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If you've got a car loan and owe $7k more than you can sell the car for, but you want to get a different car, what are your options?
I've never been through this before.
The owner has had it for almost a year, and is a commuter (1 hour each way).
He is now finding the ergonomics are bad. (Honestly, I think he knew earlier, but just really likes the car and wants it to work, but has started having physical pain from it.)
You (or your "friend") will take a huge beating financially. End of story.
If you've got a car loan and owe $7k more than you can sell the car for, but you want to get a different car, what are your options?
I've never been through this before.
The owner has had it for almost a year, and is a commuter (1 hour each way).
He is now finding the ergonomics are bad. (Honestly, I think he knew earlier, but just really likes the car and wants it to work, but has started having physical pain from it.)
How many more years is the loan for? How did it depreciate so fast? Lots of miles in a year, I guess.
I'm afraid he's stuck. I'd suggest what someone else suggested here -- part time job, nights and weekends, 20 hrs/week at $11/hour at a Home Depot or some such, and within a year presto! he'll have that $7,000.
Also: investigate buses and trains, or get a carpool together. Because an hour each way... damn...
Like others said, it's best to just keep the car for 10 years or until it dies. Then it would make the car "worth it." There are seat improvements you can do for improvement.
So the lesson is that other pay for a car in cash/no loan. OR, if you take out a loan, keep the car for at least 7 years or more, or until it dies.
Some car leases (I've heard advertised in the Dallas area) allow you to roll over your negative equity ($7,000) into a car lease. You can even lease a used car. The payments won't be as cheap as with a straight lease, but at least you can break the cycle of having to put the money you still own into a new car loan & instead of needing a $27,000 car loan on a $20,000 new car, you end up breaking even.
Buying a car is a good idea to do, but why is he changing his mind? That's the issue? He wanted a car, but didn't have the cash. So, instead of saving up and paying cash, he decided to ask the bank to pay for it, and now he has buyer's remorse and doesn't like it. Yeah, but the bank already paid for the car that he wanted. It's not fair for the bank.
Also, this whole aspect of "underwater car" doesn't even make sense. Almost all cars go "underwater." They all depreciate dramatically, especially luxury cars. No matter what car he would have bought, the value would have gone down. The issue here is him changing his mind about it. He still has an obligation to the bank.
It's like if I ask to borrow $6 from you for a burger. Then I buy the burger, don't like it, and then blame you for making me pay you $6. It doesn't make sense. He just needs to pay either way. He should've been more careful about picking the right car.
Whatever is done, i would want to protect my credit rating. If I signed the line promising to pay the loan, it's a point of ethics that my word is good. I expect that many or most new cars are worth less than what's owed as soon as they're driven off the lot.
I agree with you, and appreciate your mention of ethics. I have never defaulted on anything in my life, even when I once went through a difficult time financially. Credit ratings should be kept as high as possible;
they affect one's financial life so much.
I did have a car that paid for itself. An extremely rare Subaru Legacy GT Spec B(Less than 500 made for the year). Drove it for a year and a half and sold it for more than I bought it for. Enough difference to cover gas/maintenance with some leftover too.
Does this example of an a very rare occurrence change the basic idea that a non-business depreciating asset DOESN'T pay for itself? Of course not.
If you've got a car loan and owe $7k more than you can sell the car for, but you want to get a different car, what are your options?
I've never been through this before.
The owner has had it for almost a year, and is a commuter (1 hour each way).
He is now finding the ergonomics are bad. (Honestly, I think he knew earlier, but just really likes the car and wants it to work, but has started having physical pain from it.)
Now I drive only used vehicles that I paid cash for. All run great and look great. Even my 20 year old Ford that I paid $3,600 for.
Have had my share of new cars/trucks. In my 20's I bought 5 new vehicles. I just loved new vehicles.
Those were the days of "menu" cars. All options were available even for the "base" car/truck.
Now we have "packages". Can't get the fancy seats unless you also buy all this other stuff that you don't want or need.
The youngsters here probably were not around when one could order just about everything in any model vehicle.
New car buying today is just too easy. Don't need a job or an income. Or make one up if asked.
And of course with auto trans being the standard equipment in most new vehicles these days, there's no real feeling in driving anymore. As far as the new car mistake I made, another way I'll be paying this lesson off is having to hold down a full-to-triple time job for the next several years until I'm able to say f--- it and go back to the low wage stuff I was comfortable with.
In the meantime, I'm also looking at getting a used, Kawasaki police bike in case I lose my head and decide to take the nuclear option as far as the truck goes.
Better to have a smaller vehicle that's paid off around in case things just become too hot to handle.
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