A young friend of mine bought a car and is now way in over his head with the payment and insurance. Somebody told him to just turn the car in and tell them he can’t make the payments.
What would happen at that point? Would they come after him for the full amount owed?
Thanks in advance.
at best it’d be considered a re-possession with him defaulting on the loan. Plus, he would still owe the lender the difference between the outstanding balance and how much the lender gets for selling the car. if he just recently bought the car and didn’t make a significant down payment, he may still owe them thousands.
IOW, his credit will be fucked for a while.
The Somebody saying turn the car in might be thinking that it would go back to the dealer, who could re-sell it. The dealer no longer has any connection to the car. Your friend owes the bank money for the loan he signed. The bank is not in the car sales business.
The car is now a used car* and is worth much less than when he bought it. In addition, it’s going to cost the bank money to repossess and sell the car. Even if they don’t have to send someone out to collect it, there’s still paperwork and fees involved with the repossession. Since they’re not in the car sales business, they won’t get a good price for it. They are not going to be happy and if they can, they’ll add that cost to the amount that they are owed.
Your friend may end up in collections and will have a hard enough hit to his credit to prevent him from buying another car, or anything he’d have to get a loan for, for (I believe) seven years. If he’s going to be without a car anyway, he may want to try parking it in the back yard or driveway. The cost of registration will be nominal and he can probably skip the insurance. When he pays off the loan, or gets a promotion, he’ll be ablt to afford the insurance.
Short version: there is no “turn in car” there is only default on loan. I haven’t heard of any banks negotiating short sales for cars. Maybe someone else has.
Your friend’s first move should be finding out his car’s current worth and comparing it to his loan balance. If he’s not under water, he can sell the car and pay off the balance. If he’s under water, the bank calls the shots. They’re the only ones who can tell you what they’ll do.
*Assuming he bought it new. If he bought it used, it’s an older used car.
The lender will require him to carry insurance on it… it is really their car.
Most loans will have a provision that if the borrower lets their insurance lapse, the lender may purchase an insurance policy on the borrower’s behalf and add the cost to the loan. And the lender will typically purchase insurance from the company that provides them with the largest incentive, rather than the lowest price.
But unless we are talking about a lease rather than a loan, no the car really does not belong to the lender. It belongs to the borrower. The lender only has a security interest in the car.
If he turns in the car, they will take it to an auction, where it will sell. Whatever it sells for, will be subtracted from the balance he owes. Then the costs of repossessing, and transporting the car to the auction will be subtracted from the sale price. If the sale price, less the costs, is not sufficient to cover the balance owed, then your friend will be on the hook for the outstanding balance.
He’s better off trying to refinance the car or sell it outright if he can.
How long ago did he buy the car (you said buy, I’m assuming that’s what you meant, not lease)? If it was more than, say, a year ago the first option I’d explore is getting a refi on the loan. Go to some banks and see if he can get a better deal with either a lower interest rate or a longer term. Adding on another year may help out.
Another option is to figure out how far upside down he is and see if he can sell it back to a/the dealer.
Yet another option, and I don’t like this one, is to refi his house (if he has one) and roll it into that one by taking some cash out. The reason I don’t like that is because right now if he defaults on the car loan, they’ll take his car, if he secures the car to his house and makes his house payments higher and ends up defaulting on that, he could lose his house. That’s the same reason I always advise people to never, ever, ever roll their credit card debt into their house when their doing a refi and the lender says “I see you owe such and such credit card $3000, do you want me to take $3000 out when we do this and you can pay them off”? Now you’re paying that debt off over 30 years and securing it to your house.
But we need more details. Do you know when he got the car, what he owes on it, what the buy out is, what the KBB value is, what his payments are, how much longer he has on it? Any of these things will be helpful, even necessary in coming up with ideas that are anything other than just speculation.
As others said you can’t just ‘turn the car in’ (in most cases). It doesn’t belong to the dealer, it belongs to the lein holder. At worst it’ll end up getting ticketed and towed off their lot and sitting in an impound lot, at best, very best, they’ll help out. But what would probably happen is that the loan is through the dealer/manf. and the dealer would let them know and they’d repo it sooner rather than later.
Barring more details, I’d start by seeing if I could renegotiate the loan. Even calling the current bank and seeing if I could add another year to the payments. That might be enough to knock $50 a month off.
But, like I said, if you can get more details, it would be really helpful.
ETA, he should check the website where the payments are made, I’ll bet there’s a link or a line that says “Need help making your payments, call us at…”. Maybe start there.
Would he be able to find a private buyer and sell the car, it’s a used car but if he can find somebody that will pay almost full price of it’s value, he could pay the difference and get out of the loan. I think sometimes you can also have someone take over the payments but I’m not really sure how that works. If your friend could go to say a local credit union and refinance the loan for a lower interest rate like someone else said a lot of times you can skip a month or two of payments, maybe that would let him catch his breath financially for a while.
Add another “You can’t turn it in and walk away”.
If he can’t re-fi, he will need to pay off the loan somehow.
If he has time, a private sale will generate much more than the repo/aution/lender expenses routine will.
If he still can’t pay it off, there is going to be a hit on his credit.
If nothing else, find out who the lender is and contact them and explain that the current payments are untenable - they don’t want the damned car (any more than they want the houses they have foreclosed) and may/likely will try to find a solution whereby he keeps the car and they (eventually) get paid.
If the car “encumbered” to the finance company they will agree to the sale, both parties visit the financier who takes the buyers money and allows the transfer, the seller will still be up for the difference but can at least try and get a good price.
Yes my Wife and I actually did this recently, my car is paid off but she she bought a new car even though she already had another car she still owed money on. We found someone willing to pay $6400 cash for the car that she wanted to get rid of and we owed $6800 left on the vehicle so we came up with the remaining $400 and sold the car to them and got the bank to release their lein or whatever it is and transferred the title to the buyer. We had to make up the difference but got rid of that $6400 debt we would have owed and years of monthly payments and insurance costs for a car we no longer needed. It was a super easy and fast process.
I’m guessing that insurance for a stationary car is much lower than for one that is moving. It would essentially be insurance against theft and vandalism. Although I admit I’ve never looked into it.
I am doubtful to the point of disbelief that the lender would simply believe the owner’s promise not to drive the car. I would not expect any reduced premiums based on a promise like that.
I suspect that the insurance would simply not cover any claim resulting from any situation other than sitting undriven in a reasonably safe location.
Any insurance the lender puts on it is to protect them and their interest in the vehicle. As long as they get their money back, they don’t care what happens to you or the vehicle. And any insurance the lender puts on it is going to be outrageously high as I found out when I co-signed a loan with my idiot brother. I won’t even mention the hell that is going through a repossession.
Generally speaking, you owe the full amount of the loan regardless of what happens to the car. If you fall behind on the payments, they might repossess the car, sell it at an auction, deduct the cost of the repossession, and apply what’s left to your loan balance, and then you still owe the remaining amount. If you don’t pay it, they send a collection agency after you and/or put black marks on your credit report.
Worst case scenario, they could take you to court for breach of contract and get a judgment against you. If that happens, you still owe the money even if you declare bankruptcy. And failure to make the payments could land you in jail for contempt of court. But this is highly unlikely.
I can think of three ways that MIGHT get you out of making the payments.
#1 Declare bankruptcy, surrender the car along with all your other assets, and they’ll apply what little money you have towards your debts (including credit cards, the car loan, everything*), everyone gets pennies on the dollar, and then your credit rating sucks for the next ten years.
#2 Let them take the car, tell them you refuse to pay the rest of the loan, they’ll mark it as a bad debt, and your credit rating will suck for the next seven years.
#3 If you signed up for “gap insurance” when you bough the car, hope and pray that someone crashes into your car and totals it while it’s parked. If that happens, the insurance company will pay off the loan completely and you’re off the hook. If you didn’t sign up for gap insurance, you might be able to add it now, but it will look awfully suspicious if something bad happens to the car the very next day.
Whatever you do, DON’T drive the car to a bad part of town, set fire to it, report it stolen, and hope the insurance company pays it off. They will go after you for fraud and you’ll end up in jail. In 95% of cases where the owner reports a car stolen and it’s found burned beyond recognition, it’s the owner who did it. They know this, and the will hire investigators to prove it.
I suspect that, since the owner is responsible for the premium, the bank would simply insure the car sufficiently that damage would be covered whether the car ended up being driven or not.
Actually, there was a Tax Lien I discharged by Chap 7. I don’t quite understand how this worked, but a CA income (cap gains) tax debt (that the State was going to pursue until paid - even if it came out of my estate) was discharged.
This insurance is known as “Hull Insurance”. Usually cheaper than the Liability insurance required by States.
Don’t know how the insurer would view a car sitting in one place. They kinda assume the owner is going to take reasonable care - parking it outside and letting it rot and be stolen/vandalized might void an ordinary “Auto” policy.