Upside Down Car Loan

[OhioFiler]

I have a newer car with 20,000 miles on it we were planning to keep. I spoke with a car dealer on Saturday to find out what the car is worth. On a trade-in basis I'm almost $10,000 upside down.

The car is only 8 months old (I drive a lot for my job)and a reliable car(Honda).

Given the negative equity in the car does it make more sense to:

A) Keep it because we like it
B) Let it go in BK and finance a used car post-discharge
C) Try to get finance company to cram down the loan
D) Other ideas?

I appreciate all advice and suggestions!

[Stilltheone]

As someone who has an upside car loan and wants to get out of it, I say get rid of it and start fresh after bankruptcy.

When I filed, we had a 2003 Cadillac Escalade. Owed $21K, worth $24K at the time of filing.

SUV market tanked and now it's worth $8K if I'm lucky...I still owe $17,500.

I vote for getting rid of it and starting over.

Good luck to you!

[OhioFiler]

As someone who has an upside car loan and wants to get out of it, I say get rid of it and start fresh after bankruptcy.

When I filed, we had a 2003 Cadillac Escalade. Owed $21K, worth $24K at the time of filing.

SUV market tanked and now it's worth $8K if I'm lucky...I still owe $17,500.

I vote for getting rid of it and starting over.

Good luck to you!

Ouch! I didn't realize the bottom fell out that far on SUV's.

I bought a hybrid because gas prices were so high. Now, at 1/2 what the price of gas was when I bought it, hybrids aren't as in demand.


I appreciate your hard earned wisdom.

[Trixie007]

This really depends on what your payment is (is it reasonable, can you afford it), what interest rate you are paying, and how long you intend to keep the vehicle. You can't do a cram down since the vehicle is so new. If your rate/payments are reasonable, and you plan to drive it until it dies (this is the case for my car) then that's one thing. Maybe calculate a "new car" at the higher rate you would pay after discharge, and see how much different your payment might be. That should give you your answer.

[keepmine]

Since the car is newer I'd assume you have warranty left. If so, I'd explore the 722 redemtion option and see if the numbers could work.

[HHM]

This is more of a numbers game, we need to know

Current monthly payment
How many months left on the loan
Interest rate.

Cars are depreciating assets, so if you finance a car, it is really difficult to not be break even or negative; unless you put a hefty down payment. So the issue isn't really whether you are negative or not, it is the total cost of deal that needs to be explored.
If you have a "good" loan (i.e. low interest rate, reasonable term), a redemption loan may not save you money in the long run because the interest rate is so high.

[OhioFiler]

This is more of a numbers game, we need to know

Current monthly payment
How many months left on the loan
Interest rate.

Cars are depreciating assets, so if you finance a car, it is really difficult to not be break even or negative; unless you put a hefty down payment. So the issue isn't really whether you are negative or not, it is the total cost of deal that needs to be explored.
If you have a "good" loan (i.e. low interest rate, reasonable term), a redemption loan may not save you money in the long run because the interest rate is so high.

The balance on the note is approximately $23,000. I have 60 more payments of $457 at an interest rate around 8.5%. The KBB on the car is $18,500-$21,000 private party sale.

My concern about the negative equity side is really that the car is only worth $14,000 as a trade-in. $9,000 upside down seems like a lot to me but I'm not sure how that will play out post discharge.

I'll have to play with various loan scenarios and see what is best. Is a car loan post-bankruptcy typically in the high teens interest rate-wise? Should I expect our insurer to jack up the rates because of the BK?

[HHM]

Oh yeah, one other thing, what percent of your gross monthly income is your car payment?

Your in a tough one, I don't think the BK court will give you a beneficial valuation, meaning, since it is newer, the value will come in on the higher end of the range. Plus, the interest rates on redemption are north 20%. Thus, I don't think a redemption loan would make financial sense because the number of payments you have left and the likely high valuation you will get from the court will make a redemption loan more expensive in the long run than your current situation.

If the car payment is 10% or less of your gross monthly income, then I would simply hold on to the car. If the car payment is more than 10%, I would surrender the car in the BK and get something cheaper.

[SubPrimeME]

The balance on the note is approximately $23,000. I have 60 more payments of $457 at an interest rate around 8.5%. The KBB on the car is $18,500-$21,000 private party sale.

My concern about the negative equity side is really that the car is only worth $14,000 as a trade-in. $9,000 upside down seems like a lot to me but I'm not sure how that will play out post discharge.

I'll have to play with various loan scenarios and see what is best. Is a car loan post-bankruptcy typically in the high teens interest rate-wise? Should I expect our insurer to jack up the rates because of the BK?

You sound exaclty like me! For me letting the car go was the best decision I have made in a long time. Start fresh, you owe it to yourself! Get something cheap, and maybe in 3-4 years after you have saved up, buy a better car, but buy it with cash! I understand it's difficult to let nice things go, but really, a car DOES nothing but depreciate.