So need some help with a dept question, having never been in trouble with it myself before. My friend bought this newer car that I told her was a bad idea. She could swing the payments although since she had a bad credit score her interest rate sucks and if anything were to go wrong she wouldn't be able to make her payments. Now she can't afford it, and we need to get her out of this mess as cheaply as possible.

So here is the setup. The car was financed for $24000 (after you factor in the warranty, gap insurance, etc) at 13% APR (I know bad credit) for 5 years back in October. So after 3 months its down to maybe $23000. She realizes now that it was an awful decision, that over the life of that loan making minimum payments she will end up paying close to $9000 just in interest, and more importantly she can't make the payments right now. What is the best way to get rid of this?

If she were to just return the car to the dealership (basically defaulting on the loan), since the car is worth probably $13k to $14k, would this amount be subtracted from the $23000 she owes leaving her $10000 in dept to repay? She could get by without a car until she has paid off the $10000. I know that would screw her credit score (if it can go any lower) and suck paying off a $10k dept with nothing to show for it, but I don't see her having much choice. Any thoughts?

2/1/2007 12:52:31 AM

Get the paperwork she filled out when she bought the car...find out the name of the financing company that worked out the loan for her...then I guess call them and ask about refinancing at a different rate if you could put some additional money down or increase the monthly amount...also you want to read through the contract signed with the financing company to see if it mentions anything about refinancing

2/1/2007 12:56:01 AM

Thank you for that tip, I will try that. Unfortunately even though she has been paying her bills consistently, now that this loan causes her to have a high amount of dept when compared to her income, her score has gone down. I would think it would be hard for her to refinance, but of course that is worth a try.

2/1/2007 1:08:19 AM

ps: its "debt"

not to be a spelling nazi but i was thinking "department" at first

also there are a number of free loan amortization calculators available on the web where you can work out a bunch of hypothetical payment plans by inputting total loan amount, number of months (or other periods), interest rate and down payment...google "amortization calculator" or something

2/1/2007 1:10:04 AM

Quote :

"ps: its "debt" not to be a spelling nazi but i was thinking "department" at first "

I was too.

I'm not surprised though that people who can't spell debt don't know how to get out of it

2/1/2007 1:26:41 AM

Yes, because spelling is my primary concern at 1am.

[Edited on February 1, 2007 at 1:35 AM. Reason : Forgot the period at the end of that sentence. Wouldn't want to offend the punctuation Nazis too]

2/1/2007 1:31:57 AM

come on synchrony dont take it personal...the faces are supposed to let you know its all good

2/1/2007 1:33:34 AM

Because "debt" takes so much effort to spell correctly

2/1/2007 1:33:39 AM

well if due to your spelling we dont know what the fuck youre talking about, then yes it should be a concern

2/1/2007 1:34:29 AM

Awesome, good old Tdub

- Useful replies 1
- Comments on spelling 6

2/1/2007 1:36:39 AM

One of the worst things you can do in life is overextend yourself on an item that repaidly drops in value. Does she have parents that would help her out on part of the payments for a while, or can she just cut her living expenses down (no entertainment, shopping, dining out).

Defaulting on the loan would be the worst possible thing you could do, especially if her credit is already shit anyway. Go to the second page in this article might be able to help.

http://articles.moneycentral.msn.com/SavingandDebt/SaveonaCar/TheRealReasonYoureBroke.aspx

2/1/2007 2:13:04 AM

who are these people that finance $24,000 before crunching the numbers to realize whether or not if they can afford it - especially at 13% - did she not ask for any advice in the first place?

what kind of car is worth $10,000 less than what was paid in only 3 months!?!

2/1/2007 8:29:01 AM

I can't imagine why somebody who has such bad credit would buy such an expensive car.

2/1/2007 8:31:06 AM

13% isn't tooooo bad. I sold cars for a while and sold some to people at like 18-19%. But their credit was just horrible. I almost couldn't keep from laughing when I would see their credit reports.

And as far as to what car would only be worth 13-14 after paying 24 in october? Well a used car has to be cheaper than a new car. So if she bought it for 24 and there happens to be a big rebate on the car right now, say $2-3,000, then that knocks the price of new down to 21 then take out any additional markup brings it down to 19-20. Add miles and the fact that the dealership needs to make a profit on it if they take it in. So they would only be able to sell it for 17-18 so they would only give you probably 14ish for it to allow for any maintenance they have to do and for markup.

2/1/2007 8:38:51 AM

im about to get financed at 6.25% and i dont have great credit (but im financing something i can afford) she should look into refinancing even if it takes a cosigner. 13% is crazy.

2/1/2007 8:51:28 AM

If she has bad credit now, just wait till she defaults on a car loan.

2/1/2007 9:06:35 AM

Sell the car on the private market.
Pay the difference.
Cut your losses.

2/1/2007 9:17:59 AM

The car is the least of the problems.

The 13% rate is the problem. Sell off everything, GTFO out of debt, bum rides and eat Ramen noodles until you're living debt free again. Then try over again.

Perpetual debt will never solve anything.

I'd say you're only option is to sell it personally used and just take the loss. Even if she loses $4k on a resell, it's less than $9k.

Oh, and the biggest thing here: she needs to learn something from it.

[Edited on February 1, 2007 at 9:19 AM. Reason : .]

2/1/2007 9:18:19 AM

Here's what you need to do

First, what bank is she with...if it's a credit union (state of fed) you are set as long as her credit isn't shit (not including the large debt). Go there and ask to move the loan to them. As long as she doesn't have a lot of bad checks missed payments etc she'll be fine and credit union will be happy to have her. And check out the interest rate

New Vehicle Loan Specifications

Must be current or prior year model
Must have 10,000 miles or less
6.25% APR for up to 60 month terms using Payroll Deduction/Funds Transfer repayment Calculate Payment (6.75% for Direct Pay) Calculate Payment
6.50% APR for 61-72 month terms using Payroll Deduction/Funds Transfer repayment Calculate Payment (7.00% for Direct Pay) Calculate Payment
May be repaid at any time without penalty

In fact they even auto deduct it from your checking account if you want. That's what I do.

Lets say she's not with credit union, go to her bank and explain the situation to the loan officer. You MAY have someone cosign so her parents might get involved. Either way most banks offer 10% for used cars and like 7.5% for new... (depends on bank and in some situations your credit)

This is why I constantly say, if you can get an account with SECU go. Their loan offering requirements are FAR less strict than most financial institutions.

2/1/2007 9:23:58 AM

How to get out of an auto loan or lease
http://www.bankrate.com/brm/news/debt/debt_manage_2004/auto-loan.asp


dept.....hehe

2/1/2007 9:25:34 AM

every time I think about buying something through debt I start running through these loan calculators and I realize that I'll pay more than 50% of the face value over time. I think that's why I really want to get a 15 year mortgage when it's time for a house. The overall savings are crazy. It's the now vs. later choice as Dr. MacElroy would say in Economics.

Just think about it: if you earn x amount of dollars over your lifetime, how much of that do you want to throw away on shit like interest? Interest is just the huge price you pay to choose "now" over "later."

2/1/2007 9:45:03 AM

Quote :

"Yes, because spelling is my primary concern at 1am"

Because the B key and P key are right next to each other, right.

You should always try to spell correctly so you don't come out looking dumb...like now.

2/1/2007 10:10:42 AM

ah i love good credit (and hitting the interest rate market at the right time),

i finance at 4.25%

2/1/2007 10:17:56 AM

Ok, so it sounds like the strategy is:

- First obviously try to cut costs so she can pay of the debt faster
- Then try to refinance with the finance people who gave her the loan
- If that doesn't work, she is a member of a credit union, see if she can borrow the money from them at a lower rate, pay off the original loan and then pay off the credit union debt.
- If that doesn't work, see how much she could get selling it privately because she'll get more than giving it back to the dealership. Use that money to to pay off some of the original loan, and then just pay the leftover out of pocket.
- Last resort surrender the car to the dealer. From something I read "This strategy can save you expensive repossession costs and attorneys' fees. Because it also makes life easier for the dealer, you should try to get concessions from the dealer before you give up the car. A dealer will often waive its right to collect the amount left owing on the loan and/or promise not to report the default or repossession to credit bureaus. Try to get the dealer to agree not to report negative information to credit bureaus in return for your voluntarily surrendering the car." I know this is a really bad option, but it might be necessary.

Quote :

"who are these people that finance $24,000 before crunching the numbers to realize whether or not if they can afford it - especially at 13% - did she not ask for any advice in the first place? what kind of car is worth $10,000 less than what was paid in only 3 months!?!"

And as for how it could depreciate so quickly, its not that the car was worth $24k, that is how much the loan was for with gap insurance, warranty, and (here's the really bad part) the fact that she traded in a car that she still owed money on, so that debt got rolled into the new loan. And no she didn't ask for advice, and when she told me the numbers that day I told her to take it back (most places give you 24 hours or so to take it back) and she wouldn't listen.

2/1/2007 10:28:23 AM

next time.. there are plenty of perfectly good cars that can be had for ~10k

2/1/2007 10:31:07 AM

Quote :

"Sell the car on the private market. Pay the difference. Cut your losses"

Even if you're able to refinance at a more favorable rate, this is probably still the best option. Refinancing will only buy time, and not really solve your friend's basic problem of simply being unable to afford this car. Realize that she may have difficulty refinancing the entire loan, since she financed both the car and a previous 'dept'.

Figure out what you can sell the car for privately.
Figure out what the loan pay off value is.
SAVE the difference.
When you have the money, sell the car.

Your friend needs to calculate a budget and determine how much she can save each month. Use a loan calculator (http://tinyurl.com/2pqmgl to estimate when she can afford to pay the difference between the loan and sale price. She needs to realize that she fucked up and getting out of this will require sacrifice while she saves...no $5 triple double mocha grande lattes, no eating lunch out everyday, no Coach bags, no Emelda Marcos shoe collections, etc., etc., etc. Those little things add up very quickly to significant amounts of money.

Her next car needs to be paid for in cash, or, failing that, the cheapest, reliable car she can find financed for the shortest possible period of time (a year or so). Many good, reliable cars can be found for significantly less than $10k.

And tell your friend to not be one of these people: http://biz.yahoo.com/ap/070201/economy.html?.v=8

2/1/2007 10:44:43 AM

its ok to be impulsive and buy an expensie pair of shows or a digital camera or something. but to impulsively sign a 24K loan document at 13% is pure stupidity.

i would try to go the SECU route (using a parent/family member if neccessary).

2/1/2007 10:45:59 AM

what kind of car is this?

2/4/2007 1:41:23 AM