OT Financial Fiasco

dave guest · Jul 9, 2008

Relative asked me to help straighten something out. She has an upside down loan on car. Car worth ten thousand. She owes twenty. Never told me how it happened. Someone have this [problem before. Can you return it to lender or walk away or keep it forever or what usually can be done. State of michigan. Thanks as always for help.

Anonymous-0 · Jul 10, 2008

trade it in for a IH

Vito · Jul 10, 2008

She can return it to the lender.She will be responsible for the difference that will be due when the lender sells ( auctions) the car.
Vito

Anonymous-0 · Jul 10, 2008

She bought more car than she can afford at a reasonable payback period. She probably stretched it out 5 or more years for payback. Anytime you do that, you will be "upside down" at some point over the course of the loan.

She is hosed on this car. She has to pay back the loan, regardless of the value of the car. If she walks away from it, it will be recorded on her credit rating as a defaulted loan. She does NOT want that!

Next time: She should buy a car that she can payback in as short a time as possible, preferrably 3 years, but no more than 4. If a car requires more, it is too expensive for her.

She won't like it, but that is how it is.

Sam#3 · Jul 10, 2008

What Vito said is a good wrap-up.
Most people just do not understand what they sign. The loan instrument is called a 'Promissory Note' and it usually begins, "I promise to pay. . . ." Nowhere does it say, "If I don't want to pay (or I can’t pay) I may return car" and balance owed will be forgiven.”
It sounds like your relative is in the same has the same problem as the current housing market and it is the day to day routine with automobiles. An old saying is cars lose value the minute you take possession.
I wish your relative good luck!

Steven f/AZ · Jul 10, 2008

We bought a Honda, so the value of the car didn't dip below the amount of money owed on it...

There are literally tens of thousands of people out there who are upside down on their car or house at this point - most of it has to do with people not researching what they are doing and/or borrowing more than the vehicle or house was ever worth.

The only hope she has at this point is that the car will last until it's paid for.

dhermesc · Jul 10, 2008

Its easy to get "upside down" with the current lending practices as dealerships. The dealer rolls the loan up from the current car to their new car and the buyer actually owes more than the purchase price of the car when they drive off the lot.

Now she just needs to drive and pay for the car. The last thing she wants to do is "give it up". The lender will sell the car at auction and if it goes cheap instead of owing $20,000 on a $10,000 car she could owe $15,000 and still need to buy a car.

douglas carroll · Jul 10, 2008

insure it to the max and then leave it at a mall parking lot, problem solved.

Anonymous-0 · Jul 10, 2008

The other guys are pretty much spot on. The only option I see for her is to keep driving the car until it is paid for. Anytime she has two extra nickles to rub together she needs to put it on the car. If she is financially sound otherwise hopefully she can start paying a little extra. I suspect however that she may be debt laden with credit card and other obligations. I hope not but it is becoming an all too familiar story. She needs to come clean with you as to her complete financial situation in order for you to advise her. As I said if this is her only financial woe at the time she should be able to weather the storm and keep driving the vehicle until it is paid for provided the vehicle is in good repair. Uh,oh!! Let me guess. This vehicle is a bit of a gas guzzler and she can't afford the gas? I'm not picking on your relative but there are hundreds of thousands of people out there that bought vehicles they could not afford along with houses they could not afford. Good luck to her.

Anonymous-0 · Jul 10, 2008

While it is not an easy fix, and I once owned a vehicle that I no longer wanted to own, yet owed more than I could get on trade, I found a method to "right myself". Of course I did not owe double what the car was worth either. If I recall correctly the vehicle I had was worth about $7,000 on trade, yet I owed around $10,000. Part of the problem is that there is usually a huge difference in what a dealer will allow on trade vs. what it would be worth selling outright. I chose to ride it out and try to sell and recover what I owed. I ended up selling for around $9,000 and eating a small amount by the time it was all said and done. Is the car only worth $10,000 or is that what a dealer is telling you it is worth? There can be a huge difference between their trade in and actually what your car is worth. Sometimes $5,000 - $7,000 difference. Dealer markup on used cars is huge in most cases - much more than new cars/trucks.

glennster · Jul 10, 2008

like the other guys said, she will need to pay it down. one option if available to her is if she has a home and equity, she can take an equity line of credit loan on her home, pay off the auto note, then at least the interest will be tax deductible in most situations. something she will need to do is buy "gap" insurance on the auto loan if she is stuck with it. in the event the car is a total loss, the insurance policy will only pay up to the "actual cash value" of her car, not the full loan amount. gap insurance will pay the difference between the value of the car and the balance on the note. if the car is damaged beyond repair without gap, she is on the hook for the 10 grand that she is over-financed.

GeneMO · Jul 10, 2008

Uh,,,, Insuring it to the Max, then hoping it gets stolen???? Doesn't work that way at all. You dont state a value when you insure a vehicle. It is automatically insured for ACV, Actual Cash Value. If the Blue book says its worth $15,000, and you owe $20,000, to bad. You only get paid what it is valued at, and you are left owing $5,000 for a vehicle you now no longer have.

Not a good idea.

Gene

mkirsch · Jul 10, 2008

There's only one "right" way out, and that's to make the payments until the loan is paid off. Anything else will result in a rats nest of legal and financial issues that will dog your relative for a minimum of 7 years.

If this relative is in a deep enough hole, though, she could try one of those consumer credit counseling services. If you're to believe what the commercials say, they can negotiate with creditors to get payments reduced. So, assuming that the $20,000 owed is the total of remaining payments on the car (principal and interest), they may be able to negotiate away some of the interest and bring the total owed down somewhat. Most creditors would rather get their principal money back than deal with a reposession and having to get their money out of a car that even they may be upside down in.

Rumplestiltskin · Jul 10, 2008

In the short term, she's stuck.

In the long term, she may want to consider becoming a disciple of a guy named Dave Ramsey. If you've never heard of Dave, you can Google him.

Dave has a daily radio show, and she can call him for advice. But he won't sugar-coat the remedy.

rhouston · Jul 10, 2008

Airport parking lot is better

Gleanerguy · Jul 10, 2008

I am a financial advisor as my real profession (farming is a hobby). I am not saying this is the "right way", but as the others advised other than to just keep paying on the darned thing- I suspect that this person is probably not otherwise financially sound anyway- would be to file Chapter 7 Bankruptcy. She could give the vehicle back to the creditor and in most cases the creditor would have no further recourse against her. At least she wouldn't be paying for something is only worth half of whats owed against it. The negative implications are that bankruptcy will ruin her credit for a few years (varies by state). She of course would need to find another vehicle to drive also. She would probably need to drive a cheap vehicle and pay cash for it (not a bad thing) at that point.

GeneMO · Jul 10, 2008

I have said for about the last 20 years, as a nation, people who did not go through the great depression think they can "borrow themselves rich". It's now catching up with them.

Gene

John in Ct · Jul 10, 2008

I am sure I will get some flack for this . What is the difference if you owe more than the car is worth? You signed an agreement to pay so much so just keep on making the payments. That is one of the things wrong with this country. People make financial mistakes and just want to walk away. She still has the car and the same payments as before so what is the problem? If it is the price of gas she will have to make other cuts like no cell phone, drive less, etc.

John in Ct · Jul 10, 2008

I am sure I will get some flack for this . What is the difference if you owe more than the car is worth? You signed an agreement to pay so much so just keep on making the payments. That is one of the things wrong with this country. People make financial mistakes and just want to walk away. She still has the car and the same payments as before so what is the problem? If it is the price of gas she will have to make other cuts like no cell phone, drive less, etc.

F-Dean · Jul 10, 2008

Can she keep making the payments? If so, keep the car and keep making the payments. She will eventually owe less than it is worth.
Many of us do this when we buy a new car or truck. In many cases, when you drive it off the lot you owe more than it is worth -- especially if you bought a new pickup in the last year.

F-Dean · Jul 10, 2008

Can she keep making the payments? If so, keep the car and keep making the payments. She will eventually owe less than it is worth.
Many of us do this when we buy a new car or truck. In many cases, when you drive it off the lot you owe more than it is worth -- especially if you bought a new pickup in the last year.

boomer22 · Jul 10, 2008

Get a second job or even a third. Chapter 13 is not even an anwser, wow and thats from someone who should know. As Dave Ramsey was mentioned, he is the anwser in my book. Almost out of deby myself following his plan, and of course it's not easy but i believe his advice would be to SELL it as fast as she can and borrow the balance from the credit union, get a garage sale car and an extra job or two and pay off the debts. If she gives it back it'll be a nightmare for a very long time for her.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks. She has no assets and is not eating much.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks. She has no assets and is not eating much.

dave guest · Jul 10, 2008

Thanks for helping get this old punkin thinking. Its a Honda and so far she can't explain how loan value got so high. 2004 Accord. Maybe she somehow borrowed more than it was worth, like cash back or something, if that is possible. Right now I am waiting for her to come clean before I lose too much sleep over it. Some really good info, again, thanks. She has no assets and is not eating much.

Anonymous-0 · Jul 11, 2008

Well Dave it sounds like you have the right attitude. She has got to want to help herself before you can help her. I'm not sure how in the world you can owe $20,000 on a 2004 Honda but I guess anything is possible. Either she bought the top of the line Honda and financed it for five or six years or something fishy is going on. She may have rolled the payoff from her old vehicle onto the new car loan. That used to happen a lot. I suppose she may have found someone to loan her money using the car as collateral but then two different people would want the title. If you want to help her sit down with her and be brutally honest and insist that she tell you everything. I suspect that the car is just the tip of the iceberg. There is help out there in the form of debt counseling services. I know I have been there. We were fortunate to get hooked up with a very good company that set up a plan and within three years had us out of a very large hole. It is a very humbling experience, but it saved our bacon and forced us to make some very big and rewarding changes. Now, with all that said, be very careful. There are many unscrupulous companies out there that will only get you in more trouble. The first step is for her to admit how much trouble she is in. Then she needs to make a plan, perhaps with help from a professional. Then she needs to implement the plan and stick to it. Without knowing her situation it may be possible that personal bankruptcy is her only option. Good luck Dave. Keep us posted.

Eric SEI · Jul 11, 2008

How old is this relative? Is there a possibility of dementia? Some sufferers of dementia will appear normal for years, but will be confused financially. Some salesmen can spot the confusion before family members do (family members don't want to see it), and take advantage of it.

charles todd · Jul 13, 2008

I got into trouble while I was in college with credit cards... It took about 4-5 years to get that monkey off my back and I had no auto note (1979 3/4-ton and gas was less than $1.50/gal). Three years ago I bought a used, 2001 K1500 with low miles, loaded to the gills with options (nice truck) and got it for about $5K less than KBB (Brother-In-Law was in a bind and he wanted payoff). In August it wlll be paid off 2 years early. I have made several principal payments along with the note. If you have a couple grand in the checking account after bills every few months, make a principal payment and get rid of the loan, intrest is lost money.

We also bought a 2008 Mini Cooper S this year. One of the reasons we bought it is the 5-star resale value. The loan officer at BMW motor credit said that they hate to see a Mini come in on trade for a Mini. A 2-3 year old Mini has about $2-3K less value than an equal new one. So on a $30K car in 2-3 years we can TRADE-IN, not private party sale the car for a new one and only have a $2K-$3K difference. There are 2004 Mini's on EBAY for more than a new one...

Good luck,

Charles

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