Okay, here is the deal. I bought a car last year that is too expensive. At the time I could handle the payments, but there has been a change in my circumstances and the vehicle is just too expensive, I want to trade it in and get something smaller, and more affordable. I know I owe more on the car then what it is presently worth. That is my problem. My credit union already approved me for a new auto loan with a good interest rate.

So should I refinance the car, even though I don't want to keep it, not only are the payments high, but it's a gas guzzling machine, or should I just go ahead and trade it in and get something smaller with a much cheaper payment, even though I will have negative equity? I have never done this before so any insight anyone could give me would be appreciated.

I guess it would be ultimately what your total goal is.

You already are upside down.

if your approval will allow you to roll the negative equity onto the newer vehicle, you will still be upside down.

depending on what you purchase dollar wise your payment can go up or down.

Mostly would have to do with your approved amount and how much negative equity you have to carry forward onto the new loan.

Who is the lender ?

DCU just approved me for a $20,000 auto loan, that is all I asked for. My current lender for the car I am driving now is Wells Fargo Financial Acceptance. I have a high interest rate, and again I can't afford the car I have any more.

My ultimate goal is to reduce my payments, get a car I can stand driving for six years, since I know being upside down it's going to take me a while to pay it off, and also to drive something that is cheaper on gas, and cheaper to maintain. Any more insight?

Problem with this is that you figure your monthly payment is going to be roughly $20 +/- per thousand you borrow. So at $20K your payment is still going to be $400 a month (these are rough estimates of course). Interest rates can vary the actual payment. I almost always, unless you are REALLY upside down on this loan, advise against trading in. My experience, I traded in a 4 year old 4Runner with high miles for $9K, they sold it the next week for $13K, to a girl that works with my husband. Hell, I'd have sold it to her for 10 or 11. You will not usually improve your financial standing all at once with trading down. Another suggestion, if you are in good standing, ask your current lender to lower your rates, or refi until you can get right on the value of the car and sell it outright. Autotrader.com and ebay are both great places to sell and get the going values for vehicles.