The Expert Podcast

So what if you owe more on your car than it's actually worth? If you have a car loan and your car loan balance is higher than the market value, are you just stuck with the vehicle? Well, this is what's called being upside down or underwater or out of equity in the vehicle, and it's very common on vehicles that were purchased new or maybe you had a trade in to have depreciation which goes faster than you're paying down the vehicle, especially at the beginning. Most of your payments at the beginning are going to interest, not principal, meaning that you're paying off the interest - you're not paying down the loan balance. But your car's dropping like a stone when it goes out of the showroom and now it's a used car and it decreases in value quickly.

So after a year, year and a half, you might find yourself upside down in the vehicle, especially if you can't afford the payments. Now you're in rough shape because you can't trade it in. But there are policies and programs that lenders have to do what's called a car short sale.

A car short sale is when you approach the lender with a certain package of documents - valuations, affidavits, financial statements - to ask them to allow you to sell the vehicle for market value. For example, if you have a vehicle that you purchased, let's say for $45,000 a few years ago, a couple years ago, and you still owe $38,000 because your loan payments have only paid it down that much, but now you go to trade it in or sell it and it's only worth $30,000 or less, so you're $8,000 upside down. Well, you can't come out of your pocket $8,000 - you probably don't have the money.

But what you can do is you can present to that lender: "Look, here is the actual valuation of the vehicle, here's my financial situation, I don't have $8,000 sitting in the bank, here's my income, here are my bills, and I have a buyer for the car. Here's an offer, a proof from a dealer, from a private seller" - whatever it is for $30,000. "I would like to sell it but I can't come up with the $8,000." So they can look at it and approve what's called a short sale on the vehicle, and what they might do is allow you to pay off the loan at a lower amount for you to sell it.

Why does this benefit them? Well, if you didn't pay it and your finances are struggling, they might have to do a repossession, which means now they have to go get the car, they have to ship it, they have to clean it up, they have to auction it off, and they're going to sell it for less than $30,000 because they're going to sell at a wholesale for repo auction. So it might sell for $26,000 instead of $30,000, plus they're going to have $2,000 or $3,000 worth of expenses for repossession, transport, shipping, auction fees. So you take that $26,000, you take off $3,000, they're going to net $23,000 for that vehicle. Their loan balance is $38,000 - they're going to lose $15,000. And you might say, "Well, they can come after you," well, if you don't have the money, if you're showing them your bank account, they're not going to get the money.
If they can be assured of getting $30,000 right off the bat, they could be in a lot better shape. Sometimes they'll tell you they'll do a short sale but you have to kick in a thousand, or they might say "pay us $100 a month for the next six months" - whatever it is. But at least now you have an option to get out from under that high car payment, be able to sell your car, you're not stuck in it. Maybe you need a different kind of a car because your life changed.

So don't rule out the idea of a car short sale to get rid of a car that's dragging you down either with payments or your payoff. If you want more information, you can click the link below - carshorsale.com. We have also consultants you can talk to about getting more information about how your lender might work with this.

Thank you for watching another episode of Actual Human Advisory on Describe TV. Remember, we have live one-on-one consultation appointments available at actualhuman.com where you can book a one-on-one undivided attention live call with a licensed investigator, a licensed insurance broker, a licensed mortgage broker, real estate broker. I'm also a certified real estate title examiner, a certified civil court mediator, along with having developed and started over 15 businesses, several of which were sold for millions of dollars. So if you do have questions in any of those categories, you can arrange a one-on-one live video consultation. Use the link below and we'll see you on the next video.