My husband and I made a bad decision and
financed a car for seven years. I still have two years left
before the loan is paid. The vehicle is only worth about a
third of what I still owe. My current circumstances have caused
me to consider surrendering the vehicle, but I don't know
anything about what the consequences are if I do. At any rate
I am desperate for a lower payment. What should I do?
Welcome to the world of the "upside down" and I don't
mean my favorite pineapple cake! The good news for you and your
husband is that the mistake you made was only about financing
a car. My real concern is not letting the stress of an excessive
car payment spill over and into your marriage and lead you to
consider surrendering the "old man" along with the
Financial lessons can sometimes be the hardest
and some of the most expensive to learn, but you have learned
a valuable one. A car loan of more than 36 or 48 months (particularly
with no down payment) puts you in the position of owing more
(sometimes much more) than the value of the car. Let's see
if we can make this particular lesson as painless as possible.
First, let me explain what happens when you
voluntarily surrender your car for repossession to the dealer
or finance institution that carries your loan. Your worries
do not end at that point, as many people believe. In reality,
they get much worse. The owner of your loan will sell your
car at auction for what is often much less than what it would
bring at retail sale. To add insult to injury, you may get
hit with hefty fees as well. What this means to you is that
you are now responsible for the difference between the amount
you owed on your loan at the time the car was surrendered
plus fees minus the amount for which the car sold at auction.
The amount is often thousands of dollars.
You must then determine how you will pay the
amount still owed on the original loan. What happens is that
you are now paying for a car that you can no longer drive
and will never own. One more thing, your interest rate may
go up if you have to borrow to pay the difference. The car
secured the car loan. Your new loan will not be secured.
An alternative that might yield a lower payment
is to trade your current car in for a much less expensive
one and see what a four-year loan payment looks like. Another
is that if you are a homeowner, you may be able to use the
in your home to pay off the car note and extend your payments.
If you do this however, I suggest you increase payments whenever
you can to avoid paying for this car for the next 10 to 20
You mention your circumstances have changed
and that you are looking for a lower payment. I'm not sure
what those circumstances are, but for you, I believe it would
be a major mistake to surrender the vehicle when you have
My last comment is that although you said, "My
husband and I made a mistake," your question was, "What
should I do?" I strongly suggest that you include him
in any solution and make this an opportunity not only to learn
a financial lesson, but an opportunity to share a struggle
and build a stronger marriage!
The Debt Adviser, Steve Bucci, is the president
of Consumer Credit Counseling Service of Southern New England.
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