NEGATIVE EQUITY PLUS

Everybody's Uncle,

My vehicle needs some mechanical work and bodywork done. I owe about $9,000 on the vehicle. It would cost $5,000 to fix the vehicle. Do you think it would be a good idea to try and trade it in and take the negative equity onto another vehicle? I need a working vehicle now. What should I do, or what are my options.

[Unsigned]

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Unsigned,

If you can find a dealer dumb enough to allow you to compound your negative equity, it has to be considered. When you see national companies offering 125% of equity mortgages on houses - why should vehicles be any different?

You have to decide where your priorities are. Simply put, you will be adding the instant depreciation of a new vehicle to your negative equity. If you continue sliding into negative equity, you face higher "catch up" payments at best, and bankruptcy at worst. I don't like either.

Less romantic but more practical: The combined amount owed and cost to repair your present vehicle is $14,000. Paying off $14,000 is easier than $30,000 or more on a new vehicle. If your present vehicle remains road worthy until paid off, your financial position improves a few years from now - much better financial choice.
If the bodywork is purely cosmetic - postpone it indefinitely. Why "pretty up" a vehicle with no value?

If you are a homeowner, using an equity line carries a lower interest rate and recasts the payments. That could stabilize your budget but puts your home up as security.
How secure is your income? Before taking on additional debt, consider what would happen if you had no income for 6 months. What is a better target for repossession, a new vehicle or an old one that needs bodywork? Would you lose income if your vehicle were repossessed - gasp, what then?

It's a game, recognize it - play to win,
Everybody's Uncle