CarefulBuilder14 wrote:I am not an auto expert, and I've never financed a car. I drove an old hand-me-down until I purchased a lightly used one outright that I still drive. A lot of this seems odd to me...
1. Do you have the cash to pay off your current vehicle at an accelerated rate? Would there be penalties for doing so, or would you be saving a lot in interest?
Edit: If there are penalties, would you avoid them by doing a trade-in?
2. If you traded in your current vehicle, would you want a newer, more expensive vehicle? Or a comparable or less expensive one? How would the trade-in value compare to the price of the replacement? Don't most dealerships try to offer as little as possible for trade-ins?
3. I understand that being underwater in any loan is bad, but why is a 2010 vehicle so vulnerable to a further price drop? I know a brand new car loses a lot of value right after it's sold, but wouldn't a 2010 model car (presumably made in 2009?) have lost a lot more of its value between 2009 and 2015 than it would lose between, say, 2015 and 2017? Or is it just very difficult to get a loan on a car that's more than give years old?
4. Is there anything seriously wrong mechanically with your car? Or you just want something newer and flashier?
I'll be glad to assist with this, except for questions directed to the OP.
1) the second question posed about penalties. There are no pre-payment penalties on simple interest loans through most (if not all) banks I'm familiar with. It's just like a house with a fixed rate, if you pay it off early, AWESOME. That's that much interest you saved (hundreds on a double digit interest rate)
The edit to number 1 is irrelevant, but yes you avoid the future interest by trading it in and paying off the loan (which the dealership would send the check for on your behalf).
2) Up to the OP. There's a couple directions this could go and all of it depends on how much downpayment the OP would want to put towards his newer vehicle. If he is upside down he can either use the downpayment to get him closer to even or tack the extra onto the new loan (you'd be surprised at how often people decide to do this, which I find silly).
Dealerships don't intentionally try and offer as little as possible, they simply offer a cash value for the vehicle. They will be glad to show you retail value, by asking retail value for the vehicle the OP wants to purchase. (apples to apples, you can't get retail for your used trade and buy the newer vehicle for wholesale, or vice versa)
3) It's not necessarily vulnerable to a further price drop. Brand new vehicles losing value right after it's sold is a myth in the context of how much (It loses some, not half, as is widely perceived) The last point is semi-correct, banks are hesitant to give low rates to older vehicles (it's more risk obviously than say one that has full warranty coverage on it)
4) Upto the OP. If there's something mechanically wrong with his vehicle, he needs to cut his loss and get something more reliable. But the way I read it is he wants to lower his interest rate, which could be very well possible if he truly has improved his credit. That's a great reason to trade, when you can lower that rate into the single digits!
Hope this helps