How to deal with a car loan you can’t pay
Dear Driving for Dollars,
My husband and I own a 2001 Ford F-250 that is paid off, that’s worth around $10,000. We have a 2007 Ford Mustang that we owe $19,000 on and the payments are really making us struggle. The Mustang is worth only $12,000 or less. Should we sell the F-250 and pay the negative equity on the Mustang and then trade it in? Or should we take the $10,000 and buy another $3,000 vehicle, then pay down the Mustang and try to refinance it? So confused. Please help.
Due to low resale values, it can be pretty easy to get upside down in your car loan. Even though you are struggling with the monthly payment on your Mustang, taking a $7,000 hit by trading it is probably not the best idea. Your first step is to contact your current lender and see if you can get the interest rate reduced on the loan. If that isn’t possible, then you might try refinancing with another lender.
Keep in mind that, ideally, you don’t want to lengthen the term of your car loan. Otherwise you’ll end up paying more in interest over the life of the loan even though your payments will be lower.
If none of these options pan out and you really feel you must sell the Mustang at a loss, try to sell it yourself since you’ll likely get more for it than if you traded it in. Spend a weekend detailing the car nicely and put all the repair and maintenance records in order. This will help you sell the car more quickly and likely boost its perceived value a bit. If you try to sell your F-250, do this for it as well and it’s hoped that your losses won’t be quite as large as if you’d traded in the cars at your local dealer.
If you have a car question, e-mail it to us at Driving for Dollars.