Losing Truck Without Losing My Shirt

January 4, 2010 9:44 PM

Have: 2007 Toyota Tacoma pickup, $7000 in payments to go, good credit, and practically nothing in the bank. Need: $4000 in cash, something to drive, and good credit to remain intact. What's my best course of action?

Now that my wife and I are divorcing, her mother is calling in the $4000 loan she gave us to put down on my truck. Under my particular circumstances, I'm on the hook for the entire amount, and repaying the loan in installments is not an option.

I'm fine with selling the truck to repay mom-in-law, but I need something to drive (job requires it), and I still owe about $7k in truck payments. The Kelley value on the truck is about $11,000, though I suspect that's a little high for the market in my area.

I'm not terribly savvy about these matters, so... sell to a private party? Try to get a dealer to work with me? Some other arrangement? I'd like to maximize the amount I get to spend on a new vehicle, and minimize the degree to which a dealer can take me for a ride (har har). I'd also like to avoid any arrangements with the bank that will harm my credit or jeopardize my getting a new loan. Your ideas?

posted by anonymous to work & money (12 answers total)

Why not get a line of credit from your bank to pay your mother-in-law? It sounds like you're going to lose more money if you sell the car you have. A line of credit that small (assuming you have no other problematic debt) shouldn't affect your credit, especially if you're paying it back. As you pay back the line of credit, it becomes available to your for new "loans" should you need them, and of course if you need more than that you can ask the bank to up your limit or apply for a new loan altogether.

I have a line of credit that I keep empty (i.e. no debt) most of the time and the interest rate is 1% above prime, which is pretty good. The rate is based on your credit worthiness (mine is good) and on the amount. If I had requested a higher limit they would have given me .5% above prime.

Why not go talk to your bank, find out what the offer and ask them if/how it would affect your credit.
posted by If only I had a penguin... at 10:04 PM on January 4, 2010

The BB value is $11,000. You owe the bank $7K. That leaves $4K to pay the in-law. Assuming you get BB value, the math unfortunately suggests there would be nothing left for a down payment on a replacement vehicle, assuming you have little in savings.

You will likely get more for the truck selling privately than through a dealer, certainly, but it will be more difficult to complete the transaction in a timely fashion, if that's a concern. If you're buying from a beleaguered dealership, they may want to work with you on the numbers to get the sale.

I suspect your bank will not give you any wiggle room to operate on the repayment terms, before transferring title. That leaves your mother-in-law. Does she like money? Does she generally trust you, other issues aside? Perhaps you can offer 50% of the $4K now, in exchange for paying the remaining $2K over the new year, plus an extra $500 or whatever over that term to make it more attractive.

That arrangement leaves you about $2K in hand for a down payment on the replacement vehicle now, but you'll have to repay that $2K+ to your ex-in-law over the year, as well as any monthly payment on the replacement.

If that's not possible, a credit card might get you a cash advance to make up the difference with the in-law, but a credit card company's terms for cash advances are often usurious, to say the least. So it could be expensive to go this route.

In your shoes, depending on the relationship with the in-law, I would try to pursue some kind of flexible arrangement there.
posted by Blazecock Pileon at 10:06 PM on January 4, 2010

It's unlikely that your ex-mother in law will know how to or be able file claims on your credit report.

And even if she could, it's not like a lender can just "call in" a legitimate loan because they decide they don't like the person anymore.
posted by delmoi at 10:32 PM on January 4, 2010 [4 favorites]

Those trucks usually sell for well over the BB value, especially if they are 4WD. A friend of mine sold an 8 year old one with 100K on it for almost $10K just a couple months ago. If it won't go for that in your area, consider advertising it elsewhere.
posted by fshgrl at 10:45 PM on January 4, 2010

And even if she could, it's not like a lender can just "call in" a legitimate loan because they decide they don't like the person anymore.

Yeah, your best course of action would be to let your ex-MIL would be able to actually force you to repay a $4K loan. Once the divorce settlement is nailed down, let her know your circumstances, and your plan to repay her. If she doesn't like it, what is she going to do? Sue you?
posted by KokuRyu at 10:49 PM on January 4, 2010

When I was first starting out like 9 years ago, I leased a car and if I'm not mistaken, I don't think I put anything down. Just 2 minutes of work now tells me you could lease a Honda Civic (first thing I thought of) for $360 a month with $680 due at lease signing. So if it comes to selling your truck, I'm sure you can get something to drive without having a lot of cash in hand. It might sting a bit in the long run, but whatever.

That being said, I'm inclined to Nth what people are suggesting about questioning the necessity of paying back the loan immediately.
posted by cali59 at 11:02 PM on January 4, 2010

She's a MIL, not a credit card lender. Unless she's going to charge you interest or threaten your first-born, tell her you don't just have that kind of money laying around. You might want to make things go away nice and easy, but this is one case where time is on your side.
posted by chrisinseoul at 11:05 PM on January 4, 2010

Go to your bank. Find out if your good credit will qualify you for a loan that you can afford, to pay off the whole amount. If you can get such a loan, you now have that in your back pocket, and if you can't, you don't. Either way, you know where you stand if you decide to pay off the entire loan to get her off your back.

Next, you tell her that you understand why she'd want all the money back now given the circumstances of our divorce, but you have been paying and will continue to pay back the money according to the terms you originally agreed on; she cannot unilaterally decide to change your loan terms¹. Continue paying the money back in good faith on the original terms, keeping a record of each payment (bank checks wouldn't be a bad idea here) until it is paid off.

In short, keep the truck, keep acting in good faith, let her know you're going to act in good faith (even though she's not doing the same), and make sure you know what your loan options are just in case.

¹if she is a "legitimate" lender who can ruin your credit rating, you must have a contract, and she won't be able to change the terms without your consent unless it's written into the contract. If she lent you the money casually, she can't ruin your credit rating, and in fact she's fairly powerless to force you to pay the money back except in court -- which is why you'll keep paying according to the original terms, and keep good official bank records of the transactions (no cash, no checks made out to cash, nothing that can't be traced) so that you can show a judge you've been acting in good faith this whole time and have every intention of continuing to do so.
posted by davejay at 12:35 AM on January 5, 2010 [4 favorites]

Oh, one more thing: if you never had an agreement to pay it back according to specific terms, just "whenever", and you weren't making regular payments, my advice still applies -- except that you let her know that you understand why she might not trust you at the moment, so you will begin paying back a fixed monthly amount that you can afford, after the divorce is final (so that you're not potentially paying back the loan with her daughter's money.)

After all, I'm sure you realize it's as much about her wanting to get revenge on you for divorcing her daughter as it is about getting the money back. So you'll have to act like the fine, upstanding person you are, and act in good faith, but that doesn't mean going into bankruptcy or putting yourself in financial jeopardy.
posted by davejay at 12:38 AM on January 5, 2010

From the OP:

Thanks for the advice so far.  While I realize that MIL has no legal authority to "call in" her loan, my circumstances (too long and complicated to go into here) do indeed dictate that I pay off the loan in full, no installments or flexibility.  So for the purposes of my question, assume that this is the case.  Sorry I didn't make that more clear.

posted by mathowie at 6:06 AM on January 5, 2010

I bet if you go into a dealer with your requirements, you can walk out with the cash and a new (or different) car. You may not get the best deal, but your credit should be good. Talk to a few dealers and see.

Still, I have to question you paying off this loan right now. Is the MIL in a hospital and needs the money to pay for the surgery? Is she saying that you'll never see your kids again unless you pay the money by next Tuesday? Seriously, why does she have the emotional power over you? That is something you should be able to give up (or mostly give up, if you have kids with your soon to be ex-wife) as part of the divorce.

I know; this isn't the question that you asked. But divorce can create some emotional tunnel vision. I agree with the other posters; you should pay off the loan. But not at a huge loss to you.
posted by Monday at 8:45 AM on January 5, 2010

Do you have a 401(k) you can borrow from? I've done that when I've needed similar amounts of cash unexpectedly.
posted by RikiTikiTavi at 10:34 AM on January 5, 2010