Options when you can't afford your auto lease or loan payment
When You Can't Make Car Payments
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Can't Make Car Payments
What happens when your car payment is just too high? Is it possible to trade in a car that you have only had for six months for a cheaper model? My husband bought a truck that we couldn't afford and now I am unemployed. The car payment almost equals our house payment and I don't know what to do. We can't just give the truck back without adversely affecting our credit rating. Any suggestions?
Sell It Yourself
The best way to get out of a vehicle is to do some research in your local papers and see what similar vehicles are selling for. Place an ad to sell it yourself. Get your payoff from your lender so that you know where you need to price your vehicle without taking too big of a loss. It's a little more work, but will net you thousands compared to trading it in. I know, I sell cars for a living.
Talk to Lender
Try and talk to whoever you owe for the payments. Explain the situation to them. Ask them to lower your interest rate or extend your contract time and make your payments lower. They will balk but explain to them that they'll get more money from you if you pay this off than if they have to come and repossess it and then resell it as a used truck! Money talks to these people. It's cheaper for them to work with you then file and foreclose or repossess and sell the truck again as used at a lower price. Always try and work with the original loan people first. They are reasonable people who will appreciate your honesty in coming forward right away and you're wanting to work it out.
Couple of Options
There are a few things you can pursue when your in over your head with a car payment.
- Refinance loan with a credit union or another bank. Credit Unions traditionally have lower rates.
- Let repossession take place. Although it affects your credit rating, it is not the end of the world. I know people who have gotten a used car the week after the repo man comes. Just read the terms of the loan before taking this drastic step.
- Some dealers will take the truck back on a trade and tack the difference of the loan balance on to loan for new vehicle.
You say you are unemployed now? Have you checked your contract as you may be paying for insurance that protects you incase of illness, unemployment, death. Dealers like to sneak these policies in because they make big bucks on them. If this is the case, you can get your payments made if you have been laid off, canned, or illness made you stop working.
Is There Equity?
As a former car salesman and manager, I have found Judy's problem to be not entirely uncommon. As a starting point, I suggest that Judy go to kellybluebook.com to find out the trade-in value of her too big truck. Afterwards, march back to the dealer and pick out a cheaper truck. Unless Judy financed more money than the truck is worth, her payments should go down. Unfortunately, if Judy bought the truck with little or nothing down, she might owe more on the truck than it is currently worth because of depreciation and the financing of taxes. If she owes a lot more on the truck than it's worth than she could wind up driving a cheaper truck for the same payment. The whole key to the equation is how much equity there is in the big truck.
I found myself in a similar situation. My husband had leased a new truck and then was laid-off a few months later. My paycheck couldn't cover the household bills and the truck payment, so we shopped around for a buyer. Considering the age (six months old) and the design (club cab, mid-size) of the truck, we found a dealership that was happy to buy it from us. I called up the bank and got the pay-off figure for the loan. The difference between the money the dealer was offering ($500 under current book) and the amount of the pay-off was $3000. I used our other, older car, which was paid off, as collateral for a personal loan.
I got the personal loan through my company's credit union, so I got a good interest rate, longer loan time-period (3 years) and I agreed to let them take the money out of my weekly paychecks. That gave them a comfort level about getting paid (therefore the better interest rate) and I didn't have to deal with sending in a monthly payment.
Calculator: Auto Loan Calculator
The only people that weren't happy about the arrangement was the bank that I had been paying the lease payments to. You see, by paying off the full balance on the truck, they didn't make as much money on the lease as they would have if it had gone on for the original length of the lease. Also, most people don't keep vehicles that they lease, so the bank cashes in on the equity left in the vehicle after the lease is paid off. But what I did was completely legal. My lease agreement didn't have an early pay-off penalty clause, so the bank couldn't even get me with that. While it wasn't an experience I would want to repeat, at least I was able to get out of the lease and not hurt my credit.
Take the Next Step
- For more articles automobiles, check out The Dollar Stretcher Auto Section
- Before you buy or sell a vehicle, get all the facts. Edmunds.com will give you what you need to know to make a confident deal.
- Do you struggle to get ahead financially? Then you'll want to subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources.
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