I owe more on my car than it's worth. Help.
January 2, 2010 4:58 PM   Subscribe

I owe more on my car than it's worth. Help.

I'm in California. I've come to the decision that for my financial well-being, I have to sell my car. 1/4 of my monthly income currently goes to monthly payments and car insurance and that's no longer sustainable. Getting out from under this debt would go a long way towards getting my financial house in order and I don't plan on replacing the car anytime soon.

Unfortunately, I owe more on the car than it's worth, don't have the funds for necessary repairs to get it ready to sell, and I have no idea how to proceed. I'm looking for specific, detailed advice on what my options are.

My credit is awful; I've been turned down for refinancing and don't have anyone who can cosign a loan with better terms. What do I do next? Do I file bankruptcy? Will any used car place buy it for the payoff amount? I'm sure there are solutions I haven't thought of, and that's where you come in.

Thank you, Metafilter - you're my only hope.

Bonus points if you can answer without telling me I'm a bad person or suggesting I get a second job. TIA.
posted by anonymous to Work & Money (12 answers total)
Could you take the car off-road and get a big reduction in car insurance (and gas) costs? If so, that would lower your monthly expenses, even though it wouldn't be an instant fix.
posted by sueinnyc at 5:06 PM on January 2, 2010 [1 favorite]

I can't think of a situation in which someone, say, pays $20,000 for a car worth $10,000 and needs repairs to boot.

You can borrow the amount owed on the car from a bank as a personal loan (not an auto loan, and not secured by the car). Then, stop driving the car entirely. Call the insurance company and reduce the insurance -- since no loan is secured by the car, you don't need full coverage, and if you are not driving the car, the insurance rate goes down to something very low, like $50/semi-annually.

This doesn't help with the car note, but helps with the insurance and maybe you get a better interest rate from the bank.

I did know somebody who had their car "stolen" -- they arranged it with a chop shop, and got paid by them as well as the note paid off via insurance. The police were totally onto that, so although it is a solution it is not a good one.
posted by Houstonian at 5:14 PM on January 2, 2010

You say you've been turned down for refinancing, but could you get an unsecured personal loan (or even a credit card) that would let you cover the difference between the market price of the car and what you owe? So, say you owe $20K, but the car is only worth $15K, could you get a loan for $5K, sell that car, use the $15K plus $5K to pay off the car and then only be $5K in debt?
posted by obiwanwasabi at 5:18 PM on January 2, 2010

You haven't told us how far upside down you are. If you are a couple hundred bucks upside down, you could try and sell it for the payoff amount. If you are several thousand dollars short, there is very little you can do to get it sold. The advice of sueinnyc is good. You can contact your insurance company and notify them that you will not be driving it. They will drastically reduce your insurance payments, but you will not be able to even back it out onto the street while this is in effect.

If your credit is already bad and you don't mind making it a little worse, call the company that has your car loan and explain the situation. They might let you sell the car for whatever you can get and arrange with them to pay off the difference over time. They would rather do this than have to repo and sell the car themselves. You must live up to your word on this, however, or they can take you to court. Enlist their help to keep both of you out of court and to let them recoup as much as possible from what is a bad loan for them. Initiate these talks before you fail to make any payments. They prefer to talk to someone who is trying to be upstanding with them.
posted by Old Geezer at 5:19 PM on January 2, 2010

Some things that come to mind:

• As sueinnyc says, you could do away with gas and insurance costs if you stop driving it. But, if you park on a street, that might not be legal (the insurance part). You can get a low millage discount and still keep insurance. But that's probably not a sufficient reduction in your monthly bills.

• It's complicated to sell a car that you have a payment on because the bank has the title, not you.

• People in wintry areas are willing to pay more for a car that's never encountered salt. You might get more money selling your car in a non-local market (for example, via eBay). However, this is only worth it for the buyer if it's a good model, which means you should only consider this if it's a good model.
posted by ifandonlyif at 5:24 PM on January 2, 2010

I hate to say it, but if his credit awful he will not get an unsecured loan- those are the hardest to get because there's no security.

It may be that the best option is to allow the bank to repossess the car. I know in the mortgage thread people were talking about how in most states you can just give the house back and walk away from the debt- and I wonder if this is the case with cars too.

It would, I'm sure, negatively affect your credit score, but you said it is bad anyway. The sooner you get out from under the car, the sooner you can start rebuilding.

Caveat: I really don't know how this works or all the repercussions, so definitely check with an expert. Just an idea.
posted by drjimmy11 at 5:26 PM on January 2, 2010

Another weird idea: Do you have a friend who needs a car? Say this:

"Hey friend, you know my car? Would you want to use it? You make 1/2 the monthly payment and pay the insurance, and you can drive it all the time. And when the loan is paid, I sign the title over to you."

This would get you out of a lot of the expense. There would have to be a lot of trust on both sides, but it could *maybe* be a good deal for everyone in the end. You are still paying for a car you basically don't have, but you're paying less. And maybe your friend will give you a ride when you need one.
posted by drjimmy11 at 5:32 PM on January 2, 2010

don't let a friend drive the car... you, as owner, are still legally responsible...he gets in an accident and the owner of the car gets sued...
posted by HuronBob at 5:49 PM on January 2, 2010

Unless there are other major debts weighing you down, bankruptcy is not necessary in this instance. I believe when you are this upside down, you can have them repossess the car and your obligation will be renegotiated or eliminated entirely. Since your credit is already poor, then I wouldn't worry about the hit to your credit score. Good luck!
posted by katemcd at 5:59 PM on January 2, 2010

In California you are still liable for a deficiency judgment if the repossesser cannot sell the car for what you owe. They may not want to go after you, but they can and will if the amount is significant. You do not want the added burden of a judgment against you. Negotiate.
posted by Old Geezer at 6:59 PM on January 2, 2010

If you want really good and useful answers, you should tell us how much you owe, how much the car is actually worth, and what kind of repairs it needs.
posted by twblalock at 10:21 PM on January 2, 2010

I should also mention that if you drop the comprehensive coverage on your insurance, and only pay for liability coverage, your premiums will probably be a lot cheaper.
posted by twblalock at 10:23 PM on January 2, 2010

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