More and more, people are “underwater” on their auto loans. This means that they owe much more on the loan than the car or truck is worth. In reality, if you buy a new car especially, you’ll be “upside down” the minute you drive the car out of the showroom! That’s because new cars go down in value almost immediately. That’s not to say you shouldn’t finance a car. But, you are better off being smart about it. Most important, even beyond the price, is the interest rate you’ll pay if it is a purchase contract. The interest rate on a large purchase like a car will mean the difference by thousands of dollars, and a big difference in the monthly payment!
Another important thing to remember is that if you trade in a car, avoid trading in a car that you still owe money on. Why? Because, if you trade in the old car that still has a loan, you’ll be paying that debt too! A slick car salesman will tell you not to worry, that the payment will be low, etc. Don’t listen! You’ll be paying for the car for a lot longer! Now, car loans can be for 6 or 7 years!!! And, who knows how long the car will be running well! Apparently, a record number of people are doing just this, trading in a car with a loan! See this article from the Detroit Free Press.
If you are upside down on a car that you no longer can afford, rather than trading it in, or letting it get repossessed, you might have other options, such as surrendering it in a bankruptcy case. Or, having a relative or friend help make the payments, or take them over.
It is most important not to rush and just get a new car. Look at all of your options first! As with most money decisions, take your time and do the math, or, if you don’t like math, ask lots of questions, and get second opinions. You’ll be better off in the long run!
Daniel J. Winter
BankruptcyLawChicago.com
312-789-9999
