Trading in car with upside down balance

[shuzz]

Good Day
I have a car with an upside down balance of R20 000. I want to downgrade to a lower value car like a Hyundai Getz or anything with a low value in order to reduce my monthly instalments because I want to buy a house in 2016.

I bought the car last year in June brand new when I was 22 and now I regret buying a new car. Will I be able to get a car with the negative balance rolled down to the car I will buy and is it advisable?

We only learn when we get burned.
2014 Kia Picanto with 27000km

 

[TehStranger]

Good Day
I have a car with an upside down balance of R20 000. I want to downgrade to a lower value car like a Hyundai Getz or anything with a low value in order to reduce my monthly instalments because I want to buy a house in 2016.

I bought the car last year in June brand new when I was 22 and now I regret buying a new car. Will I be able to get a car with the negative balance rolled down to the car I will buy and is it advisable?

We only learn when we get burned.
2014 Kia Picanto with 27000km

What are your repayments now? What do you want them to be? To be honest I don't see you saving enough on monthly instalments on a Picanto to buy a house next year.

Either way you're lucky the car is only worth R20,000 less than the finance amount, it's not really much in absolute terms. My advice would be stick with the Picanto and start paying as much of your free cash into it every month as a capital reduction. You can then either reduce your term (i.e. R4,500 per month over 30 months instead of 36), or reduce your monthly repayment and keep the term the same (i.e. R3,800 per month instead of R4,500 per month over 36 months).

Reducing the monthly instalment will free up extra cash in the long run, but of course it depends on whether you have the cash available or not (I assume you do since you'll need a deposit for the house, plus enough to pay off the bond and all associated costs).

 

[Fazda]

You've lost me - what is an upside down balance?

Do you still owe 20k??

Not sure what you mean here.

If you are worrying about trading a car in for a cheaper car, it can be done without any drama.

 

[rorz0r]

You can do it, but loading 20k onto a car with a substantially lower value than a kia picanto would be quite heavy. Are you basing your cars value on the book value or an actual trade offer? No point losing an extra 20k by trading Vs selling privately just to save a couple of percentage points on the finance side by financing that 20k or whatever loss with a asset backed loan vs an unsecured loan.

 

[TJ99]

I'm also puzzled by this "upside down balance" thing. Although I'm not a mechanic I do know a fair bit about cars and I've never heard about it. It sounds dangerous though, ideally you want everything to be balanced the right way up, or you'll have an accident.

 

[Fazda]

I'm also puzzled by this "upside down balance" thing. Although I'm not a mechanic I do know a fair bit about cars and I've never heard about it. It sounds dangerous though, ideally you want everything to be balanced the right way up, or you'll have an accident.

 

[shuzz]

I am currently paying R2300 before insurance and have R3500 every month extra after I have paid off everything. I just want to pay less on a car

What are your repayments now? What do you want them to be? To be honest I don't see you saving enough on monthly instalments on a Picanto to buy a house next year.

Either way you're lucky the car is only worth R20,000 less than the finance amount, it's not really much in absolute terms. My advice would be stick with the Picanto and start paying as much of your free cash into it every month as a capital reduction. You can then either reduce your term (i.e. R4,500 per month over 30 months instead of 36), or reduce your monthly repayment and keep the term the same (i.e. R3,800 per month instead of R4,500 per month over 36 months).

Reducing the monthly instalment will free up extra cash in the long run, but of course it depends on whether you have the cash available or not (I assume you do since you'll need a deposit for the house, plus enough to pay off the bond and all associated costs).

 

[shuzz]

Upside down is when you have a negative balance on your car, that is you owe the bank more than what your car is worth because of interest

You've lost me - what is an upside down balance?

Do you still owe 20k??

Not sure what you mean here.

If you are worrying about trading a car in for a cheaper car, it can be done without any drama.

 

[SauRoNZA]

You are simply going to lose money.

A better option would be to pay MORE for the car so you get it sorted quicker that way saving money on the interest and negating the negative balance.

Please tell me this isn't because of a balloon payment or residual...because yes then you really got burned.

Then and only then start worrying about the house.

 

[shuzz]

I based it on book value

You can do it, but loading 20k onto a car with a substantially lower value than a kia picanto would be quite heavy. Are you basing your cars value on the book value or an actual trade offer? No point losing an extra 20k by trading Vs selling privately just to save a couple of percentage points on the finance side by financing that 20k or whatever loss with a asset backed loan vs an unsecured loan.

 

[ToxicBunny]

Most banks won't happily load R20k onto a car with a lower value...

LTV would not really make sense for them then, they would have less than no chance of selling the asset for the value of the loan if you defaulted.

 

[supersunbird]

I am currently paying R2300 before insurance and have R3500 every month extra after I have paid off everything. I just want to pay less on a car

One option:

Sink that R3000 every month into the car if you can, after a year that will be an additonal R36 000 paid off on the car, if you keep the payment term the same you monthly payments will decrease a lot.

If with ABSA I found they automatically decrease the monthly installments while keeping the term the same, you will need to talk to your finance house to find out how they do it.

 

[rorz0r]

If based on book value then you'll lose even more than 20k on trade in. Get an offer or two for a more realistic value. But you should be able to sell privately for at least that value though. Loading onto finance only really works "well" on the purchase of a higher valued car.

If I were you I'd get a Virgin money credit card if you don't already have at least 20k saved up. Don't accept a huge limit, reduce it to what you need as a large limit will negatively impact on further car /house finance. Sell your car privately. Use 20k or whatever from savings or credit to settle with bank. Buy a much cheaper car. Put that 3.5k plus whatever saving from car finance, insurance, etc into the credit card and/or savings.

 

[Maverick Jester]

I am currently paying R2300 before insurance and have R3500 every month extra after I have paid off everything. I just want to pay less on a car

Then why not simply take a personal loan for the R20k, trade in the car for something cheaper, settle the shortfall with that loan and pump the extra money you already have into the loan and pay it off in six months?

 

[TehStranger]

I am currently paying R2300 before insurance and have R3500 every month extra after I have paid off everything. I just want to pay less on a car

Fair enough, pump that R3,500 extra into the car as a capital reduction each month and ask for them to reduce your instalment, you'll see it come down nicely over the next few months.

That being said, that much free cash doesn't seem like enough to commit to property...

 

[Rouxenator]

Then why not simply take a personal loan for the R20k...

Higher interest rate ?

 

[Maverick Jester]

Higher interest rate ?

For a short period of time, yes. The OP easily has enough reserve funds to pay off the loan in about six months, and also paying less on the cheaper car in the long run.

 

[psion]

Pay it off totally then only sell it, try privately, with settlement amounts car dealers do you in, they come with all sorts of stories so they can make money off the sale.

 

[Rouxenator]

Just a question, how does one end up with an upside down balance?

 

[supersunbird]

Just a question, how does one end up with an upside down balance?

The value of the car depreciates faster than loans outstanding amount.