Author Topic: Upside Down Car Loan  (Read 9649 times)

golffan63

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Upside Down Car Loan
« on: August 12, 2013, 06:51:02 AM »
Looking for suggestions on what the best approach is to get out of an a bad situation. I have a car loan with balance remaining of $31,000 at $295 bi-weekly. The car is a 2011 and I think if I was to sell it I would only get $19-21K for it as I drive in excess of 50,000 kilometers per year. The current mileage is 128,500k. Anybody out there that can help.

daverobev

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Re: Upside Down Car Loan
« Reply #1 on: August 12, 2013, 07:09:48 AM »
If it's a sensible car for what you're doing (ie, diesel for the high mileage).. don't worry.

If it's a ridiculous, low MPG vehicle, save up, sell it and pay off the loan, and buy a diesel.

If the loan is a high interest rate, try to get a zero percent card or take from savings or remortgage and pay it off.

willn

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Re: Upside Down Car Loan
« Reply #2 on: August 12, 2013, 07:53:10 AM »
or remortgage and pay it off.

Well, don't do that, you trade an unsecured debt (or poorly secured one) for a secured debt on the house.

I say sell it, get a 3000$ beater, get a personal loan or use savings to pay it off.

mgreczyn

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Re: Upside Down Car Loan
« Reply #3 on: August 12, 2013, 08:15:09 AM »
I assume you mean non-recourse and not unsecured?  Non-recourse means (and this may be an over-simplification) that you can walk away from the debt, the lender gets the asset but has no legal recourse against you for anything beyond the collateral.  A car note is secured by the asset, i.e. the car, as a mortgage note is secured by the house. Unsecured debts are things like student loans and credit cards, where there isn't a specific, hard, repossess-ible asset (collateral) the debt is linked to. Mortgage notes tend to be non-recourse, but this isn't necessarily the case. Credit cards, car notes, student loans, etc. are all typically recourse debt, meaning the lender can come after you personally for repayment. Further, whether or not your mortgage is non-recourse is jurisdiction- and note-specific.  In some places mortgages are non-recourse, in some they are recourse. Do some homework on whether your car note and mortgage are recourse or non-recourse and carefully consider the financial and legal consequences of such a move. There may be financial advantages, i.e. borrowing money against the house may carry a lower interest rate, but also consider transaction fees and PITA factor.

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #4 on: August 12, 2013, 09:11:43 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

huadpe

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Re: Upside Down Car Loan
« Reply #5 on: August 12, 2013, 09:23:41 AM »
Looking for suggestions on what the best approach is to get out of an a bad situation. I have a car loan with balance remaining of $31,000 at $295 bi-weekly. The car is a 2011 and I think if I was to sell it I would only get $19-21K for it as I drive in excess of 50,000 kilometers per year. The current mileage is 128,500k. Anybody out there that can help.

I agree with the advice of get a personal loan and pay off the balance using personal loan + proceeds of the sale.

I want to know why you're driving 60,000+ km/yr though.  The only reasons I can think of are a horrific commute, or that you drive your personal vehicle as a part of your job.  That rate of driving is -very- expensive, not just in fuel costs, but also as you're seeing in depreciation and repairs.  If you are going to be driving that kind of distance you need to factor that it will cost you on the order of $3-5000/yr on top of gas. 

theSchmett

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Re: Upside Down Car Loan
« Reply #6 on: August 12, 2013, 09:30:24 AM »
I can't think of a way to "get out" but you can definitely mitigate a bad situation. But it might hurt, you may just need to swallow the difference.  The suggestions of taking out a zero% loan (on a charge card you'll pay 4% fee and have a certain amount of time to pay it off, at least with an existing card, I don't know about new ones) is a pretty good one.

However - what is your interest on the loan? That's an important question that might change the equation.


prodarwin

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Re: Upside Down Car Loan
« Reply #7 on: August 12, 2013, 09:39:11 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

The problem for the OP though is that depreciation is likely outpacing the payments and will continue to do so for quite a few years.  He needs to get out of the situation as quickly as possible before it costs him another 5 figures.

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #8 on: August 12, 2013, 09:48:02 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

The problem for the OP though is that depreciation is likely outpacing the payments and will continue to do so for quite a few years.  He needs to get out of the situation as quickly as possible before it costs him another 5 figures.

Rarely does that happens when your payments are that high. You will eventually catch up to the threshold.

Of course we don't know the interst rate and other details. Either way you have to cover the difference. Now, all up front, or over a period of time. To which they will still need cash for a car when they get out of that one.

prodarwin

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Re: Upside Down Car Loan
« Reply #9 on: August 12, 2013, 10:26:29 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

The problem for the OP though is that depreciation is likely outpacing the payments and will continue to do so for quite a few years.  He needs to get out of the situation as quickly as possible before it costs him another 5 figures.

Rarely does that happens when your payments are that high.

It already has.  He's $10-12K under already.  If the car did not depreciate at all, it would still be 68 weeks before he caught up.  But it will, especially since its an '11 and he is putting quite a few miles on it.

huadpe

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Re: Upside Down Car Loan
« Reply #10 on: August 12, 2013, 10:32:30 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

The problem for the OP though is that depreciation is likely outpacing the payments and will continue to do so for quite a few years.  He needs to get out of the situation as quickly as possible before it costs him another 5 figures.

Rarely does that happens when your payments are that high. You will eventually catch up to the threshold.

Of course we don't know the interst rate and other details. Either way you have to cover the difference. Now, all up front, or over a period of time. To which they will still need cash for a car when they get out of that one.

The problem as I mentioned upthread, is the crazy amount of driving OP is doing.  (S)he mentioned having about 130k kilometers on a 2 year old car (that's about 75,000 miles in American).  That level of driving will plow the value into the ground pretty fast. $640/month is enough to keep pace, but it will take a while to overcome the $10k+ deficit on it.

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #11 on: August 12, 2013, 11:03:12 AM »
Here's what I did. Keep making payments until you owe what you can sell the car for. When you get to that point, sell that car and run away like your hair is on fire.

This is why you don't buy new cars, ever.

The problem for the OP though is that depreciation is likely outpacing the payments and will continue to do so for quite a few years.  He needs to get out of the situation as quickly as possible before it costs him another 5 figures.

Rarely does that happens when your payments are that high.

It already has.  He's $10-12K under already.  If the car did not depreciate at all, it would still be 68 weeks before he caught up.  But it will, especially since its an '11 and he is putting quite a few miles on it.

Yes it has. It's called owning a new car. It may be 3 years before the threshold is met to where they can sell for market value, but the miles driven is likely further to extend that another 2-3 years. This might just be one of those life lessons. The user is driving a ton of miles, there's no easy way out without paying for it one way or another.

golffan63

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Re: Upside Down Car Loan
« Reply #12 on: August 12, 2013, 01:36:40 PM »
The interest rate on the loan is 2.17% through March of 2016 and at that time the amount of $15,032.72 is due. I do get a car allowance of $600 per month that is taxable. My fuel is also paid for and is handled as a taxable benefit of which ninety percent of the mileage is for business(salesman). I paid for upgrade in warranty and am covered for 200,000 kilometers. I should have included this previously but went through the sales agreement again. In three years time the car will have over 300k on it!

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #13 on: August 12, 2013, 01:42:31 PM »
Ok so its a company car with free fuel. You get no sympathy here. ;)

golffan63

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Re: Upside Down Car Loan
« Reply #14 on: August 12, 2013, 01:47:48 PM »
It is a personal vehicle not a company vehicle. I am responsible for insurance, maintenance and repairs

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #15 on: August 12, 2013, 02:12:08 PM »
It is a personal vehicle not a company vehicle. I am responsible for insurance, maintenance and repairs

Yep, my brother blew his wad on a company car too. The give him $750 a month and bought a big Dodge truck. Why not? The company pays for the gas.

MrsPete

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Re: Upside Down Car Loan
« Reply #16 on: August 13, 2013, 07:49:35 AM »
So basically you're paying $590/month and the company's giving you $600/month to cover it. 
Ignoring the taxes, you're just breaking even. 
Since you're driving for your job, you can cut down on miles. 

I don't see "a save" for your situation right now, but you can walk away with a lesson for the future.  I assume you're going to stay in sales, and eventually this car (and its payment) will be gone, and you'll need to purchase a new one.  At that point, purchase something in a lower price range and something with good mileage.  If you do this, you could easily end up with money in your pocket every month. 

By the way, I don't think a new car is always a mistake.  When we purchased my little car six years ago, we set out with the idea of buying late-model-used, but I drive a very popular car, and the price difference between the very few late-model-used cars and a brand-new one was less than $1000.  I don't think this is a typical situation, but it does happen.  We paid cash for the car ($19,500) and have done very little to it since -- a set of new tires, a lifetime alignment.  We've treated it like a baby (especially with the oil changes), and it still runs like new, and I have no reason to think I can't drive this car 'til my youngest finishes college -- that's six more years.  We bought this small, economy car because we knew we'd be driving a lot while our kids are in college.  No regrets here! 

Rebecca Stapler

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Re: Upside Down Car Loan
« Reply #17 on: August 13, 2013, 07:54:32 AM »
The interest rate on the loan is 2.17% through March of 2016 and at that time the amount of $15,032.72 is due. I do get a car allowance of $600 per month that is taxable. My fuel is also paid for and is handled as a taxable benefit of which ninety percent of the mileage is for business(salesman). I paid for upgrade in warranty and am covered for 200,000 kilometers. I should have included this previously but went through the sales agreement again. In three years time the car will have over 300k on it!

Do they give you $600/mo regardless of what the car costs? Would lowering your expenses mean that you get a lower amount? Or could you pocket it?

If you can pocket the difference, I would throw $$ at the loan until it's at a point where it's not underwater (so, pay more than your monthly payments), buy a reliable, less expensive car, and sell your car as a private party (to get the most $$ out of it).

MoneyCat

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Re: Upside Down Car Loan
« Reply #18 on: August 13, 2013, 08:15:25 AM »
You can't really get out of this loan.  It's too far upside down and with the amount of miles you have put on it, you won't be able to sell it for anything close to the loan value.  You might as well keep it and keep paying on it until it is paid off.  Tough situation.

Mr.Macinstache

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Re: Upside Down Car Loan
« Reply #19 on: August 13, 2013, 11:22:27 AM »
The interest rate on the loan is 2.17% through March of 2016 and at that time the amount of $15,032.72 is due. I do get a car allowance of $600 per month that is taxable. My fuel is also paid for and is handled as a taxable benefit of which ninety percent of the mileage is for business(salesman). I paid for upgrade in warranty and am covered for 200,000 kilometers. I should have included this previously but went through the sales agreement again. In three years time the car will have over 300k on it!

Do they give you $600/mo regardless of what the car costs? Would lowering your expenses mean that you get a lower amount? Or could you pocket it?

If you can pocket the difference, I would throw $$ at the loan until it's at a point where it's not underwater (so, pay more than your monthly payments), buy a reliable, less expensive car, and sell your car as a private party (to get the most $$ out of it).

Generally you get to keep the difference. They give you a car allowance and you can pocket what you dont use on the car payment. That is how it works for my brother anyway.

I would be driving a cheap Honda or Toyota, racking up the miles and pocketing all that cash every month.