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Tips on Buying Cars/Negative equity and lease



Thank you for taking time to answer my question.  I own a 2010 Cadillac Escalade ESV Premium.  It has 46,000 miles and a balance of just under $38k.  I've met with quite a few dealers and the best I have been able to get on a trade-in is $34k so I'm upside down to the tune of about $4k.  I am looking at getting an Audi A6 preimum Quattro.  In speaking with one of the dealers they suggested leasing rather than buying as my payment would be lower and I typically drive around 9k miles per year so I should fall inside the annual mileage cap.  My question is short of eating the negative equity at deal what are your thoughts on leasing vs buying?  I've never leased, always opting for the conservative traditional approach of work the best deal I can then pay on it for 4-5 years then enjoy a couple of years with no payment.  I like that I'm looking at something new every 3 years or so (or have the option to buy) but I've also heard that leases are utlimately more expensive in the long run and obviously you have nothing to show for it at the end of the lease term.  Very much appreciate your thoughts on both the trade-in and lease v buy questions.


Harrison...thanks for the great question ...hang on because I am going to put about $6,000.00 real dollars into your pocket right now. This won't come without some small amount of effort on your part but it will work out to be about $1,000.00 per hour.

#1 A dealer buys at wholesale and sells at retail ... a good gig if you can get it because if you do it long enough the next thing you know you own the Utah Jazz or some other type of professional ball club. The good news is that you can put yourself into the shoes of the dealer when buying and selling your own cars very easily. How do you do it? Simple!


The perceived negative equity in your trade in that caused you to send in your question isn't real ...yet! Should you buy into the frame the dealers want you to sign up for then you will most certainly be locking up that negative equity and making it very real indeed. I put the book to your Cadillac Escalade and assumed it was a 4 x 4 and that it had a moonroof, and the premium package and allow wheels and when I did that I came up with your Escalade having a Wholesale Book Value of $41,957.00 and a retail book value of $45,634.00 ...and the dealer wants to give you $34,000.00 Hmmmm ... I'm sure he would.

It's impossible to win the price battle that follows the tradein battle or is part of it) as long as you give the dealer the club to beat you over the head with ...and thats what you are doing by having a trade in ....NEVER NEVER NEVER TRADE IN A CAR WHEN BUYING A NEW OR USED CAR...AND YOU REALLY DON'T WANT TO EVER DO IT WHEN LEASING A NEW CAR ... Here is what you do instead:

2. SELL YOUR TRADE YOURSELF!! From your question I gathered that your payoff was somewhere in the $38,000.00 range right? In other words your payoff is approximately $4,000.00 below the cars wholesale book value and a whopping $7,600.00 below your cars retail value and the dealer wanted to aggravate that math by another $4,000.00 to a staggering $8,000.00 below its wholesale value and $11,600.00 below its retail book value.

   a) Wash your Escalade and have it professionally detailed.

   b) Take about 40 real nice high resolution photos (and upload them all to a photobucket account)

   c) Write a good Craigslist ad and tell the story and extoll the virtues of your car ..."oil changed every 3k miles" , "1 owner" ..."All maintenance's done right on schedule" then price your rig at the bargain basement price of $39,995.00!! include a link to the photobucket pics.

   d) Retail your trade in to someone using Craigslist or some other online method if you use several. It will take a week or so probably and maybe two but it will sell at that price and you would still have some money to give ($2,000.00).


4. With the credit scores it takes to lease a car you could buy the car and get an interest rate in the 1%'s to 2-3%'s which means that for every $1,000.00 you finance your payment will be roughly 18.00 per month if you were to finance a $10,000.00 car your payment to buy the car would be approx $180.00 per month (at 60 months) at 84 months your cost per $1,000.00 drops to $13.00 per 1,000 per month so  a $50,000.00 Audi A6 would cost you approximately $650.00 per month...we all understand what a good interest rate looks like and what a bad one looks like right? PLUS we can all go to a credit union to get our own financing in place before we buy a car so that the dealer marking our interest up won't be a concern of ours right?... very few of us know whether a money factor of .00071 is good or bad and the checks and balances provided by having outside lending options does not exist when we lease a car because credit unions generally don't lease cars ... captive finance companies owned by the automakers do (plus a few of the larger banks) for the dealer marking up the money factor ...or the internal cost of the money when leasing is a no brainer because no one knows what our buy rate is on these types of products leasing opens the door to getting porked a little on the rate.

5. Leases are generally shorter term than purchases 36-48 months ... purchases on larger balances routinely go out to 84 months. a 36 month lease payment is almost the same as an 84 month purchase payment and sometimes more depending upon the car you choose.

6. Leasing is the exact same as renting ...don't kid yourself.

7. Leases can be expensive to swap out of prior to lease termination or very close to it.

8. leases are a great way to go for the person who never owns their car anyway and is always in a constant state of buying can generate some positive equity in a leased car when the cars value for whatever reason (low miles) is greater than its payoff or lease end value.

Look here is what I think ... if it were me I would immediately get my escalade up on craigslist and autotrader to retail it. Once it was up I would start to shop for my next car so you can pull the trigger immediately once it sells ... since its an expensive car to be selling the odds are great that whoever buys it isn't going to spank 39k in 100 dollar bills into your hand the same day they look at it. so you will have a day or two to react before you are on foot. I would find the car I liked ..,drive it ... then go home and do ALL of my negotiating from the comfort of my home. PERIOD! Never spend a second sitting in a dealership waiting for the salesman to come play car buying games with you for an entire saturday afternoon....after you find the car then the next time you walk into the dealership should be to sign the papers and leave in your new car. Lastly I would never buy a brand new anything ...I would find a car with under 5-6,000 miles on it possibly 1 model yr old and hopefully certified (which gives you a much better warranty than a new car) and I would save another 6-10,000 dollars. I can walk you through this entire process if yoyu are tired of getting the short end of the stick but you would need to play it the way I tell you if you want to learn how to beat the dealer ... its a very liberating feeling and a lesson that you can use for your entire lifetime.

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Roger The Car Guy!!!  

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Roger Alvey


I can answer any question about the car buying process. I am a recognized industry expert on all issues regarding auto finance, including sub prime and buy here pay here financing, I can answer questions about car lock out systems, GPS monitoring by your bank, and about auto recovery methods and defenses. I am a 20 yr car industry expert and can tell you what to look for in a used car, how to negotiate the deal, help with how to market your own car, and how to negotiate with the internet department of any car store. I can tell you every single way the dealer is set up to beat you and how to avoid those traps, I can discuss all aftermarket and extended service contract products you will be offered in the finance process, I have lectured extensively on "The Best Way to Buy a Car" to civic groups and university students. I am a credit expert and can tell you what the dealer and banks are looking for and the rate you can expect to pay. HERE IS THE LINK TO MY OTHER ALLEXPERTS CATEGORIES WHERE I HAVE ANSWERED LOTS OF QUESTIONS HERE IS A LINK TO MY BLOG


20 years industry experience in top management of dealerships and dealer groups. Recognized industry expert since 2004 in the Top 10 industry experts for The Gerson Lehrman Groups Auto Industry Council. I also do consulting work for Atheneum Partners, Expert 360, Expert Connect and Coleman Research. I have been a franchise owner and understand all facets of the auto industry from the time the car leaves the factory until it leaves the lot with it's new owner. I have written training materials for both the prime and the subprime sales and finance process.

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Willamette University - Salem Oregon BA Economics Willamette University Graduate School of Business - Econometrics Statistics

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