Rolling old car loan balance into new car loan

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Dear Terry,
I am in the market for a new car and have some basic finance questions, plus I just need some good advice.

I currently drive a 2001 Hyundai Tiburon with 168,000 miles. I still owe on the car because my husband and I refinanced our vehicle loans together — his is a 1999 Toyota Tacoma, still in good condition with less mileage than my car — to pull money out to make a down payment on a home.

That refi increased our loan amount and the years to payoff so it now has a balance of $12,600 for both of these vehicles. I drive a total of 80 miles a day in my commute to work and an additional 230 miles a week to graduate school.

My Tiburon needs new tires and shocks, which together will cost about $2,000. The Blue Book value for my car is roughly $3,300.

So here’s my question: I want to trade my car in for a 2007 Volkswagen Jetta for about $22,500. I’m counting on the dealer giving me $3,000 for my trade-in, so I’d need to borrow $19,500.

I work at a bank which will release my title and add the new car to the current loan with my husband’s truck. The new loan would be for five years. I realize that adding another five years on my husband’s truck is probably the last thing we should do but I don’t see any other way.

My husband thinks we should wait a year to purchase the new car but our current loan will not be paid off until September 2009. What should I do?
— Susan

Dear Susan,
While miracles happen all the time, the hope that you’ll get many more miles out of your Tiburon before even heftier repair bills present themselves is a dim one.

But buying a new car may not be the best answer, either.

Assuming your math on the new car deal is correct, you will need to add at least $19,500 to that existing $12,600 loan balance — probably more, since you haven’t factored in sales tax and license fees. Payments on a $32,100 loan for five years are likely to be at least $650 a month, plus you can count on a sharp increase in your insurance costs due to the higher value of the new car.

I suggest you shop for a late model (2004-2005) used car with less than 40,000 miles for under $10,000 and shorten the new loan to four years instead of five, if you can afford the payments.

You need to get out from under this ongoing situation where you’re upside down on the loan — meaning you owe far more than your vehicles are worth.