The Expert Podcast

So why are car payments so high, and what can you do to get out of it?

According to this news article from Rodent Track, 20%—one out of five people—currently have a car payment that's more than $1,000. Not that long ago, that was what your rent on your apartment or your house was, and now it's on a car. This is a very troubling development, and many people find that at the time they buy the vehicle, $1,000 doesn't seem like a lot of money. But after you pay it month in and month out, it starts to become a burden on your finances.

It might keep you from moving. It might keep you from getting married. It might keep you from finding a better job because you can't relocate. And when you go to try to get out from under that loan, you find that you owe more than the car is worth. You're out of equity. You're upside down.

So one of the things you can do is use a process offered by lenders that is not publicized because they don’t necessarily want you to do it—called a car short sale. Instead of doing a voluntary repo, which you don’t want to do because that will destroy your credit, or just stopping your payments, you send a package of documents to the lender to have them waive the difference of the loan based on what you can sell the vehicle for—or at least some of it.

With more people having a $1,000 car payment, you're going to see more of this happening. At the time you're at the dealership, looking at that new car, it seems exciting and affordable. You may not feel like you’re going up that much from your old payment. If your last car payment was, say, $650 or $700, you might think, "Well, it's only an extra $300 to go to $1,000."

But after a year or a year and a half of paying $1,000, now that car is not brand new anymore. It's sitting in your driveway, maybe with a few dings and dents. It may have 40,000 miles on it. And now, you're maybe not as excited about that car as you were when it came time to sign on the dotted line for $1,000.

Getting out of it is tough because you probably owe more than it's worth. Maybe you had negative equity on your previous vehicle that got rolled into this one, and now you want to get out of it. So if you owe more than it's worth, look into a car short sale. You can see the link below to find ways to work with your lender to get relieved from the difference and be able to sell your car to a legitimate buyer—getting out from under your car payment.

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