Rolling negative equity into an auto lease?

Question

I have roughly 3-4k in negative equity in my current automobile. I was wondering if anyone has taken a car they've owned, rolled the negative equity into a LEASE payment on a new car, and how it worked for them. I've heard this is by far the best way to get rid of negative equity in an vehicle, short of paying for it out of pocket, obviously. Thanks for any info or additional ideas!!!!

Answer 1

Actually it is a pretty good idea. Frankly, it's just like taking a 3 years loan for the neg equity. You will be paying the lease, and extra tacked on to pay off the negative equity.

This will allow you to be even in three years, back to zero. Rolling negative equity into another long term loan is going backwards, because typically people want to get out earlier or something changes in their lives and need a different car. The cycle will just repeat itself and get worse. A lease is a great way to be over and done with it.

But also remember that over mileage and damage will put you in the same position you are now at the end, so be conscious of what you are doing with the new car.
Good Luck.

Answer 2

Actually, this is a fairly common way of getting into a new car with the lowest monthly payments when you have negative equity.

It only works if you know you will stick out the lease until the end. If you get tired of the car and want out before lease-end, you'll find that you're even more upside down than you were before, and that it'll cost you dearly.

So, don't do it unless you are the kind of person who can stick with lease until the end. You may not be, because you are already trying to get out of an upside down situation. Not a good sign.

If you decide to lease, make sure you know how leasing works and that you are the right kind of person to lease. See the link below for details.

Answer 3

Well a lease means you'll never own the car. As long as you realize this. It means you're basically spreading your negative equity into the payments with your lease.

A lease is nice because you know when you are done paying for it, you won't have any negative equity. You won't have a car at the end of a lease payment either. A lease means you're basically paying for the depreciation value of the vehicle. The negative equity you're rolling over is basically an additional loan at the interest rate they are going to charge you for the lease.

Just remember, it's very difficult to break a lease early once you get into it, and you'll have mileage restrictions. (The two main reasons leases are undesirable)

Answer 4

Other than you or a buyer if you sold it paying off the negative equity, pouring it in to a lease is the best way only because very often the "cap" for structuring a lease is higher than with purchasing. Basically it means that a lease can take on more negative equity than a finance contract. In a purchase, banks typically limit the amount financed to 120% of dealer invoice. Whereas with a lease the rate cap is sometimes 150% or higher.

The downside of course is that negative equity is a "viscous circle". Really the "best" way to handle it is to pay it out of your pocket, and put a large down on the next one so that it's not an issue next time. Easier said than done, I know.

Any method you use to fincance a car will put you in negative equity without a good sized down, and you can put as much down on a lease as you wish.

Good luck

Answer 5

March? Why dont you figure out exactly what kind of car you want before getting another. sounds like you are very undecisive. I would not. The main reason that you shouldn't do this is because dealerships are rip-offs. If you were to buy a brand new vehicle for $25,000, put 150 miles on it in 3 days, decide you dont want it and would like a different vehicle, they will tell you that the trade in value is probably around $16-18,000, and turn around and resell for around 22,500. basicly, they just robbed you of a little over $5,000 for a using a vehicle for only a couple days. or in your case 8 months. What you really should do would be sell your vehicle either on ebay or private. You will get a lot more for it than if you were to trade it in. Take the money you get from it, put it into a seperate account in your bank (to make sure that you dont spend it, and get backed up on payments on it) you will profit around $2000 by doing this. You can then use that $3000 towards the down payment on your next vehicle. Good Luck, and dont let a dealership rip you off.

Answer 6

Lousy idea-most leases automatically make you upside down to start with. Keep the car until you at least break even.

Answer 7

You raise some good points here.