Any way to get out of this car lease without trashing my credit?

Factual Questions
1

Ok, to start, I have good credit (760ish mid-score) and I want to keep it that way at all costs.

The situation I’m in is that I owe $23,000 on a car that’s worth maybe $15,500.

You may be wondering how the hell that happened. Well, it’s a bit of a long story. To make it short, I bought a Saturn back in '98 that was a complete and total lemon. Even with the payments at $345 a month, I ended up paying almost as much in repairs over the time I had the car as I did in payments. Basically it ended in me trading it in for around $2,500 when I still owed roughly $9,000 on it. You see where this is going…

In January of this year, my Honda Civic was quickly approaching 100k miles so I decided to trade it in. Again, I was upside down (doubly so because of the cost from the Saturn that they tacked on), but I was making very good money and about to get a promotion so I shopped with reckless abandon (ie, like an idiot.) I ended up leasing (again, like a moron), a 2004 Civic EX, fully loaded.

Well, I got my promotion and, though the money was great, I hated it. I decided to quit working full time and going back to school. Now my girlfriend and I are stuck with this $330 a month car payment or a $23k buyout, which NO ONE is going to pay for that car.

The payment is weighing us down to the point that we’re either going to have to move into (literally) the projects, or try to find a roommate and neither one of us can think of a way to get rid of the car without totally trashing my credit.

Also, a “swap-a-lease” type thing probably won’t work because not many people want to pay $330 a month for a Civic.

2

If the car is worth $15K, and you owe $23K, wouldn’t you be better off getting rid of the car and paying off the difference ($8K) over some reasonable length of time?

3

I’d love to do that. The bank, however, is not so keen on the idea.

4

Can you get a firm commitment from someone to pay $15K for the car, borrow $15K on a short-term loan from a friend or relative, borrow $8K from a bank as an unsecured loan, pay off the lease, sell the car, and pay off the $15K short-term loan?

5

None of my friends or relatives have 15k, but is that step essential? How would I go about getting an unsecured loan and what kind of interest rates do they carry? If it is a short-term, high note rate loan, the payment could be more than the current $330, couldn’t it?

6

Looking at current interest rates (http://www.bankrate.com), you are going to get charged a high rate (13.58%) for an unsecured loan. That works out to a payment of $185/month for a 60-month loan. Home equity loan interest rates are much lower.

Do you have any other sources for getting a low interest rate loan? Such as a 401K account or insurance policy?

You might also try contacting the Consumer Credit Counseling Service (http://www.cccs.net) and ask for their advice.

7

I don’t have any ideas, I’m afraid, but maybe your local consumer credit counseling office could offer some advice and maybe help you work something out with the lender. I would be willing to bet that the bank would like to avoid repossessing a car that’s worth less than the amount of the loan. The other alternative, distasteful as it is, might be to put school on hold for a term and go back to work to get this loan off your neck.

http://www.cccssouthwest.org/index.asp

on the other hand, some consumer credit places are scams themselves:

http://www.fool.com/news/commentary/2003/commentary030415dy.htm
http://www.consumerlaw.org/initiatives/credit_counseling/content/Cconsumerfactscreditcounselin.pdf

8

That leaves me with the problem of needing to find a reliable car for $144/month just to save a dollar.

9

I think the situation may be worse than you think it is.

I don’t know how your lease is structured, but if you owe 23,000 with a 330 month lease payment the principal is not being fully amortized and you will likely have a big bullet to pay at the end.

If you went out today and got a 15,500 car note @ 6% for 5 years, your payment would be approx 299.66 per month. $ 330 / month is not coming close to paying off the 23,000.

A 23,000 note amortized across 5 years @ 6% is 444.65. You aren't paying much more monthly than if you did have a 15,500 car note. I think you need to review your lease agreement in detail.

See this site for a simple mortgage calculator.

If your target is around 150 / month, a typical used car note is 3 years at 11% or so which will get you around $ 4,600 worth of car.

Quite frankly your 330 payment is not bad for a new, reliable 15,500 car, and the timing gives you some flexibility before the note is due. Trying to save $ 180 a month is not possible unless you pay off your old lease for the new car, and get a 70,000 miles + beater which is likely to have it’s own amusing costs associated with it.

You do NOT want to screw your credit up especialy in your situation. It would make your lease decisions seem brilliant by comparison. If you are in tightened circumstances it’s a huge plus to be able to borrow money when you need to. The bottom line is that you have a $ 23,000 debt and a nice new car. I don’t know what your skill set is, but an additional part time job, or a better paying job (even if distasteful), or even a roomate, would make more sense than walking away form the debt.

10

I take it you can’t pay $330. If you could, then the fact your car was worth less than the debt would not be of much consequence. (You have already suffered the paper loss).

You can’t finance your way out of debt.

You will have to default, or cut expenses or increase income sufficient to pay it. Therefore, you and/or your girl friend must find a part time or full time job, quitting school if necessary, to fill the gap, until the balance is paid down to the point the sale of the vechicle allows you to make other arrangements.

That’s the very harsh reality. You seem to fully understood your past sins, now you must pay for them. You certainly don’t need criticism from me or anyone else at this time. You heart goes out to you, but so does my advice which you do need.

11

Well, I only owe about $17,500 on the lease, but that’s if I give the car back. The buyout to keep the car is approximately $23,000.

12

Cisco – absolutely, under no circumstances, do not give up the lease. Aside from hurting your credit, you’ll still owe all that money, plus be without a car to show for it. Say you $23,000, right? The finance company is going to auction that car off and get maybe $12,000 for it. You still have to pay the difference.

Is this a real lease? It’s not one of those GMAC SmartBuys, is it, where it’s not a lease truly, but it’s a purchase disguised as a lease – short term financing with a balloon payment at the end? Unless the lease is for 10 years, I don’t see how your payment is so cheap.

13

There’s no way out. You have too much rolled up debt in the deal, and quite frankly the lease (at this point) is not such a bad deal for you @ $ 330/month for that car. The back end takes the car away, but the imperative right now is financial survival. You need to generate more income by renting a room, or working extra hours. You can go belly up creditwise but that entanglement has a huge price down the line, especially for someone who is relatively young and may need to leverage debt to get ahead professionally or in buying a house.

Also, in looking at the alternative. Lets say your current lease obligation vanished. “Poof” . Your main option in the alternative is to get a semi-beater for $4000-5000 or so which will run you around 170- per month on a three year used car note. You’re only saving around $ 160 a month or around 5 dollars a day in day to day note expenses, and the maintenance costs are likey to be considerably higher.

14

Does anyone have anymore info or opinions in regards to this?

15

It’s not a bank loan. It’s a lease. Your deal is with the lease holding entity

See Getting Out of an Auto Lease

16

If it makes a difference, Wells Fargo, a bank, is the holding company.

17

You can also look here.

Get Out of a Lease - Walk away from your lease!

They want $ 40 for listing your vehicle.

and here - Car Leasing Tips

18

Wife’s a banking attorney. Her clients repossess cars as soon as the payments get behind by the contractually specified interval, period. The fact the bank is “upside down” doesn’t enter into it.

From the bank’s perspective, they’re facing 2 choices: lose the outstanding loan principal ($23K in the OP’s case) and having a car to sell for maybe $12K, or lose the outstanding pricipal and have no car to sell for anything. Clearly Choice #1 is better.

Our experience is for conventional bank loans for car purchases, but I can’t see any reason why a leasing company would view the situation differently. Financially they’re very similar transactions, it just changes who holds the title during the loan term.