Owe More Than Your Car is Worth?

         Negative equity, owing more on what you are buying than it is worth, has skyrocketed on homes, thanks to declining real estate values on top of the bad loans extended by greedy lenders.  This contributes greatly to the sub-prime mortgage crisis.

The same thing is happening with vehicles.  Same cause, lender greed.

The L. A. Times reports on negative car equity.     That salesman wants to put you into the most expensive vehicle possible, more commission on their end.

You want the bigger, faster, more expensive vehicle.   Almost anyone would.

Enter the greedy lender, with, up to eight year vehicle loans.  Does not make sense when most consumers sell or trade in every two or three years.

As always, get the facts of your real financial condition.  Check the value of your vehicle, how much are they going for on ebay, et cetera.

How much do you owe?  Can you still afford the monthly payment?

Why pay $45,000 for a $15,000 vehicle?

I have seen cases with a loan rolled over like this two or three times, building up to $40,000 of negative equity.

That is, a vehicle worth $15,000 after two years, but a $45,000 balance owing, thanks to earlier trade-ins that were underwater.

Chapter 7 bankruptcy offers the chance to walk away from this kind of loan, letting the lender “eat steel.”

Or to redeem, by paying the fair market value, $15,000 in the example above, to keep it.  There are companies that finance this, knowing you are in bankruptcy.  High interest rates, but the chance to knock $30,000 off the loan balance, and lower the monthly payment, may make it worthwhile.

Chapter 13 bankruptcy offers different alternatives, depending on, how many days since you bought the vehicle.

You may be able to effectively redeem with monthly payments in a Chapter 13.

Consult an expert before you make a decision.