Smart Solutions: Reducing Car Loans Without Losing Your Wheels
Download MP3Discussion Points:
- Negative Equity Problem
- Many vehicle owners owe more on their car than it’s worth (negative equity). For example, owing $18,000 on a car worth only $14,000.
- One solution is to sell the car and cover the difference, but this may not be feasible for many.
- Short Sale as a Solution
- Similar to housing short sales during the 2008 crisis.
- Some banks offer vehicle short sale programs, though they may not widely advertise them.
- Banks often prefer short sales over repossession to save on costs associated with vehicle recovery.
- Steps for a Vehicle Short Sale
- Vehicle Condition Report: Document the vehicle’s condition accurately.
- Title History Report: Confirm the current status of the vehicle's title.
- Market Evaluation Report: Get a market value assessment based on the vehicle’s condition and title history.
- Requesting a Short Sale: Contact the lienholder with a formal request, potentially securing an estoppel letter to agree on a reduced payoff amount.
- Find a Buyer: Can be an institutional buyer or retail; retail may bring higher offers but requires more effort.
- Affidavit of Non-Relation: Ensure the sale is not to a related party.
- Financial Calculation Sheet: Provide financial details as required by the lender.
- Lien Release Document: Finalize the process with a lien release after sale.
- Considerations and Cautions
- Only attempt a short sale with realistic expectations of the car’s market value.
- Fraudulent practices (such as misrepresenting the vehicle's condition) can lead to rejection of the short sale request.
- Lenders may deny short sale requests from borrowers with high income or substantial savings.
- Additional Advice:
- This approach may work 70-80% of the time, based on experience.
- Be prepared to put in some paperwork time, as this can often be done without legal fees.
- Alternatives include asking the lender for a loan modification, though requesting a short sale first may increase negotiating leverage.
Disclaimer:
- Not legal advice; this is general information, and each lender’s process may vary.
Conclusion:
A vehicle short sale can be a practical way to relieve financial pressure, free up cash flow, and improve your overall financial health.
A vehicle short sale can be a practical way to relieve financial pressure, free up cash flow, and improve your overall financial health.
