Articles - Archived Money Matters
(Copy and paste the text into your document)Vehicle Trade-Ins: Think twice
Dealer and manufacturer rebates, along with year-end pricing on 2010 models, means it's a good time to purchase a car. However, before trading in your current vehicle, it is important to understand the financial impact—especially if you owe more than its value.
Let's say you purchased a vehicle in 2007 for $15,000. In 2010, you decided to trade in your vehicle. The current loan payoff with your creditor is $8,000, but the value of your vehicle is only $6,000. The result: You are upside-down by $2,000. Here are a few suggestions to consider before simply trading in your old vehicle and transferring the $2,000 difference to a new auto loan:
Pay the $2,000 difference in cash.
You may assume the $2,000 difference will not matter when transferring it to your new loan, but understand that you will be increasing your monthly payments. If possible, utilize your savings to cover the $2,000 difference instead of increasing your debt load.
Sell your current vehicle before purchasing a new one.
This process may seem strenuous, but you have a better chance of obtaining the $8,000 to pay off the loan balance. Resources, such as Kelley Blue Book, Edmunds.com or MemberConnect can be used to help you research the resale value of your vehicle.
Look into a home equity line of credit.
Most lenders will only refinance a vehicle at its market value. If your current loan contains a large amount of negative equity with an unfavorable term and interest rate, you may want to consider paying off the loan with a home equity line of credit. Taken as a loan against your home, this may provide a more favorable interest rate, while allowing you to take advantage of possible tax deductions.As always, your Credit Union is ready to help. For more information, or to take advantage of our auto buying services, contact the Financial Wellness staff at 877.367.5428.
