So let me ask the group this: If you are in a negative equity situation with a trade in, the dealership will roll that into the cost of the vehicle of which you will pay taxes on. If you have a down payment does it make more sense to pay down the debt on the car to reduce the negative being rolled into the deal structure?
Thanks!
most states allow you to only pay the taxes on the trade difference, like 50k - 30k trade = 20k difference. So you pay the taxes on 20k not the full 50.
you will obviously pay interest on the rollover though and that’s really the worst part. So zero percent deal might be more appealing for you. you’d have to check the numbers, rates are so low right now for people with good credit that still might be smarter to take the cash rebate even when the Negative equity.
in most cases what you said is probably true, making a down payment to offset the negative equity. However, where I would play devils advocate is that with rates being so low and/or 0%, there could be a better use for that money. A car loan is basically the best way to finance money. A credit card is 12% or worse usually, a personal loan is 6%+, a mortgage is insane (Home equity loans people love), and so forth.
if you have no other use for the money, and you have no other debts with higher rates, pay the down payment. But if there’s something else you want to finance in your life, new roof or dental braces or literally anything then you might be better off just keeping the cash.
im Not implying that rolling negative equity is a good idea, just provoking thought past the immediate 6” view most people have.
if you look at a normal loan, say 3.5% at 72 months, and added 10k in negative equity, it’s going to cost you about 1100 in interest over the Life of the loan. If you put 10k on a credit card or something, you will more than likely pay more than that (depending on your payments).
