The Expert Podcast

When it comes to the economy, one area that's a very good indicator of the future is automotive loans and financing. Right now, there's a very troubling development in automotive retailing that has to do with auto loans. According to this business article, a record number of car owners can't afford their loans, meaning that the payments are too high and they can't afford them.

But what's worse—if you look in the small print—is that more car owners are upside down on their car loans than ever before. So what that means is that not only can they not afford the loans because of the payments, but what they owe on the car is a lot more than the vehicle’s value. This means they can't sell out of it or trade out of it.

So what can you do about this? There are policies and programs from lenders to do what's called a car short sale, where you sell the car for less than the loan value. Now, it's a tricky process. You have to do a lot of paperwork and double-check with the lender to see what offerings they have. But even if they don't offer a specific program, you can still petition to have the vehicle loan considered a short sale.

This is different from a voluntary repo or charge-off. A voluntary repo just means you give the car back to the lender. When that happens, the lender sends the car to a wholesale auction, where wholesale dealers bid on it. These auctions sell vehicles for lower amounts than their full value.

For example, let's say you have a car worth $20,000, but you owe $25,000 on it. If you voluntarily repossess it, the lender might sell it at auction for $15,000 or $16,000. Then, they will come after you for the remaining balance. If they sell it for $16,000, they’ll still come after you for $9,000.

Now, what if you sold it yourself for $20,000? There would only be a $5,000 difference. However, you can’t sell it for $20,000 on your own because you don’t have the title. But if you arrange a vehicle short sale with the lender and line up a buyer—whether it’s a dealer, Carvana, or a private buyer—the lender may agree to let you sell it for $20,000 and waive the remaining balance. Sometimes, they may ask you to pay a portion of the difference, but at least you won’t be stuck with a large lump sum debt.

That’s the advantage of a car short sale. If you have a vehicle that you can no longer afford and are also upside down on your loan, this is a way to escape being trapped in that financial burden.

If you want more information on how to do a car short sale, click the link below. We’d be happy to provide guidance and assistance.

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