Negative Equity Explained

How I Got Out Of Negative Equity

The BIG day

Monday, November 27, 2017 was the happiest day of my life.

Why do you ask? I sold my 2015 Honda Crosstour.

Now, this may sound silly to be so happy to get rid of a car, let me give you the back story on my negative equity.

Firstly, let me describe what negative equity is.

Negative equity results when you have an asset that is worth less than the loan value on that asset. Or in more words, when you buy something and it loses value faster than what you repay it.

This can happen in multiple ways, the most common way is when people buy a new car and it loses value really quickly (a car as an investment is a terrible idea).

Another way this can happen is if you co-sign for someone that already has negative equity.

This is what happened to me, but let’s dive into it a bit.

The Mistake

When I was twenty-six years old, I thought I knew everything. I had my apartment and a career. I was living as well as everyone else I knew.
Now, when I was 26-ish I made a HUGE mistake. I learned the hard way what negative equity on a car meant. I made the fatal decision to co-sign a car loan for a “friend” in order to help get a lower interest rate.

“If your name is on the loan the interest will go down SO much. Please help me, I promise I will make all the payments.”

I did it.

co-signing for a car

At twenty-six I was also super naïve. I didn’t really know what negative equity was- although I figured it was bad. It also never occurred to me that this person could be lying. Especially someone that I thought I knew so well.

Anyway, I now “owned” a brand new Hyundai Elantra but I was driving a 2002 Toyota Corolla.
Makes sense, right? No it doesn’t.

As you can imagine, this relationship fell apart shortly after this transaction had happened.

Leaving me with the new car and $20,000 of negative equity. That’s right… $20,000.

After a messy argument of “It’s not my car, it was a gift from you, so you need to pay it” and trips to visit a lawyer- I had the car in my possession along with ALL THE DEBT.

So, not really knowing what to do, but knowing I could not pay for this car and risk the possibility of this “friend” coming and taking it from me in the middle of the night,

I had no choice. I got rid of it.

The New Problem

I traded it in for a brand new Honda Crosstour, right off the showroom floor with 33 miles on it- I needed to get a car that would allow a loan high enough to cover all the costs, from what I was told.
(I am still not sure if it was the best advice.)

A $30,000 car tacked with the $20,000 of negative equity left me in a $50,000 hole.

I wanted to die.

“I’m a teacher, how am I ever going to afford a 7-year loan of $663 a month?” I asked my mom.
It seemed as though my entire life was over.

In her trying to be calm and reassuring tone she told me, “You’re smart, you’ll figure this out and karma is a real thing- they’ll get theirs.”

She was right. Twenty-seven months later, I was able to get rid of the car. Let me tell you how I did it- It has been a bit of a strange journey.

Life Goes On

After buying the car, I was living with my mom and teaching.

After school and on the weekends, I had a lot of extra time with not much to do, so I got a second job. I was able to save basically all of my money and make extra payments to the car. Then, in May of 2016 I bought my first house- a townhouse (mainly because I didn’t want to do yard work and it was a super reasonable rate) for my 28th birthday. I was in love. This house was everything I had wanted and the best part, it was 100% mine and nobody else’s. It was a really empowering feeling.

Having a spare room in this house, I rented it out to another young girl needing a temporary place to live- I found her on Craigslist. Sketchy we both admit, but we laughed about it later.

In December 2016, Denis moved to Virginia and asked me to consider going with him. I obviously couldn’t leave my class, so I was staying in Florida until the school year ended in June.

I decided to give Virginia a try. I packed up my classroom that I had been in for the past four years, gave my roommate some notice and put my house up for sale. My saving grace was that my house had gone up in price so much in one year, that after all closing costs and such, I would have just enough money to get rid of the car.

My house closed on October 4, 2017 and I went right home and tried to privately sell my car. This came with no such luck. SUV type cars don’t seem to have a high demand on the small city streets in this area.

On the Monday after Thanksgiving, my patience had run up. I was getting rid of the car before Christmas. I decided to take my car to a Honda dealership in Bethesda, Maryland. After some negotiating, they agreed to buy the car for $18,000.

“Come back on Monday so the car can be inspected and then the transaction will be made.”
This was great news!

The Transaction

I woke up early that Monday morning and drove 30 minutes to Bethesda, Maryland to the Honda dealership across the street from the Barnes and Nobel.

At the time of sale, I still owed roughly $32,000. Honda agreed to pay $18,000 to take the car. That left me with still owing a lot of money- I walked to the bank 3 blocks over and got a cashier check for $15,000.
Walking back from the bank, clutching the check in my hand, a swirl of mixed emotions pulsed through my head. So excited to get rid of this burden that I’ve had for so long but at the same time, almost sure that something would go wrong and I will end up having to take the car back.

As I handed over the check and the keys, I waited for someone to rush in and say a mistake had been made and they in fact weren’t going to take the car.

This, thankfully never happened.

I signed some paperwork, got my Florida license plate and stepped off the property $32,000 lighter. It was such a surreal feeling; it didn’t even hit me until half way home.

That section of my life was over.


Lesson Learned

As you can imagine, I learned a lot from this experience. Negative equity is not a small thing, however as the old saying goes: “what doesn’t kill you, makes you stronger.”

• Never co-sign for a friend
• Make your money work for you- I learned this by accident with my house, but it was the best accident-lesson, I ever had.
• No matter what mistake you may have made, there is a way out- where there is a will, there is a way.

I think that the hardest part about being in a financial bind is how long it takes to sort itself out.

If you keep at it, you will work it out.

I guess my mom was right, karma always comes around. I tried to help, karma came back and helped me.

Now, on to paying off all my student loans!

free from negative equity

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