when you forget to take into account that you have to buy a lawnmower, roofs leak and all that stuff that the landlord took care of is now your responsibility.

Pretty much and that last part is the story of my life.

[peejman]

After you pay off the car, stack up cash like crazy. Don’t stop at the down payment. Make sure you’ve got a good kitty to spare. People get house fever because well intentioned advisors tell them how they’re wasting money paying rent. Home ownership is great but it can be more curse than blessing when you forget to take into account that you have to buy a lawnmower, roofs leak and all that stuff that the landlord took care of is now your responsibility.

 

Amen to that.  While home-ownership may be the "American Dream", it's a darn expensive and high maintenance dream.  Landscaping, window dressing, water heaters, plumbing leaks, HVAC units :eek:   , paint, caulk, .... it never ends.

[tnguy]

I'd still rather own than rent.

 

I thought we were all about personal responsibility here :p

[Patton]

I'd still rather own than rent.

I thought we were all about personal responsibility here :p

Truthfully, yes I would too, but wait till you can afford it or have a lot of money saved. It does cost me about 1.5 times as much money to own a home almost the size of the apartment I had. Even though I will one day own this home I am glad I waited until I could afford it.