07 Jan Think Twice About Taking On A Car Loan
Part of the American Dream apparently involves a new car in the garage. Back in the day, this wasn’t a problem for many because new automobiles were somewhat affordable. Nowadays, however, a new car’s sticker can induce a mild coronary. Rather than look to the used car market, however, American consumers look to easy financing.
Arizona bankruptcy lawyer Michael Anderson, in his blog, notes that car payments can wreck your personal financial situation and lead to bankruptcy. I don’t disagree one bit.
Some time ago I had the pleasure of meeting a mother and daughter, both of whom required my representation in Chapter 7 bankruptcy cases. Sweet people, very nice and kind. The problem was that the mother had co-signed for the daughter’s car loan right before the daughter lost her job. So the car loan goes into default, the daughter falls behind and drags down the mother with her.
The real issue, however, was that the daughter had bought into the idea of the new car as the brass ring. She couldn’t afford the car, had terrible credit, and qualified for only a very high interest rate. This pushed up her car payments, which made it more likely that she would default at the smallest financial hiccup. She needed her mother to co-sign, which ensured that she would take her mom down if she went into default with the lender.
How long did it take her to fall behind? One month after she lost her job.
Why? Because she was paying $700 per month for a Jeep Cherokee.
And she had been making all f $35,000 a year when she took out the loan.
So why did she do it? Because she bought the line that she needed to have a new car because a used one would not be as reliable. She overspent, and ended up in my office for a Chapter 7 bankruptcy.
Don’t think it could happen to you, that your car payment will never go past due? Just consider this – if you lose your job tomorrow and don’t qualify for unemployment compensation, how long will you be able to pay the rent? How long can you make the money last? And when the well runs dry, what’s going to fall by the side of the road – the rent or that car you’re financing?
Do yourself a favor and get an inexpensive used car. Spend $4,000, put $1,000 worth of work into it as it needs to get done, and you’ll have a $5,000 car that runs fine – without the monthly bill.
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