I’ve been paying off a $32,000 auto loan for 33 months now at $785 a month, but the principal balance is still around $26,000. I tried refinancing but was told it’s not possible because I’m upside down on the loan. How is this possible, and what can I do to resolve it? Any advice would be greatly appreciated, thank you!
Edit: I’m considering repossessing the car and filing for bankruptcy as a potential solution. I’d prefer to avoid this if possible, but I’m not sure what other options are available right now.
Edit2: Thanks so much for all the responses! I didn’t expect this level of engagement so quickly. We’ve decided to contact the bank to discuss bankruptcy, as we’re feeling it might be our only option.
To address some questions: Unfortunately, we can’t afford to pay more than the $785/month due to other expenses. The car is worth maybe $8-9k. We bought it under difficult circumstances, and things have just been challenging.
Keep it from being repossessed. Inform the bank over the phone that you are unable to pay. It is highly possible that you will visit the dealership and sell the vehicle back to them. The remaining sum, sometimes known as the upside-down sum, would be rolled over into a personal loan. That is much less than the $26,000 you currently owe when you pay that back.Save a few thousand dollars before you do this. I’ll purchase you a cheap used car from Facebook for no more than $3,000. You will continue to drive that till your money and personal life are in order. Give up applying for auto loans. even if you are financially secure.
You always pay early on if at all possible more than the required minimum. Only the interest on the loan is covered by the payments you make at the beginning of the term. Since interest is computed based on the amount you owe at the moment, any additional money you pay will be applied to the principal, lowering the total amount you pay.
Investing a few thousand dollars now will ultimately save you hundreds, if not thousands of dollars. The length of the loan and your rate will determine this.
That is untrue. The interest rate is what counts. Indeed, typically, they receive the interest upfront on a house. Not as much in a car. My payment is 456, of which thirty percent has gone toward interest over the last three years, yet my annual percentage rate is 3.7.
You spent too much for the car. It’s likely that you had to pay a “markwt adjustment,” a lot of unnecessary items were added, or your trade-in was upside down. 2) You received a poor loan with an unfavorable interest rate. It looks like you’re stuck at this stage. You should pay down your debt for a few more years, make extra payments if you can, and then refinance when the amount owed is less, or you might consider transferring the balance to a credit card with a lower interest rate.
As someone who’s been through a few subprime auto deals, the best way to handle them is with a mix of patience and luck. Patience, because, as others have pointed out, you’re getting close to the point where your payments start going more toward the principal. Even if you could find a buyer for the car, there’d still be a gap between what it’s worth and what you owe. Given that your credit might not be great, taking out a personal loan to cover that difference probably isn’t a good option. Hopefully, you’ve taken care of the car, and it lasts through the loan term—that’s crucial. These kinds of situations usually come from an “any port in a storm” mindset. You needed a car maybe you even convinced yourself you needed this car. Maybe a few cheaper cars could have worked, but hindsight is 20/20. If you overpaid for a car to get to a well-paying job, on some level, it might not have been the worst decision. But we often justify these situations in ways that aren’t always sound. Ultimately, the responsibility for the situation tends to fall on you, and I know how frustrating that can be.
As someone who’s been through a few subprime auto deals, the best way to handle them is with a mix of patience and luck. Patience, because, as others have pointed out, you’re getting close to the point where your payments start going more toward the principal. Even if you could find a buyer for the car, there’d still be a gap between what it’s worth and what you owe. Given that your credit might not be great, taking out a personal loan to cover that difference probably isn’t a good option. Hopefully, you’ve taken care of the car, and it lasts through the loan term—that’s crucial. These kinds of situations usually come from an “any port in a storm” mindset. You needed a car maybe you even convinced yourself you needed this car. Maybe a few cheaper cars could have worked, but hindsight is 20/20. If you overpaid for a car to get to a well-paying job, on some level, it might not have been the worst decision. But we often justify these situations in ways that aren’t always sound. Ultimately, the responsibility for the situation tends to fall on you, and I know how frustrating that can be.
What’s the car worth compared to what you owe? What’s your monthly take-home pay and your total debt and living expenses, excluding the car payment? Sharing this info would help us offer more specific advice. Below is general advice without knowing those details:
Your options are limited, but here’s what I’d suggest. First, try to make the largest principal payments possible. Cut all unnecessary expenses—streaming services, eating out, cigarettes, entertainment, etc.—to free up as much income as you can. Taking on a second job or working overtime would help a lot too. Use that extra money to aggressively pay down the principal until you owe what the car is worth, then sell it and get out of the loan. Alternatively, you could trade it in for something cheaper with better rates. In that case, it’s important to reach positive equity (where you owe less than the car’s value) to have trade credit for the cheaper car.
Another option is to pay it off early and keep driving it until it’s no longer usable. Since you’ve already put a lot of money into this car, it might not be worth selling it just to feel like you’re losing that investment.
A third route is to get into positive equity and then refinance the loan for a better rate with a shorter term.
Finally, you could consider leasing. Since your credit has improved, if you can save a couple of thousand dollars for a down payment, you might find a good lease deal. You could roll the negative equity into the lease and walk away debt-free at the end, which typically lasts 24-48 months. But if you choose this path, research everything about leases thoroughly. Keep in mind, the monthly payment may be higher due to the negative equity, so ensure you can handle the increased payment and follow lease rules. It can be a good option to start fresh once the lease ends.
Best of luck! Many of us, myself included, have been in your situation. The key is to learn from this and commit to never being in this position again. Build an emergency fund of 3-6 months of expenses, start saving beyond that, and focus on building wealth. Live below your means, build cash reserves, and the next time you need a car, you can pay cash and tell the banks to keep their interest rates.
Most likely, your interest rate was high. Do you have a poor credit history?
There’s not much you can do if you’re upside down except keep paying it off until you’re at least even with the car.
The dealer will incorporate the amount you owe into the new loan if you attempt to trade it in. Your assessment of it is incorrect since you are unable to sell it for its true value.
Just paying your monthly payment will assist, unless you add to the balance. Refinancing would result in a company going bankrupt, hence no corporation will undertake it. Furthermore, it won’t help to roll that negative equity into another vehicle. In every case of credit, bankruptcy filing need to be the final option. If you file for bankruptcy only for a car, the record will remain on your credit report for seven years.