Drowning in car-payments — seeking bailout
I owe $16,000 on a leased Yukon that has a stated residual value of $25,000. It probably is worth about $15,000 now after General Motors’ problems. I also have a 2008 Honda Accord that I own. I owe about $31,000 on that car and it is worth only about $18,000.
My monthly car payments total (is) $1,409.
My situation has also changed: My wife lost her job and my job is in jeopardy just like millions of others. I can make ends meet if I didn’t have those car payments, so I’m thinking of turning those cars in. I know they can sue me for any fees or the difference. I don’t want to file bankruptcy but I would make a small payment to the car finance company. I also know my credit will suffer severely. However, putting that money away is more important to me in these trying times.
I have never missed a payment, yet GMAC and Honda Finance are not willing to restructure the deals to give me lower payments. I guess they would rather have the cars back. The government will bail them out, but they won’t help me by refinancing. What can I do?
The differences between purchasing a new car with a conventional loan and leasing a new car are many, but with leasing your options are greatly reduced. About the only way to satisfy a lease is to fulfill its terms.
As with many financing tools recently, leasing has been abused. It is best employed when the car is considered a business expense and/or when it will be driven for a specific number of months or years before being replaced by a new one. But somewhere along the line, leasing became a method to drive a more expensive car than what you could afford if you purchased and financed it.
If you had done that with the Yukon, you might be able to convince the finance company to restructure the loan at a lower interest rate because ultimately you would own it. The leasing company, on the other hand, owns it now and will still own it at the end of the contract. All you’re doing is paying the estimated depreciation for the time period you are driving the vehicle. The estimated depreciation is based on what the company thought the Yukon would be worth at the end of the contracted leasing period, called the estimated residual value.
But if the Yukon’s value is significantly reduced due to the declining economy, restructuring your lease probably would give you an even higher monthly payment because a lower residual value means you have a greater amount of depreciation to pay off during the lease term.
One possible way out would be to determine if the leasing company would sell the Yukon to you. Then see about financing a conventional loan through your bank at a low interest rate.
I am stumped as to the reluctance of the lender for your Honda to refinance. It would make the most sense. You might try getting them to defer one, two or three months of payments to the end of the contract and at least get yourself a little breathing room.