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"Several years ago, I found myself in need of a van, but my credit was in bad shape. The salesman was able to put me in one. I thought that it would give me a chance to reestablish my credit. Being overcharged for the van, I owe $16,000, but the van is only worth $8,000. I don't know what to do. I want to get rid of it. I'm upset that I let myself get taken like that. I want to go public about the dealerships hurting people with credit problems, but I'm ashamed that I was used. What can I do?" - Patty
Patty may be in a deep hole, but she's not alone. A Money Magazine survey showed that nearly 30% of new car shoppers were upside down in their current car loans. And, yes, some car lots take advantage of buyers with poor credit. First, let's explore Patty's options. Then we'll look at what she can do to avoid similar problems in future deals. There's probably little that Patty can do from a legal standpoint. She can check with State Consumer Affairs office. If she has any legal recourse, they'll tell her. Patty may need to keep it for awhile until the payoff is closer to the value of the van. Selling the van won't help if she's having trouble making the payments. She would still owe the lender $8,000 after the van is sold. Because she'll owe more on the new car than its worth, trading for a different car isn't likely to help either. She'll be upside down in that car, too. And she will remain that way for quite awhile, especially if she tries to get lower monthly payments. Unless she plans on trading for a car that's worth much less than her van that won't solve the problem. Keeping the car as long as possible is the best way to get out from under an upside down loan.
The longer she hangs on to it, the closer the value of the van is to the amount owed. If she keeps it until the loan is paid off, she'll know for sure that she owns more than she owes. Refinancing may be an option to reduce her payments. However, before she starts shopping for a new loan, she should check to find out whether an early payoff is penalized. Also ask if the lender will renegotiate the loan. If she can pay it off early, she'll want to know what interest is being charged on her current loan. Then she can shop for a cheaper rate or longer loan. Get a copy of your credit report before you start shopping. Show potential lenders the report. Do not let all of them request your credit score. That will tend to lower it.