When You Can No Longer Afford Your Car Payments

by Reader Contributors

If you no longer can afford your car payments, don’t panic! You may have some options for lowering your payments or getting into a cheaper ride.

Dear Dollar Stretcher,
What happens when your car payment is just too high? Is it possible to trade in a car you have only had for six months for a cheaper model?

My husband bought a truck we couldn’t afford, and now I am unemployed. The car payment almost equals our house payment, and I don’t know what to do. We can’t just give the truck back without adversely affecting our credit rating. Any suggestions?
Judy G.

Options When You Can No Longer Afford Your Car Payments

We have published a few articles on this topic (see Upside Down Auto Loans: When You Owe Far More Than Your Car Is Worth and Getting Out from Under an Upside Down, Underwater Car Loan), but we also wanted to hear from any of our readers who themselves found a successful solution to this too-common problem.

A few readers who responded are professionals in the auto industry who have worked with others in this same situation.

See if any of their stories can help you find an option for dealing with your unaffordable car payments.

Is There Equity?

As a former car salesman and manager, I have found this problem to be not entirely uncommon.

As a starting point, I suggest that you go online to Kelly Blue Book to find out the trade-in value of your too big truck. Afterwards, march back to the dealer and pick out a cheaper truck.

Unless you financed more money than the truck is worth, your payments should go down. Unfortunately, if you bought the truck with little or nothing down, you might owe more on the truck than it is currently worth because of depreciation and the financing of taxes. If you owe a lot more on the truck than it’s worth, then you could wind up driving a cheaper truck for the same payment.

The whole key to the equation is how much equity there is in the big truck.
Len

Refinance

I found myself in a similar situation. My husband had leased a new truck and then was laid-off a few months later. My paycheck couldn’t cover the household bills and the truck payment, so we shopped around for a buyer.

Considering the age (six months old) and the design (club cab, mid-size) of the truck, we found a dealership that was happy to buy it from us. I called up the bank and got the pay-off figure for the loan. The difference between the money the dealer was offering ($500 under current book) and the amount of the payoff was $3,000. I used our other, older car, which was paid off, as collateral for a personal loan.

I got the personal loan through my company’s credit union, so I got a good interest rate, longer loan term (three years) and I agreed to autopay. That gave them a comfort level about getting paid (therefore the better interest rate) and I didn’t have to deal with sending in a monthly payment.

The only people that weren’t happy about the arrangement was the bank that I had been paying the lease payments to. You see, by paying off the full balance on the truck, they didn’t make as much money on the lease as they would have if it had gone on for the original length of the lease. Also, most people don’t keep vehicles that they lease, so the bank cashes in on the equity left in the vehicle after the lease is paid off.

But what I did was completely legal. My lease agreement didn’t have an early payoff penalty clause, so the bank couldn’t even get me with that. While it wasn’t an experience I would want to repeat, at least I was able to get out of the lease and not hurt my credit.
Fay Y.

Sell It Yourself

The best way to get out of a vehicle is to do some research to see what similar vehicles are selling for.

Then place an ad to sell it yourself.

Get your payoff from your lender so that you know where you need to price your vehicle without taking too big of a loss. It’s a little more work, but will net you thousands compared to trading it in. I know, I sell cars for a living.
MK

Talk to Your Lender

Try and talk to whoever you owe for the payments. Explain the situation to them. Ask them to lower your interest rate or extend your contract time and make your payments lower. They will balk, but explain to them that they’ll get more money from you if you pay this off than if they have to come and repossess it and then resell it as a used truck!

Money talks to these people. It’s cheaper for them to work with you then file and foreclose or repossess and sell the truck again as used at a lower price. Always try and work with the original loan people first. They are reasonable people who will appreciate your honesty in coming forward right away and you’re wanting to work it out.
Donna M.

A Couple of Options

There are a few things you can pursue when your in over your head with a car payment.

• Refinance your loan with a credit union or another bank. Credit Unions traditionally have lower rates.
• Let repossession take place. Although it affects your credit rating, it is not the end of the world. I know people who have gotten a used car the week after the repo man comes. Just read the terms of the loan before taking this drastic step.
• Some dealers will take the truck back on a trade and tack the difference of the loan balance on to loan for new vehicle.

C.

Payment Insurance?

You say you are unemployed now? Have you checked your contract? You may be paying for insurance that protects you incase of illness, unemployment, death. Dealers like to sneak these policies in because they make big bucks on them. If this is the case, you can get your payments made if you have been laid off, canned, or illness made you stop working.
Sue H.

Related:

• Upside Down Auto Loans: When You Owe Far More Than Your Car Is Worth
• Can I Save Using a 401k Loan To Buy a Car?
• When You’re Unemployed and Getting Behind on Bills

Reviewed April 2023