Does anyone have any experience with it? I know the bank has the right to sue for the deficiency balance. I owe less then $7,500 on my car and figure it will fetch somewhere around $5,000 at an auction. I was wondering, do banks typically go after people when amounts this small are concerned?
These are really just hypothetical questions at this point. I'm not condoning escaping debt in such a manner. Just exploring options in case my car doesn't sell.
Sure, they'll take a voluntary repossession. Then they'll auction off the car to the highest bidder and bill you for the difference plus administrative fees and interest charges that they'll tack onto the bill. Yes, they'll go after you.
You're much better off selling the car for what you can get and borrow the money for the difference yourself.
No matter how small the debt is, they'll want their money. If it's too small to personally go after you, they might just sell the debt to a collection agency. And we all know what collection agencies are like.
If you could do a private sale, you would get more than an auction, but unfortunately there's probably a lien on the car. You'd have to have the difference in cash to make it work. Lose/lose situations like these are what drive people to insurance fraud.
Maybe I'm misunderstanding because it sounds like you are upside down on the loan, but I don't see how that's possible with only $7500 in debt.
@dragoncar
I am upside down. The bluebook retail private party value is just over $7,000. Some of the salesman I work with at my dealership say I could probably get around $6,000 or less though. Some of the things working against me are the fact that Pontiac is no longer around, the suspension is very noisy and I can't turn the check engine light off..no matter how many of my technicians look at the car.
Robert Muir has already said it well. The bank would rather not repo the car, and will discuss it with you anytime. Bottom line is they are not going to lose money on it. You can drop it off at the bank and they will book it and dispose of it, with you owing the balance due them. If you sell the car yourself, your going to have to be able to pay off the bank and produce the title to the car for the buyer. Best bet will be to meet the buyer at the bank and make your transaction there, clearing the loan and have the bank transfer the title to the buyer. A bonus would be if the buyer gives you a check, it will be cleared by the bank prior to the title being handed over.
A voluntary repo will show on your credit rating badly. I highly recommend you pay off that car, and then go from there.
Bear in mind any financed vehicle is going to depreciate far faster than payments can reduce the amount owed. If you could private party sell the car for 6K, and hand over the difference in cash to the bank, you would be much better off. Pay off the car first, and then anything you can get out of it is all yours.
You can also get lots of good cars for good prices on private party sells due the owners being in financial trouble and wanting to get rid of them at any cost. Never buy a new car unless your going to keep it at least ten years or more. That way your cost per mile can be spread over 120 months and is fairly reasonable, or at least more reasonable. The biggest sucker in the world buys a new car every 2-3 years. The average "trade in buyer" is around $4,500 upside down. This goes on until the bank or dealer can no longer finance the person. Once you get free and clear your good to go on what you want to do. That would be the time to sell the car.
My personal opinion would be that a car should never be financed unless the rate is so dirt cheap that you can do it better that way than pulling your own out of the bank to cash buy it. (IE: Your money is making 5% and a loan would cost you 3.9, but never do it longer than 24 months.) Some people will argue with this method.
"The average 'trade in buyer' is around $4,500 upside down"
Again, how is this possible? I remember having to buy gap insurance for my last car and I think I was upside down for all of 6 months. It was a Honda though... do other cars really depreciate that fast, or are people getting absurdly long financing periods? Or is this because the cars have some kind of damage? I get that the OP is in a somewhat unique circumstance.
Value of new cars depreciate faster than loan balances get paid down on 5 year loans.
DG, I have the same check engine light on in my car. The mechanic knows exactly what's causing it, but on a '97 Escort station wagon with 260k+ miles on it, it's not worth fixing. So I'll continue driving it with the light on. (I think my car is worth $800 as-is. :)
Unfortunately, with that light on, your car is probably worth half of bluebook. I would recommend getting a second or third job, delivering pizzas or whatever, making enough money in a short time to pay off the note and earn your freedom.
Turning the car over to the bank is the lazy way out. Yes, you can probably weasel out of the debt after a few years of bother from debt collectors and major credit score dings. However, if ERE is your goal, then now is the time to take action and make a serious commitment to succeed.
@Robert Muir
I understand what you're saying. Good points. Voluntary repossession is definitely a lazy way out. I'm going to have to take a long look in the mirror and figure out where I want and need to go in order to accomplish my goals.
My credit score is so-so, and doing something like this would absolutely ruin it for the next 7 years. I haven't totally ruled out purchasing a small, cheap condo near the city core as the ultimate ERE housing solution...and obviously I have to have good credit to do that.
I appreciate the advice! I really do.
Agree with Robert Muir, fiscal responsibility is a key part of ERE and defaulting on debt is setting off on the wrong foot. In YMOYL terms, Fincancial Integrity comes before Financial Independence. Also Dave Ramsey, who typically deals with people in deep debt, advises paying off all debts straight up.
Moralizing aside, weaseling out tends to cause as many problems as it solves. You already identified some of those problems. It also reinforces a sense of helplessness. When you fix a problem yourself, it creates a sense of accomplishment that encourages self sufficiency in other areas.
The first year depreciation on a new Tahoe is $11,500. Source is Edmunds.com. You can look up any car and see the "True Cost to Own" which is spread out over five years. This shows the depreciation, insurance, fuel, maintenance, etc for each of the five years of ownership.
Some auto loans are now for 84 months. The interest would be horrific, and the depreciation would drop the value of the ride like a rock during that first five years. Also, one needs to consider the valuation of vehicles by area, or zip code. In some places I have seen 2008 Tahoe and Yukons with nearly 100K miles on them selling for $35,000$ ($27,500 if they are not perfect). So, if a new Tahoe is $52,000, and your dropping $11,500 at the revenue office,(depreciation the first year hits all at once at registration in your name), plus the sales tax and your upside down at the "point of purchase". Now the body styles change every so often, and no one wants to be seen in the last issue body style, so they trade in their unpaid and upside down ride, and take out a new long loan on the new one. The trade in is low balled by the dealer, and the owing balance after trade is rolled into the new loan. You are drilled, reamed, and bankrupted in one swift flick of your pen on the contract. Not all deals are like that, but people are indeed strange creatures when it comes to "keeping up with the Jones". The car business depends highly on the Jones's.
@HSpencer
I concur with your post completely. I only wish I knew what I know now a three years ago...before I financed this car. But, you live and learn. Experience has it's costs and benefits. I will tell you that I'll NEVER finance another car as long as I live.
@DividendGuy
Way to go!! Financing a car is a race that can't be won. My only exception is this:
I might buy a new car with the caveat that I would keep it over a ten year period. If I could find a great financing deal, I would borrow some of it, but not at more than 4%, or longer than 24 months.
In keeping the new car I bought for ten years or more, and even a bit of financing with the right deal, I can get a reasonable cost per mile out of the car. My current best vehicle is a 2003 Tahoe that I bought for 60% down payment and 40% financing for 24 months. I now have 75,000 miles on it, and it should be good for another 75,000 or another 6-7 years. Actually, it is not out of ordinary for these vehicles to go 200K without an engine or transmission repair. If I get 150,000 miles and ten to 14 years out of it, the cost per mile will be peanuts. So what if the vehicle is worth nearly nothing at the end of the full use? I can still get something for it, and do this process all over again. Also, in the ten plus years I will drive it, I have saved in the bank enough to cash buy another new one. Also, I can use a broker service and get the best price for a small fee, and S C R E W the dealers. That makes it all worth while to me.
Financing can be ok If yOu get a good rate and (as I am now realizing) a car with very low depreciation. At 0% and 10% annual depreciation, you are rightside up on your 5 year loan after 6 months. Higher interest and depreciation increase this timeframe accordingly.
Ive had my car for 8 years now, it was paid off years ago, and it's still worth a nice chunk of cash. I don't regret financing it new, because I know it's been treated right and will last me
MAny more years if need be.
DividendGuy - consider it a relatively cheap lesson from the school of life. I agree with just about everything HSpencer says, cars are definitely "buy and hold".
I've had my Jeep for almost 10 years now and about 125,000 miles, (about 9 cents/mile based on my purchase price). The longer I hold it the lower that number gets. For my next car, I'll find the best deal (new or used) and hold it as long as I can.
When we were buying my wife's car in 2005 we heard a lady practically begging the finance guys to let her finance over 7 years so she could get her brand new TrailBlazer "and be able to afford the monthly payment" (she was trading in a 2 year old Grand Cherokee). She's probably on her 2nd car since then by now!
Sorry to resurrect an old thread, but a monkey wrench just got thrown in...
I have been diligently paying my car payment every month, mostly to buy myself time until I can either figure out a better plan or pay off enough balance to get it close enough to sell it and not have to cough up a $2,500 check. This plan has been going well until this weekend.
I drove across town to take my SO out to a nice waterside restaurant for her birthday and the transmission started slipping badly on the freeway. It kept shifting in and out of overdrive. It then starting banging gears badly on 1-4 up-shifts. It was the same on Sunday and the same today. I have the benefit of working at an automotive repair facility and decided to have my best tech look at the vehicle. He thinks it's an internal pump failure of the transmission and it's losing pressure...which would indicate imminent failure of the transmission unit.
The check engine light is still on, the front end is still falling apart, power steering comes and goes, key less entry doesn't work and now the transmission is failing. I planned on getting the engine light fixed and doing a few small repairs before trying to sell it, but even my cost on a used transmission installed is pretty astronomical.
Does anyone think the situation has changed? I'm starting to seriously consider letting the bank come pick it up. Otherwise, I face $3,000-$5,000 in repairs, plus paying off the $6,000+ in balance left to try and receive $5,000, which is what the car is worth. I almost look at this like some of the people walking away from underwater mortgages, but I don't want bad credit or judgements against me.
Am I just plain SOL?
You're SOL.
Might as well either fix it and keep driving it. Or sell it as it is to someone for whatever you can get and pay off the difference of what you owe on the loan.
If the car is repossessed, voluntarily or otherwise, you still owe the balance of the loan, minus whatever the car goes for at auction, plus any fees involved with collecting the car, preparing it for sale, and auctioning it off. May as well do the sale yourself and save money on all those fees and avoid the hit to your credit or having any judgments entered against you.
It'll cost you less money, plus you'll be honoring your obligation to pay off the loan you signed up for.
You must log in to post.
