"What can I do About Negative Equity?"

Negative equity happens when you owe more on your vehicle than what it is worth. During my career i would say about 90% percent of my customers with a trade had negative equity.
There are several things that cause negative equity.

1. Large Rebates at new purchase time.

There were several times I would have a customer want to trade a vehicle within 6 months of them buying it new. Sometimes, the trade was so new there was no listing in the books for a used car price, so how we appraised was to find an invoice on a like vehicle, look up what the rebates were at the time of purchase, then subtract the rebates from the invoice. Then we would take that number and subtract 3500-4000 dollars. So even if you got an invoice deal minus rebates, you are still probably in the bucket 4000k. The lower the rebate at the time of purchase, the more you are going to be upside down.

2. No money down at time of purchase

A lot of folks don't put money down, or just put the rebates down. This is fine if you don't have the cash on hand, but the more you finance on a car, the more negative equity you will have.

3. High supply and low demand for your type vehicle

Have you seen an influx of SUV's on used car lots lately? Because of high gas prices, a lot of people are trading for more fuel efficient cars. When the supply goes up and the demand goes down, the price must come down. Unfortunately for customers trading their vehicles, the value of their trades go down as well.

4. Wear and Tear

Cars are a depreciating asset. It doesn't matter if you buy one from the showroom floor, have it hauled to your garage, and not drive it the next three years. It will never be worth what you paid for it. (Well, in dollars it might, but if that happens then the dollar doesn't have the same value as when you purchased the car.)

OK, so now you know about what causes negative equity, you might be asking yourself what you can do about it.

1. Ride it out.

Most people don't like this option, but unless you absolutely hate your vehicle sometimes it is the most sensible one.

2. Put a large amount of money down.

A lot of folks can't afford to do this, but if you can it is the best way to get out of negative equity.

3. Buy a new car with huge rebates.

This works for a lot of folks, but he problem is rebates are put on cars by manufacturers to help them sell. If you are interested in a model that doesn't need a rebate to sell, then this option is not for you.

4. Buy a car on a short term lease program.

A lot of the manufacturers in house financing companies will buy a lot of negative equity on a short term lease, because if you lease a vehicle for three years, when you turn it in the negative equity is over. Leasing is the best way to avoid negative equity in the first place, so long as you keep the vehicle for the entire term of the lease. Unfortunately this does not work for folks who put a lot of miles on their vehicles.

I hope this helps, if you have any questions let me know.

What is "The Best Deal?"

Have you ever went into a dealership with a car already picked out and told the salesman to give you his "best deal", only to take it to another dealership and have it beat by a significant amount? Chances are, you paid too much. Everytime a customer made this demand of me, my sales manager would give me a deal with a good bit of money still in it. I have also been on the recieving end where a customer would come in with an offer from another dealership and I would make good money every single time.
If you really want the best deal, and you don't want to have to pack a lunch to the dealership to get it, I am going to use my 8 years experience to give you a little advice for free.
1. Make sure it's the car you want. If you get a rock bottome deal on a Ford Focus but you really wanted a Mustang GT, then what does it matter if you got a great deal on it? Keep in mind, the salesman wants you to be happy, but he also wants to maximize his profits. In order to do this he wants you to drive the car and get excited about it. When this happens, sometimes the emotions take over in the negotiating process, and you are leaving money on the table. I am not saying don't test drive, it is important to test drive. Just don't let the salesperson know how excited you are and don't let the excitement take over your good judgement.
2. Research. Chances are, if you have found this blog that is what you are doing right now. Know what the rebates are before you leave the house. Some dealerships do stunts like advertise $100 below invoice, $1000 below invoice and so on. This confuses the customer. Say you buy a car at $100 below invoice, but the rebate was 2k, and the rebate goes to the dealer. If the car only has $900 dollars mark up, the dealership just made $900 on your deal. A better deal would be invoice - rebate.
3. Negotiate price, not payments. If your salesperson comes down with a payment, send him back to get a price. Payments can have a ballooned interest rate, gap insurance, extended warranty and things of that nature loaded into them without being disclosed to you while you are at the salesman's desk. After you agree on a price (invoice minus rebate would be good), then ask what the payment is, and what all it includes. They have to disclose it to you.
That's all I have for you today, in the next few days I will be going over things like the finance office, interest rates, and dealer holdback so stay tuned!