How to sell an upside-down car on poor credit?
October 24, 2006 5:00 PM   Subscribe

My worst nightmares were realized when I found myself in exactly this situation last month. Negotiations with the dealer have failed and we are considering repossession, but we would like a second opinion.

Here is where our story starts to differ:

She (girlfriend) went and bought (and financed) a new car behind my back, but she did not trade her current car (also financed) in because she knew she could sell it for more money privately. A month later she's realized that she can't sell the car privately because she has poor credit (resulting from a recent bankruptcy) and can't get a lender to loan her enough money to pay off whatever she doesn't get from the sale (she is severely upside down on her old car, as well as the one she just bought). She is so far upside down on both cars that it would take a colossal idiot to give her anywhere near enough money to pay either of the damn things off.

So now she is stuck financing two cars; a situation she obviously cannot afford. The payment on the old one has already lapsed for one month, so we've got two months to figure out how to get rid of it before plan B (repossession) is forcefully enacted anyway.

(a) The dealer will absolutely not take the new car back.
(b) The dealer has told her that there is no way they will accept the old car as an after-the-fact trade-in because she has too much negative equity--they can't find anyone who will finance the total amount (old + new = over $30k) with credit as bad as hers.
(c) She can't get a personal loan from anybody more reputable than a loan shark that will cover what she owes on the old car, minus what she's asking for it privately.
(d) Insurance fraud is not an option; she does not have gap insurance and it's not really something I want to be party to anyway.

If it matters, the old car is in sellable condition--works fine, with some minor cosmetic damage.

Is there anything she can do to favorably get out of this situation, or is repossession going to be the only option? Furthermore, would having a repossession on her record have any effect on her line of credit for her new car?

I've done my research and I know if we repo she's going to get virtually nothing once it goes to auction, so anything she/I could do to pawn it off, even at below market value, would be better than the alternative.

posted by Ziggy Zaga to Work & Money (7 answers total) 1 user marked this as a favorite
Check your local Craigslist listings in the buy/sell car section. There should be private buyers who flip cars posting. You won't be able to get full price but it should be roughly equal to or better than what was offered at trade-in. Ask around, there's going to be a wide variety of offered prices for the car.
posted by onalark at 5:06 PM on October 24, 2006

You did not mention if she approached her original finance company to see if they would replace her original loan for one for the gap amount. This value is in effect an unsecured loan for them anyway, and if they did this they would at least get this money back eventually. I assume the finance comapany holds the title for the car anyway, and will have to be involved in any sale of the original car. While every other bank has something to lose in this situation, they are the only ones who will gain anything by giving her a loan.
posted by Yorrick at 5:30 PM on October 24, 2006

When you say "repossession," do you mean dropping the new car off at the lot where it was purchased, and making no further payments --- or actually waiting for them to come repo it?

I have heard of people, in this situation, just dropping the car off, and my understanding (this is by no means legal advice, by the way) is that it is a valid option in this circumstance.
posted by jayder at 7:47 PM on October 24, 2006

I wrote "I have heard of people, in this situation, just dropping the car off, and my understanding (this is by no means legal advice, by the way) is that it is a valid option in this circumstance."

Never mind about that. It's probably a bad idea.
posted by jayder at 7:51 PM on October 24, 2006

Is there anything she can do to get out of this situation? Find some extra money. Deliver pizzas at night, sell her jewelry, Ebay anything she owns that isn't absolutely essential. Scrape up enough to make up the gap on the car and then sell it. Stop eating out; live on beans and cornbread. If she owns a house, sell it. If she rents, rent a cheaper place. Pick cans up on the side of the road to recycle. Cancel her cable. Cancel internet service and use library computers. Water is free or cheap, only drink it. Maybe this sounds radical, but your girlfriend has a serious problem with money and apparently one bankruptcy wasn't a big enough wake-up call to get her to change her habits. If she doesn't change her thinking about finances, she'll be in this situation over and over forever.

Then, be sure she gets rid of the right car: the new one. A reliable used car with minor cosmetic damage is more than good enough for someone rebuilding their financial picture.
Long term: she needs Dave Ramsey.
posted by Pater Aletheias at 8:06 PM on October 24, 2006

jayder: that will still count as a reposession, just without the repo man. It's just a "voluntary reposession" and I had to do something similar many years back. My credit went into the toilet because the vehicle was auctioned off for pennies on the dollar and they slapped me with the remaining amount.

Now, some states have a cooling off period, but the OP said that this all started a month ago, so most any cooling off period would have long since expired.

I think that her best option is to sell the old car for as much as she can get, and hopefully have enough from the proceeds & savings to pay off the loan.

Chances are the reposession will not affect the current car deal, as it's already gone through and she was given payments & interest based on her credit report at the time of purchase. (at least that's the situation that I ran into after my voluntary repo.)
posted by drstein at 8:12 PM on October 24, 2006

I can't see any way out that's not going to be detrimental to her credit. You mention 30K between the two cars (!) but what's the actual difference between the old car's current value and the amount owed on it?

If it's less than a few thousand, that should be able to be made up with a weekend/late night job job for a few months?

And I agree with Dr. Stein, the value gap is probably the same on the new car and the used one, and she'll be saving a lot of monthly expense by ditching the new car while it's in new condition, before any "slight cosmetic damage" can happen....the used car has already lost most of its value. She should wait until the old car is paid off before buying another new car, if she has to have a new car. Water under the bridge and all that, I realize.
posted by maxwelton at 10:15 PM on October 24, 2006

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