My ex-daughter-in-law had her car break down and didn’t have much time to get a new one. She ended up with a 2000 Kia Sportage which I think now was really overpriced and her payments are too high (I as usual was not consulted about this until the deed was done, but now I’m supposed to come up with a solution). Anyway, now she has a friend who will sell her a used Honda Civic and she can make payments to them. She thought she could just return the Kia to the dealer, but I told her it’s the lender she has to deal with. She says she owes about $13,000, but Kelly Blue Book says that it’s only worth about $8,500 in excellent condition. So, selling it is out because then she’ll still owe the balance. What will happen if they repo it when it’s not worth what is due? She is a single mother working in a factory and raising a child. My son gives her already $700/mo and can’t afford any more. I just wish she had had one of us help her with getting the car, but too late. Her brother told her her credit will be ruined for a few years and I’m afraid also her insurance will go up because I read they check your credit report now. Will the lender just charge off the balance?
The bank will say she owe’s the $4,500 difference (probably more like $6000 as they won’t give full credit for bluebook), plus probably another $1,500 odd in fees and shit.
This will be reported to her credit, and there’s a slight chance she’ll be sued. Chapter 7 might be an out.
The bank probably won’t do anything to renegotiate except POSSIBLY lengthen the loan term, unless it’s already a long term. If the APR is higher than the customer’s credit warrants, you could threaten to re-fi with someone else, and they might write you a new loan with a lower APR.
Of course if your credit has gone downhill, then none of this will likely work.
I know someone who did a “voluntary repo” on their car. What they did was call up the bank and said they couldn’t make the payments any more, and peacefully handed over the car. I think they owed about what the car was worth, so I’m not sure how the finances worked out. I am pretty sure it has a rather negative effect on your credit rating, though.
It hurts your credit just as bad as an involuntary repo. But, you don’t have to pay the bank to pay a repo man, which I think costs around $350/car, on average.
The damage is great whether you choose voluntary or involuntary repossession. There is less stigma attached to a voluntary, however, and the bank may be more forgiving in the future. Regardless of which your exDIL decides, it is best she talk it over with the bank (lender) so each side is aware of where the other is coming from.
I am unsure of the “fee” Jonathan Woodall speaks of. My father was paid by the repo business, who in turn was paid by the bank after the vehicle was returned.
As far as I can remember, Joe Public doesn’t pay the repo man (it may vary by state, so don’t quote me on this).
The only things I’ve gotten from people we were repo-ing were 1) flashed, 2) chased by dogs, 3)shot at… But there you go. This was 15 odd years ago in Southern Oregon.
Sounds like the loss of good credit for a few years might be a good thing.
Also, if you go to the bank about this, I would be very pointed about their lending practices - it is my opinion that the bank bears some responsiblity for lending so much more money than the car was worth. (they got access to NADA too)
I did a voluntary repo about ten years ago. The vehicle was sold at auction, and the difference between the auction price and the amount owed on the loan was almost $4,000. There was no way I could pay it, so the the lender charged it off, but then did me the favor of filing a 1099 with the IRS, calling the charge off “income” that was paid to me. The IRS came after me for taxes on the amount that I owed the lender, and eventually withheld my tax refunds until it was paid off.
Which I took to mean the person being repo’d having to pay the repoman directly. My fault apparently. Of course there will be fees added on by the bank to cover the loss and admin fees for having to recover a vehicle.
As for the comment about “leaving JW alone”, hows about you taking a chill pill? There was no vehemence in any of my comments to anyone.
That really sucks, Fear Itself. Your bank sounds like a bunch of tossers with little more to do than make mischief for people.
I’m afraid also her insurance will go up because I read they check your credit report now Check with your insurance company on this. I know that a lot of Ins Companies buy into the data that correlates poor credit with increased risk of accidents (I have no idea WHY this is but the data is there). When I’ve seen this criterion used it has been for underwriting NEW business, not existing business, meaning I think your kid is safe. Depends on the company you are with and the state you live in though.
If her credit is not totally hosed she may be able to refinance the car–being as upside down as she is though this may not be an option.
I’d echo what County says: Poor/Damaged credit can slow you down and force you to rethink what it is that you need and thereby teach better consuming habits.
If y’all are REALLY brave you can try the following: Trade the Kia in for the purchase of a new (2003) Daewoo. Daewoo went T/U in 2003 and the market value of the cars went from $13k to$6k. Dealers are practically dumping the cars and at this point would probably accept ridiculous offers. Now, you can’t get body panels for Daewoos, so don’t have a wreck, but you can get a new car for next to nothing.
So now your daughter has a Daewoo and a $14,000 loan (because the desparate dealer over financed the car in order to get the Kia paid off. Get GAP insurance on the loan! in case something happens to the new car.
Or let the bank come for the Kia and save the car payments. When the car gets repo’d use the saved payments to buy a reliable used car and deal with the unsecured portion of the car debt.
Well, you’ve pretty much gotten the factual answers you were looking for, so now I’d like to add a comment. I could very well be wrong (it’s happened before:)). But this statement makes it sound like your DIL is used to having you “rescue” her from bad decisions. If this is true, you are not doing her any favors by coming to her aid. Most people don’t grow up until they are forced to sink or swim, so to speak. Sounds to me like it may be time to tell her, “I’m sorry, dear, but I don’t have any answers for you. You’ll just have to work this one out on your own”, and let her be a grown up and deal with it.
I don’t say these things with any intended harshness. But I have a friend who is a couple of years older than me (she’s in her mid-40’s). She’s never had a job, she lives in a house her father owns. She lives on child support, food stamps, her mother’s Soc. Sec. checks, and she never pays any bills. As soon as anything gets cut off, her father will pay it, because he won’t see his grandchildren living in a home without electric/gas/cable. You DIL’s situation doesn’t sound this extreme (she does have a job), but I have seen how ugly things can get when people are constantly saved from themselves by the people who care about them.
If this means she can’t afford it, then she’s in a pickle, and there’s no nice way out.
However, I’ve seen people ruin their credit after they realize they got a bad deal, because they obsess on the “better deal” and what they’d do with that extra money each month. Those of us who are a little more prudent up front might assume she’s genuinely unable ot afford the payments the bank felt she could make, because that’s the only way we would be in this predicament, but that doesn’t sound like that’s how she thinks.
Does she really need to do anything at all? If she can afford the payments (the bank thought she could) she should probably bite the bullet and live with her over-priced sub-optimal mistake for a few years. I’m sure that this is “unacceptable” to her, and she may paint (and believe) a tale of woe to get out of her ill informed or impulsive purchase. I’m sure living with it is painful emotionally, if nothing else. She may find the idea intolerable if the reality isn’t
You asked the $64,000 question: How do you get in these situations. Yeah, she’s the mother of your grandkids, but frankly no amount of outside help can bail out a person who makes big decisions because ‘they can’t be bothered’ (this may not apply to you DIL, but I know a lot of caring decent people who fit into this category) I’ve seen trust fund babies burn through millions before they learned to exercise the kind of prudence most of us take for granted. They’re usually happier once they learn that painful lesson.
What KP said:
"Does she really need to do anything at all? If she can afford the payments (the bank thought she could) she should probably bite the bullet and live with her over-priced sub-optimal mistake for a few years. "
If she can make the payments and live with her mistake that will probably be her best way out. At last the Kias come with a long warranty so repair costs should not be a factor.
Some dealers will let you trade in a car with ‘negative equity’ and add the balance to the new loan but she is so far in the hole this will proably not be an option or helpfull.
If the car is repoed it will be sold at auction and probably get much less than it could through a private sale, so the spread will probably be even greater than your origonal estimate.
If she really can’t afford the payments then maybe bankruptcy is an option, but the bank thought she could make the payments when they made the loan. If she thinks bankruptcy is really a possibility she should (of course) consult a lawer.
Here, in the Bronx, you would just park it under the El, and tomorrow, you would be the proud owner of a skeleton sitting on four cinder blocks. Then, pick up the phone and call your insurance agent. Problem solved.
Well, not really. If the car were totalled, the insurance company would reimburse your dauther-in-law for its book value, more or less, and if she owes, she’d still be liable for the difference.
I’m thinking what others are thinking… why is she wanting to get rid of the Kia? Is she unable to afford the payments? Or just having a bad case of buyers remorse?
If she’s with a large finance company, and the vehicle is picked up, it’ll most likely be sold at auction. Right now, due to the way the automotive market is, used cars values are very low, and as a result, they’re not going for very much at these auctions.
If the vehicles NADA retail is $8500 in excellent condition, the car may go for $3000-$5000 at an dealer auction. And that’s being optimistic. The remaining balance will be charged off, and they may do whatever is legal in your state to recover their losses.
A lot of people end up in this situation (overpaying for cars at dealerships) simply because they do not do any homework before they go in. It’s insane, really… it’s the 2nd largest purchase people make…and most people do more research when buying their groceries.
If she can afford the payments, then she should suck it up and keep paying. (Or try another option, like refinancing) If she turns the car in that’s 7 years on her credit, file bankruptcy and that’s 7-10 years… which could be a very long time, especially if she ever plans on buying a home.
