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Question: I have a 2008 car that I owe $18,000 on and the payments are killing me.  I want to sell it and buy a cheaper car that I can afford.  The problem is that the car is only worth $15,000 and I don't have the three grand for the difference.  I can buy another car and roll the difference into the new loan but my payments are about the same. I've even thought of just stopping my payments and saving the money and buying a really cheap car with the cash.  What do I do?

Answer: The problem you have is that you are at a really bad point to sell your car.  Two years into ownership is one of the worst times if you are carrying a loan because you've gone through the steepest part of depreciation while your loan balance has not declined as much.  The problems with buying another car are numerous.  First, you have to pay a number of fees: sales taxes and registration fees for instance.  Second, the transaction costs time and effort which distracts you from the rest of your life.  With regard to you skipping your car payments, I'd advise against it since you are going to trash your credit scores for a relatively small amount (the $3,000 that you would need to bring to the table to get rid of it).  Whether you like it or not, you may have to hold on to the car for another 6 months until your loan balance declines enough to meet up with your car value.  This happens with every loan (since at some point you own it outright and the value is going to be greater than zero).  Once you are able to unload the car, buy a solid reliable model that will only cost you a few thousand dollars.

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KC Lowlife  - contact your lender |2010-01-25 11:03:42 Contact your lender and tell them what's up. Then tell them that you want to pursue a short sale on the car. I did that when I was upside down on a car. The lender would not tell me what they would accept to close the loan. So I posted up the car on craigslist and explained the situation. A guy contacted me and liked the car. I had him contact the lender directly and they worked out a price that was agreeable. WARNING: I had to accept the difference between what he paid and what I owed as income at the end of the year. That said, it was still worth it in my situation as the insurance on a good care was killing me too. Then I bought a crap car with cheap insurance and started rebuilding my life. I will mention though that they once threatened me with repossession and I made it clear as day that they'd never get the car from me. I told them I'd park it in a field, at a friends, etc before I let it get repossesed. I told them that Missouri was a state where you could kill a person as they entered your home if you felt threatened. So I backed the lender up against the wall in some ways. Do whatever is appropriate for your situation, but never threaten anyone as that is illegal. Reply 1 0

Omiewon  - Good Life Experience Advice |2010-01-25 21:34:26 KC thanks for the extensive personal insight into the whole process. Must have been a hairy time, but looks like you played a strong hand and won. What KC means by income is that the IRS considers any debt elimination as income to you. So in the case of a car if you owed the $18K and you sold it for $14K, the $4K would be considered income to you and you would pay taxes on it. Typically a lender will give you a 1099 for it. A bit of adding insult to injury. With the housing market, there were so many short sales for such a huge amount that the Feds passed a law eliminating it. Otherwise there would have been too much of a penalty to do short sales as opposed to foreclosures. You don't get as lucky with autos. Thanks again KC. Reply 0 0

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