Give The Car Back: How to Break Free from a Car Loan
Download MP3Episode Description:
- Many cars are purchased with loans, but sometimes the loan becomes a problem for two reasons:
- You can no longer afford the payments.
- The loan balance is higher than the value of the vehicle, creating negative equity.
- Negative equity can hurt your financial health, especially if you owe more than the car is worth.
- If you can’t afford your car payment, eventually, the car could be repossessed. If you have negative equity, it may impact your ability to trade in for a new vehicle and affect your net worth.
- A rising issue:
- The search term “give car back” has been growing, signaling more people are looking for solutions.
- In 2023, the average car payment reached $725, and now, payments are soaring to $800-900.
- Auto loan delinquencies are increasing, surpassing pre-COVID levels.
What are your options if you owe more than your car is worth?
- Selling the car: If it’s worth less than the loan, you’ll struggle to sell it for the amount you owe.
- Car Short Sale:
- You can approach your lender with a proposal to settle the car loan for less than you owe, especially if you’re in a hardship situation.
- Many banks have short sale departments, but you may need to fill out paperwork and prove that you’re financially struggling.
- A successful short sale can waive the negative equity (the difference between the car's value and what you owe).
- Why choose a car short sale over repossession?
- Credit Impact: A short sale may affect your credit less than a voluntary or involuntary repossession.
- Avoid Additional Fees: Repossession often comes with extra charges for towing, storage, and auction fees, increasing the debt you owe.
- Lock in Vehicle Value: By negotiating a short sale, you can lock in the vehicle's market value, ensuring you’re not stuck with an unexpected loss at auction.
- Steps for a car short sale:
- Gather necessary documents: Prove your income and hardship, demonstrate the car’s value, and show that you don’t have significant savings.
- Work with your lender's short sale department, though some may not publicly advertise this program.
- Submit a short sale application and documents that demonstrate the car’s condition, its value, and your financial situation.
- Why banks prefer short sales:
- They save money by not having to track you down for a repossession.
- You’ll need to return the car in good condition with all necessary items (keys, remotes, manuals), which can save the bank costs (e.g., missing remote controls can cost hundreds).
- Car Short Sale Benefits:
- Avoid the "snowball effect" of escalating debt and repossession.
- Retain your belongings (e.g., cameras, phones, or gear) from the car, unlike during repossession.
Takeaway:
Consider a car short sale as a more favorable alternative to repossession if you're facing negative equity. It can protect your credit, reduce your debt, and help you regain control of your finances.
Consider a car short sale as a more favorable alternative to repossession if you're facing negative equity. It can protect your credit, reduce your debt, and help you regain control of your finances.
