5th Jun 2015

tow truck

If you are struggling with a car payment, you are not alone.  In 2014, new car sales increased to 16.5 million, the highest level since 2006.  Many of those new car buyers, however, may have taken on more than they could afford.  Just in the first quarter of 2014, 2.6 percent of borrowers missed at least one car payment.  This is the highest level of delinquent payments since 2008 per the Wall Street Journal.

The recession and car loans

During the recession that we have been experiencing, many lenders made it more difficult for consumers with less-than-perfect credit scores to qualify for car loans.  Within the last two years, however, those restrictions have weakened making it possible for those with lower credit scores to purchase new vehicles.  In 2013, 1 in 4 car loans were written to consumers on the lower end of the credit score range.  This may seem great, but lenders were forcing these struggling consumers with interest rates up to 20 percent.  This type of credit is too costly for anyone to afford.  In fact, the Wall Street Journal stated that 8.4 percent of subprime auto loan borrowers missed at least one car payment in 2014.

So what do you do if you need a new car, but can’t afford the payments?

First of all, do not be persuaded to purchase more car than you can afford.  Car salesmen will try and get you to buy an expensive car with payments as high as the mortgage on your home.  Don’t do it!  Buy what you can afford.  It may not be the prettiest or the sportiest vehicle on the lot, but be proud to drive something you can afford.  Second, shop around for the best financing.  Do not take out a loan with 20 percent interest on a vehicle.  It is not worth it.

What if you already purchased a car and cannot afford the payments?  

You have two options.  First, you can surrender the vehicle back to the lender, which would be a voluntary repossession on your credit report.  Nobody wants to have negative remarks on their credit report, but it is better than having your kids go without the necessities of life.  Second, you can file Chapter 13 bankruptcy and pay for this vehicle through your Chapter 13 plan.  There are a few advantages to paying for a vehicle through a Chapter 13.  If you have a high interest rate, you can normally bring that rate down to approximately 5.25 percent.  Also, if you purchased the vehicle more than 910 days before you file the Chapter 13, you can pay the value of the vehicle rather than the amount owed on the vehicle.  Often, vehicles are worth much less than what is owed on the vehicle.  In Chapter 13, if you file it more than 910 days after purchasing the vehicle you can pay the value of the vehicle at 5.25 percent over a 5 year period.  This scenario has helped many of my clients keep a needed vehicle for their family.

If you would like to come in and discuss whether you qualify for chapter 13, please call me at 281-847-4345 and we can schedule a Free Consultation.

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