How to get a lower car payment — without a new loan

My son just bought a used BMW and he paid with a hefty car loan. I couldn't talk him out of it. But since it is his money and he is working it is really his responsibility to pick whatever car he wants and to get into debt if he wants to.

I do think that it is a terribly good idea to avoid car loans, though. Cars are a depreciating asset. So they are often not worth what you owe on them. Being upside down means you have to pay money if you want to sell your car.

In fact, the guy who sold my son his car owed $5000 more on the car than the car was worth.

So this guy was upside down. How many people are upside down in their car loans? Are you one of them?

Well, this is a tough one. You can of course turn the car back in, essentially a reposession. Trouble is, the lender will auction off your car and get peanuts for it, then go after you for the difference. Yuck!

Another option is…

Modify your car loan for lower payments

Before you are late on your payments, you can get your paperwork together and contact your lender and request a loan workout. They could lower your interest rate, or lengthen the term of the loan in order to lower your payments. It is well worth asking.

Sell your car yourself

You should sell your car if you can. Don't give it to the lender, for the reason we already discussed.

If you owe more than the car is worth, you will have to convince your lender to let you sell and you will have to sign a note, most probably, for the balance. You are personally liable for that. But let's look at a scenario.

You owe $10,000.

If you sell your car yourself, you'll get $8,000.

If the lender takes the car, they'll get $5,000.

You are far better off working things out with the lender. The check will go to them. They will now have to go after you. You can agree in advance to pay what is called the deficiency over a 2 or 3 year period, at a low interest rate. And you can condition that upon their reporting you paid satisfactorily to the credit bureaus.

Believe me, if you present a bad financial picture to them, they know that you have no choice and if they get the car back, it will be hard to collect from you. So they'd rather lower their losses by working something out with you if they can.

What if you have to break your car lease

Dumber than buying a new car is to lease a new car, for most of us. Sadly, it doesn't pencil out. But if you can't meet the lease payments anymore, then you should first contact the leasing company and try to work out a lower monthly payment.

Now, if that doesn't work, you will have to turn the car back in. It's always better to turn it back in than to have them come out and repossess it. Because you avoid a lot of the fees, and you can take pictures of the car inside and out, so that you have a record and can refute claims they may make for any damage afterwards. This happens, so take lots of pictures.

How to drive a car cheaply

It's always better to get an older used car and pay cash for it, even if you can get a loan. Much cheaper. Especially reliable cars such as a Toyota Corolla, Honda Civic or something similar.

But until you get to this point, I hope this has helped you figure things out with regard to your current wheels.

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