I really messed up with this car. My payoff is $30,000, but it is only worth maybe $20k on a good day. My monthly payment is $866 plus $200 for insurance, so basically I am paying rent on a car. I cannot refinance because I am way too upside down.
I have thought about selling it and covering the difference, trading it in and rolling the negative equity into something cheaper, or just throwing in the towel with a voluntary surrender. The problem is that I do not actually know how to do any of these or which is best. It is just advice people have thrown at me. I have also thought about cashing out PTO to knock a small chunk off the principal or borrowing from my 401k, but that feels like setting future me on fire to save present me.
Has anyone here been in this situation and actually found a way out? I just want to stop pouring money into a car shaped black hole.
Interest Rate 20%
75 months
Owe $30k on a car worth about $20k. How do I escape this?
byu/yasskween6 inpersonalfinance
Posted by yasskween6
30 Comments
The answer that costs you the least amount of money is probably to ride the loan out to the end or at least to the point which the value and the outstanding balance get much much closer together.
Are you unable to make the payments?
Just because it is underwater doesn’t mean you have to get rid of it. You are “underwater” pretty much anytime you buy something.
There’s a better option than surrender. But It’s basically the same. Roll over into a lease. And in 3 years it’s gone.
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Your car insurance is $200 a month??
There is no voluntary surrender or repor or whatever, you will need to pay the 10k difference in some form.
I would look at a second job for a year and just suck it up and pay it off. Potential for a loan from 401k, but that has some caveats. Maybe a loan and cashing out PTO would get you there.
I have heard of people rolling negative equity into EV leases as they have some benefits…not recommending that as I know nothing about it, but seems a popular option if the numbers work. r/askcarsales has some car salesmen that can help with numbers if you want info on it.
Sounds like you’ve learned your lesson, which is the main thing.
From someone who is older….we’ve all done similar stuff on our path to learning personal finance. Learning is the key, and then helping others with the lessons you have learned.
The best way out is to continue making the payments until paid off, and from there to never do it again. Once paid off, keep on making the same car payments into a savings account so you can either buy the next one outright, or so you can put down as much as you can.
I’m fairly high income and I have never owned a $30k car, I don’t buy new cars, and I don’t finance cars. I’m about 4 years into my current car, a Mazda with 53k miles in it I paid $14k for. The same month I bought that car I started my next car fund. Thanks to the current high yields I have $16,337 in that HYSA.
Do you owe $30k to buy it outright or did you calculate that you have $30k of monthly payments left? You also don’t list your interest rate and term so that isn’t helpful.
Well the bad news is there aren’t many options. Good news is you seem to have a grasp of what’s possible.
> I cannot refinance because I am way too upside down.
Agree here.
>I have thought about selling it and covering the difference,
Do you have the cash available to do this? If not, this isn’t a real option.
>trading it in and rolling the negative equity into something cheaper
Worst idea yet.
>just throwing in the towel with a voluntary surrender.
It’s technically an option if you’re ok with tanking your credit for several years.
> I have also thought about cashing out PTO to knock a small chunk off the principal
This seems like a highly reasonable idea. Do this one.
> borrowing from my 401k, but that feels like setting future me on fire to save present me.
Good instincts. Terrible idea.
Cash out PTO and pay it down aggressively. Depending on the interest rate and remaining term everything beyond that is case specific, and more information is needed. Do not borrow from your 401k. You’re talking about defaulting anyway, if that’s ok the table the 401k is one of the few things that is well protected.
Voluntary surrender is the worst solution in 99% of cases.
To roll over negative equity, the new loan has to be big enough to compensate. Deoending on credit, a lot of dealers accept 30-50% negative value, meaning that in order to absorb 10k negative your new car would have to be AT LEAST 20k, which would make a 30k loan… which is exactly where you are right now. So rolling negative equity doesn’t help you.
Call the bank to holds your loan and ask what it would look like to sell the car. They should be able to walk you through the process. You’ll either need to pay the 10k or exchange it to a personal loan… and then you’ll still need another car unless you can manage without one.
Realistically, your best bet is taking a couple months and paying down the loan as much as you possibly can, then look for a refinance.
If you can make the payments it might just be the move to keep it. What is the make and model? You could theoretically take a loan out for $10K, and maybe get a lease or cheaper car. Lease would get you into a newer car without having to worry about maintenance and whatnot, but probably wouldn’t be a whole lot cheaper. Maybe $100-$300 cheaper depending on local deals. Used car would save a lot theoretically, but then you take on the lower fuel mileage compared to a newer vehicle as well as the cost of maintenance and repairs.
The best plan in these situations is to increase your income and pay it off as quickly as you can. Get a part time job and use any money earned from that job to pay down the car loan. And once it is paid off, start saving money as a down payment for the next vehicle so you never find yourself in this situation again. Continue to drive this car as long as you can.
When you say you owe $30k, is that your current pay off amount is $30k or all your remaining car payments added up equal about $30k (meaning the $30k includes the future interest you’ll acrue)?
Either way if your interest rate is lower than 5%, in almost all situations it’s probably better to just keep paying it off. If you have a crazy high interest rate like 10%, then you can see if you can refinance or use other money (not your 401k though) to try to pay it down quicker.
I’ve said this to many people and even done it with a friend of mine in person
You can get a personal loan for 16k at maybe 11%. Go to carmax and sell the car, pay the other 10k. Now you’ve got no car loan. Use the remaining 6k to buy a used car. Now you’ve got just the personal loan for 16k, less interest rate, and cheaper car insurance
Does the car fit your needs well? That will decide between “continue making payments” or “come up with $10k and sell”.
What year/make/model is it? If you were to sell, what kind of car would you buy? If the savings are not much, might as well keep what you have.
I dont recommend it if you actually intend on using your credit but I had a 2012 that I owed $14K on. One day I got a nice lump sum check and I just bought a 2018 outright and told the bank to come get the 2012, I’m not paying and I accept whatever happens. This was like 4-5 months ago, and strangely nothing happened to my credit but if it did I dont regret it. Credit can be repaired but I’m not willing to put 14K in a car I know is worth maybe $3K. It’ll be eating me up for the next 10 years and odds are the car wont even last, hell it had issues the same month I got it.
Hope you have GAP just in case… and if you don’t… talk to your insurance…
Man, ur situation sucks. Maybe take a sec to breathe and regroup, you know? For real tho, don’t borrow from ur 401k. Future you will not be happy. Instead, try knocking down that principal bit by bit by putting any extra cash towards it. Last resort, def consider selling the car and dealing with the negative equity. Life’s tough but sometimes you gotta make those hard choices. You’re not alone, lots of peeps have gone down this black hole and survived. Just stay strong, man.
>selling it and covering the difference
This is what you need to do. Pay it down aggressively until you owe less than it’s worth. Then sell. But not with your 401(k)! Don’t punish future retired you because of this problem.
>trading it in and rolling the negative equity into something cheaper
This is a bad idea. You will be even more underwater on your next car.
>just throwing in the towel with a voluntary surrender.
That doesn’t mean that you won’t owe. You will still owe what you agreed to pay. Plus they will tack on repo fees, auction fees, any kind of fee that they can think of. They’ll auction the car and credit you the amount that the car sells for. You will still owe the $10,000 (if they get what you think it is worth… doubtful at an auction) plus all of the aforementioned fees.
I would seriously look into leasing the cheapest electric vehicle you can find before Sept 30. If you can take advantage of the EV tax credit before the program ends on 9/30, it might help chip away at some of that negative equity, and then after 3 years you can walk away. Gotta get out of that 20% interest rate.
I assume your credit is shit tho if you have a 20% interest rate. So I don’t know if any of this is possible.
75 months, 20.49%, would be a 37k loan. If you owe 30k you’re on year 3. The first 2 years suck, you paid a lot of interest and low principal.
But you have 4 years left and most of your payment starts going to principal. So I think hang in there and lesson learned.
So basically, by the end of all this, you would have paid around $60,000+ for a $30,000ish car. If you are relatively early in your loan, it might be worth eating that extra $10000 that you are upside down and finding a cheap used car to drive for a while, and try to pay cash. Cutting your losses will save you that extra $20,000 or so in interest.
It really depends on the numbers what to do. If you are planning on getting another new car, expect that you’ll again be upside-down, and won’t be able to exit that loan easily either, especially at 20% interest. You really won’t be changing the situation if you go this route.
The depreciation is a lot less for most vehicles from 30,000-100,000 miles than it is for the first 30000. Buying used is the better bet to remain able to ditch the vehicle if you need to in the future without a big loss.
How do you see yourself getting out of this?
I don’t understand what you want. I understand that it’s a bad financial situation but if you can afford the payments and the car is in good shape mechanically, why would you need to get rid of it? The only other option is to pay the 10k to bridge the gap on your loan but then you still need a car, which is what makes this whole thing seem pretty pointless. If you need a car and your current car works, tough it out. Otherwise you need $15k to pay off your loan and buy a cheap car. I’m assuming you don’t have that sitting around otherwise you wouldn’t have made this post.
Cash out the PTO, cut all vacations and unnecessary spending, pick up a part time job serving or something for a few months and go ham paying this off as quickly as possible. This should be treated like an emergency because it is
Your interest rate is bonkers. There is an argument for legislation that bans this predatory practice, even though at the end of the day nobody held a gun to your head and forced you to sign. Consider it a lesson and a good opportunity to learn how interest works. You say your payment is 866/mo. First thing you should do is split that into 4 and pay 216.5 each week. That will knock roughly 8 months off of a 7 year loan simply from more of your payment hitting the principal and less interest accruing between payments. If you really want to get crazy, even the tiniest amount of overpayment directly to the principal will reduce your total payments drastically. If you could find a way to swing 240/week or even 225/week (roughly the cost of 1 fast food dinner, or 1 bar drink per week extra, respectively) and you will be talking about years of payments erased towards the end of your loan’s term.
If you can sell the car and get a loan to cover the difference…that’s your best bet. However you need a vehicle too.
**WHATEVER YOU DO….ABSOLUTELY DO NOT ROLL THIS BALANCE INTO A NEW LOAN FOR A NEW VEHICLE**.
roll negative equity into a lease for a new EV with all of the incentives. before they expire. If it works out right, you can reset your debt at the end of the lease. It will cost you less in the long run and that’s what is most important if you can afford the position. Here is a quick video to learn more, but research for yourself. Ideally the best option is to never get into this situation. [https://www.youtube.com/watch?v=JCgkW0VDKW0](https://www.youtube.com/watch?v=JCgkW0VDKW0)
20% is crazy high for a vehicle loan. Why sign up for that?
Your interest rate is stupid high. Pay it off as quickly as possible and keep driving the car. You are here because if 20% interest. Never ever take another car loan above 10. Period.