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Getting Out of an Upside Down Car Loan Print E-mail
(4 votes, average 4.75 out of 5)
Automotive - Buy
Written by Gary Foreman   
Tuesday, 06 April 2010 03:11
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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 minivanmy 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.



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Elgog Partynipple  - She gets what she deserves |2010-04-07 11:14:33
It seems Patty has played this game for a long time. As mentioned in her initial post, her credit is already poor. This usually results from bad decisions about personal finance. Now, surprise surprise, she is having trouble with a car loan that is worth more than the value of the car. That is a direct result of her personal finance choices. Furthermore, now she wants to get another car!! See where this is going? Is she really trying to fix her personal finance trouble or is she just digging her self in deeper trouble? I think we all know what the answer to that is.
Omiewon  - Definitely an assignment of blame in this question |2010-04-07 12:28:21
I think it is hard if you drive 10+ year old cars to have much sympathy for people when they get taken at the car dealership due to their own financial mismanagement and buying cars often. The reality is that if you go into a car dealership with a need to buy and have no funding lined up and poor credit, you will get hammered nearly every time. Walk in with cash and knowledge of invoice prices and rebates and car dealers won't make much money off of you.

I think that Gary points to the right solution which is just to hold the car until the loan is gone and ideally much longer.

Whether it is houses, cars, or anything else on bought on credit. If you don't have good credit, you shouldn't be buying because its way too expensive. It is also way too easy for someone to take advantage of you since you will have limited options for financing.

The crazy thing is that people buy cars that will last 10 to 15 years or more and then they trade them in after 3 to 5 years. That is a very expensive way to live, more expensive if you have bad credit.

 
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