How to fix completely lousy car loans

Not for me.

Family friend in dire straits, which I won't get into for lack of desire to start a patio-pouring contest, she owes crazy amounts and is paying crazy amounts for a lousy car loan.

It's a 2015 Mirage, she owes $10K and her payments are nearly $400/month, and she doesn't know the length of the note, I asked, and hopefully she'll look it up.

Avoid sarcastic and "she should have just..." and "why did she..." style answers.

Her credit score is far better than it was then, she's at 660.

What can she do now to fix this mess? She owes $10K on a $4K car.

I have never been upside down, and I had not realized the majesty of upside-downess which can come from buying a new compact Mitsubishi with awful credit.

Inquire about refinanced auto loans from PenFed.
I have an used car loan from PenFed at 1.99%. Couldn't be happier.
I have no branch near me. My relationship with them has all been either online or on-phone. All was super easy.

I think the last time this came up the hard and ugly answer was: pay your dues, get a second job, keep your nose to the grindstone until you dig your way out of that hole.

Alternative answer is: let it get repoed, buy a beater for cash and live with the consequences on your credit.

What is the rest of the situation--income, other debt, other assets? It is a pretty lousy situation, and she'll be losing money.

I'd start by calling the creditor, if it is a reputable one, and simply stating "I cannot afford the payments and understand that I'm well upside down on this loan; what do you recommend"

They may be willing to put her on a workout/settlement plan. Probably will hurt her credit score, but it might not. Sometimes they'll extend the loan to lower the payment--but note that the balance is still the same, and she would need to keep the car the entire time.

The other option they may present is a voluntary repossession. She basically gives the car back to them, they sell it at auction, and then she has an unsecured loan for the difference. The Bank would walk her through theoptions with that, i.e. what her new payment would be, rates, etc. And she'd be out a car. Auction sales are way lower than private party--sometimes they'll let you sell the car private party and release the lien.

Frankly, depending on other assets/debts/other situations, she may need to seriously look into bankruptcy. Probably not a good decision, but again we don't know enough to pull it off the table entirely.

In reply to KyAllroad:

Getting repoed isn't the end all be all anymore.

Collections agencies have been going after people who have already had the vehicle repossessed to still recover money. That fight could be even worse than this one.

I don't think there is an easy way out. Even if it got totaled or stolen, they're most likely going to want the remainder of that loan.

Maybe put it on craigslist for a crack pipe price, hope someone bites, and pay cash for another car while the loan gets paid off?

I've had plenty of problems and fights with credit companies, but I've never tried to get a new car so I don't have experience getting out from under one.

John Welsh wrote: Inquire about refinanced auto loans from PenFed. I have an used car loan from PenFed at 1.99%. Couldn't be happier. I have no branch near me. My relationship with them has all been either online or on-phone. All was super easy.

The problem with this will be getting a loan big enough to cover the lien. Even though PenFed has relatively lax underwriting standards in terms to vehicle valuation, covering a delta $6k is going to be tough.

mtn wrote:

John Welsh wrote: Inquire about refinanced auto loans from PenFed. I have an used car loan from PenFed at 1.99%. Couldn't be happier. I have no branch near me. My relationship with them has all been either online or on-phone. All was super easy.

The problem with this will be getting a loan big enough to cover the lien. Even though PenFed has relatively lax underwriting standards in terms to vehicle valuation, covering a delta $6k is going to be tough.

But, it is free to call and may be well worth it if the answer comes back favorable.

EDIT: edmunds.com (which is pretty conservative) states a '15 Mirage with no options and 30k miles can dealer retail for as high as $8,300. PenFed says will loan up to 110% of value or $9,130

Not that far off. I'd make a call.

She's dirt poor. Recently divorced, sick Mom & Dad, renting a dirt cheap house, two very young kids, beg and borrow for child support and for babysitting. She works in a grocery store 40 hours per week because she can buy food cheaper for her kids.

She's making good decisions now, but it's a long climb out of this hole.

Longer if your car payment is nearly the same as your rent payment.

Penfed will not lend with a 6xx credit score, period.

This would most likely have to be a personal loan in order to be refinanced, that means high interest rate. It could still work out.

I think step one is to get the loan term. If its $400 and 16 months left on the note, stick it out ... if it $400 for 48 months, then she needs to figure out how to get out of it.

Is a family loan an option??

This is a E36 M3ty situation anyway you look at it, just need to make it less E36 M3ty.

John had your answer. Call around and see who will do better for you. My cousin fixed his credit and was able to refinance at a local bank and cut his payments to a more reasonable rate. Just make sure the current loan doesn't have a large penalty for paying it off early.

With auto loans you need collision insurance which hikes up your monthly outlay of cash. Personal loan, loan consolidation type of thing?

I would bring the check book and any paperwork and set up an appointment with someone at my bank or Credit Union. They're more savvy with this stuff than me, perhaps there's an option that hasn't been mentioned yet.

KyAllroad is right.

Only other alternative is to get a loan from someone/somewhere to cover the $6k difference. Home equity an option?

John Welsh wrote: Inquire about refinanced auto loans from PenFed. I have an used car loan from PenFed at 1.99%. Couldn't be happier.

I don't think you can refinance a $10k loan on a $4k car.

I'll have her call around.

Nobody in her family has any money at all. She's doing far better than her predecessors. I'm actually pretty impressed that she's been able to get this far.

She got a degree in something online, and plans on doing something with that soon, but it's not easy. She's super young and basically just turned on her brain for the first time a few years ago.

If things are that bad and there is nobody to turn to... just save the $400 in her pocket for 3 or 4 months to buy a beater with $ and let the car get repossessed.

ProDarwin wrote: If things are that bad and there is nobody to turn to... just save the $400 in her pocket for 3 or 4 months to buy a beater with $ and let the car get repossessed.

She'll still be on the hook and it will kill her credit score. May or may not be an issue.

ProDarwin wrote: If things are that bad and there is nobody to turn to... just save the $400 in her pocket for 3 or 4 months to buy a beater with $ and let the car get repossessed.

This is one of those catch22 things where if she lets the car get repoed, how does she go to work in order to save the $400 ...

Its a crappy situation to be in.

ProDarwin wrote: If things are that bad and there is nobody to turn to... just save the $400 in her pocket for 3 or 4 months to buy a beater with $ and let the car get repossessed.

Two kids, basically babies, no mechanical skill, a super low priced car, no cash, and a job that will fire her for being late twice = the cars stays.

She rents a house. She has nothing to her name but some kid toys and this $4K Mirage.

If she's able to make the payments, and that will likely continue then it's probably best to just ride it out and use it as a learning experience. That will do the least damage to her credit, and she'll have cheap, reliable transportation throughout the loan term as well as after it's paid off.

There's no real shortcut. If she can do it, her best option is to just keep paying on the existing loan. If she can pay a little extra on it once in a while it'll get right side up quicker. If she really can't make the payments then bankruptcy may be a good option but it won't feel as good in the long run as squeaking by for a few more years will.

Has she tried contacting the lender? Perhaps rather then repo the car the could renegotiate for a longer term at a lower monthly payment. Not ideal but it could buy her some breathing room and they may not be anxious to take back a $4000 car with a $10,000 note.

Slippery wrote:

ProDarwin wrote: If things are that bad and there is nobody to turn to... just save the $400 in her pocket for 3 or 4 months to buy a beater with $ and let the car get repossessed.

This is one of those catch22 things where if she lets the car get repoed, how does she go to work in order to save the $400 ... Its a crappy situation to be in.

Save the $400 first, by skipping payments. It'll take a few months for the car to be repossessed, and in that time she'll have enough for a decent car. It will wreck credit though. Doesn't sound like an option in this case anyway.

I hesitate to ask this next question because a lot of people here think its crazy... How far from work is she? Can she rent a different place closer to work/the store? Then let the car get repossessed, drop insurance, stop paying for gas, etc. My feet are more reliable than any car, and cost a whole E36 M3load less.

depending on how long she has been paying ontime, they may work with her to lower the payments. if as Wally says, they may extend the note with lower payments, but that means she either may be able to pay a little extra ($20 a month goes a long way in a loan) or it just buys her some breathing room

Going to reiterate what I said before and what Wally said too: Call the lender.

Look at it from their point of view: They have someone who is likely going to end up defaulting on the loan. They would then repo the car, and sell it, and have an unsecured loan for someone who will likely then loose their job and end up filing for bankruptcy.

They don't want that either. There is a good chance they'll work with her, if they're reputable.

It's a third party, Mitsubishi-couldn't-deal-with-her-credit-it-was-that-bad lender.

I told her to call, as well as call some other lenders with the information.

She is paying $400 on a monthly payment of $377 or something. She's good at understanding this.

It still strikes me as a jacked up situation where the very least able to afford a new car are the ones who end up buying them because of low buy-in costs and extended payment plans. Where for the vast majority a 4-6K used car would be perfectly fine and serve their needs but saving 5 large is beyond many (most?).

Tuna, I feel for your friend, I really do. It sounds like she's on her way but it's gonna be a looong road.