Car loan... keep it or let it go

i come seeking opinions from the finance gurus. i understand basic credit workings, but not the in depth stuff, and i am sure there are lots of things i cant forsee in a given scenario. we are currently considering letting a financed vehicle go back to the creditor. its a 2004 suzuki verona, 48k miles, purchased in 2007 on a 14k capital one loan at 24.95%. we've paid over $8k into it but current balance is a little over $12k with 5 years left to go with payments at $384.92 per month. yes, its a horrible horrible loan and we were stupid to take it. we know that. at the time we needed a good reliable vehicle for a 7 day a week on the road job and had no cash to purchase a used car which previous to this was our usual route, and there were some false promises from the dealership that turned out to be lies, and we tried to fight it then and return the vehicle to no avail. please dont tell me how stupid we were, we already know =P

we are debating letting it go back to capital one. financially both our credits are poor already. nothing huge on them, but small to medium stuff in collections, probably under 2k between us. we are not married but took the loan together, have been together 10 years with no intention to split anytime soon. we have no credit cards or other debts besides the car loan. my job provides housing, electric/heat, cable tv, and internet. beyond that we have cash income of about 2000/mo for our family of 5 which covers food and sundries as well as cell phones, entertainment, gas, mcdonalds playland, and car insurance.

our current plan was to save/rebuild credit for 2 years before looking at purchasing a duplex in joint with my sister who has an ok credit score currently (over 700) but who will also be using those 2 years to pay down her CCs and used car loan she just took out. in the current market in michigan we can get a decent duplex for 50-100k, and none of us has purchased a home before so we would be probably be looking at fha loans.

jobs are stable altho not likely to give us increased income for at least another year or two. i am co-owner on an LLC with my sister but we are only generating a very small income after expenditures at this point, probably $300/mo which we are keeping in the business for now. we have a business plan to grow on and hope to be fully self employed within 5 years.

our payment history on the car is pretty good. good first 3 months, rocky next 3 which resulted in a one month deferment, then on time with no problems the last 18 months. we know that letting the car go back wont dissolve the loan and we may end up still owing by collection or judgement a good deal (car value is $5-8k by kbb now and i know they sell repos cheap). we outright own another vehicle right now and would need to buy a second, but could save enough cash over 3 months to do so if we didnt have this car loan payment.

so my main questions:
after two years how bad is a repo going to be on my credit?
would the nearly $400/mo paid into the current car loan better serve our credit in the long term if it went towards paying off other smaller negative items?
even assuming we could get refinanced, would refinancing be a better option given our longer term goals?

any insights would be appreciated =) and once again, yes, we were stupid. i cant promise it wont happen again, which is why i am reading fwf now =)

call them and ask for a loan modification - at 25% they should be willing to take that down to 5% or so...since if you repo they will lose several thousand $$ as the car will only sell for $3-4k.

If you cant do it yourself, contact a local CCCS branch (consumer credit counseling service) NOT the places you hear advertised on the radio.

Your credit is already shot so not much to worry about. Though Cap One may sue you for the deficiency if it goes to auction, and a judgment can prevent you from getting loans and they may even garnish your wages

Heck, at 24.95% you might as well pay off the loan with a reasonable 15% credit card. Assuming you can swing the payments with the reduced amortization period.

dont bother trying to move this debt to a cc. You need the loan modified. With the amount of interest you have paid to capone already, my guess is that they will be very receptive to a mod.

They know that they can get more $$ out of you by modding than by taking the car back

azurecrayon said: we needed a good reliable vehicle and had no cash to purchase a used car

You can get a car loan on a reliable used car just like you can on a brand new gas guzzler. Cop out.

azurecrayon said: we have cash income of about 2000/mo for our family of 5 which covers food and sundries as well as cell phones, entertainment, gas, mcdonalds playland, and car insurance.

The cell phone, cable, and entertainment need to go since you can't make ends meet. Otherwise you'll always be in trouble.

azurecrayon said: our current plan was to save/rebuild credit for 2 years before looking at purchasing a duplex in joint with my sister who has an ok credit score currently (over 700)

For the love of god please don't get your sister involved. No need to ruin her credit too because of your irresponsibility and bad decision making.

azurecrayon said: our payment history on the car is pretty good. good first 3 months, rocky next 3 which resulted in a one month deferment

3 months in you couldn't make the payment? So your payment history was pretty bad then?

azurecrayon said: after two years how bad is a repo going to be on my credit?

Very bad. You won't be able to get reasonable rates on any assets for many years.

would the nearly $400/mo paid into the current car loan better serve our credit in the long term if it went towards paying off other smaller negative items?

Either way you won't be getting good loan terms for a long, long time. Don't pay a cent on debts unless you have an agreement in writing from the debt collector that they will remove the baddies from your credit report. If you pay money towards the debt a lot of states allow it to reage and restart the 7 year clock for it to be removed. And even though it's paid off it will still hurt your credit score, unless you make an agreement to remove it like I said.

even assuming we could get refinanced, would refinancing be a better option given our longer term goals?

Yes refinancing would be much better since you'll get sued for the difference. You'll probably be better off having a tangible asset (car) since you're going to lose money either way. Depending on your state, they may be able to garnish wages.

The car loan is a probably but there's a lot more going on here. You and your significant other need to re-evaluate need vs want and start living within your means, saving for a rainy day, and being more responsible. Otherwise you'll be in constant trouble. I'm guessing you have a few pets as well? Good luck.

we are planning to pay cash for another vehicle if we let the verona go. 6 cars before the verona and one since have all been cash purchases, we usually buy cars 7-10 yrs old that we do not have to finance. altho where we live, i could probably get another car loan without too much difficulty. this is saginaw county michigan after all, median income of the county is 26k, the "motor city" is 100 miles down the road, and "bad credit loans guaranteed" car lots are a dime a dozen here.

the duplex would be financed but my sister is willing to do the financing entirely under her name on her credit. in two years we should be able to have 15-20k saved for downpayment.

Go trade it in on a brand new Prius. Just think how much gas money you'll save. Plus your neighbors will think you are cool for saving the Earth.

azurecrayon said: my job provides housing, electric/heat, cable tv, and internet. beyond that we have cash income of about 2000/mo for our family of 5 which covers food and sundries as well as cell phones, entertainment, gas, mcdonalds playland, and car insurance.
SUCKISSTAPLES said: Its impossible for them to live within their means with 2000 income for a family of 5 with a car loan and a $102k student loan
the hole has already been dug too deep to EVER get out on that kind f income
With $2000 a month excluding the already paid for housing/utilities/etc by his employer he should definitely have lots of areas to cut spending. Entertainment should just consist of internet and tv. Granted the student loans will take a long time to pay off, but at least he doesn't have high monthly payments (currently $0.00 per month).

brettdoyle said: The cell phone, cable, and entertainment need to go since you can't make ends meet. Otherwise you'll always be in trouble.

cable is provided via my job, we could stop watching tv, but we wouldnt gain any savings from it. our entertainment consists of one mmo subscription, trips to mcdonalds and the park, and camping one weekend a month; we are actually pretty low cost in that area. we have no landline so cells are our only phones. we have 3 sero plans (me, so, oldest child for emergencies when parents are gone) totalling approx $125 a month, $40 of which my company pays for since i use my pda to carry work files, leaving a phone bill of $85. i am not getting rid of my sero, thank you =)

brettdoyle said: For the love of god please don't get your sister involved. No need to ruin her credit too because of your irresponsibility and bad decision making.

our finances are not connected to hers in any way. as stated in a post above, she would be the legal owner of the home. we would be her guaranteed monthly income tenants. despite our credit history, we do at least always pay our rent.

brettdoyle said: 3 months in you couldn't make the payment? So your payment history was pretty bad then?

a week after we signed the loan, a strike at my so's work cut his pay by 24% for 4 months. cost of living where we were was 3x where we are now, i was offered my current job, so we used all our savings and moved 2500 miles across the country. financially it was a great decision, regardless of missing one car payment 18 months ago. we are much better off here now then there then.

brettdoyle said: Don't pay a cent on debts unless you have an agreement in writing from the debt collector that they will remove the baddies from your credit report. If you pay money towards the debt a lot of states allow it to reage and restart the 7 year clock for it to be removed. And even though it's paid off it will still hurt your credit score, unless you make an agreement to remove it like I said.

yes, thank you for the suggestion, this is already in the plan. last month i got copies of all my credit reports so i could see exactly what was owed to who. i will offer payment only if i receive in writing that the negative items will be removed. i do have some positive things on there, hopefully removing the bad will help tip the scales in the good direction.

brettdoyle said: The car loan is a probably but there's a lot more going on here. You and your significant other need to re-evaluate need vs want and start living within your means, saving for a rainy day, and being more responsible. Otherwise you'll be in constant trouble. I'm guessing you have a few pets as well? Good luck.

nope, no pets, just the kids =)

we are fully understanding of our bad decisions, i think i already acknowledged that. we are both intelligent people willing to work on this credit/spending problem we have. we were both raised by poor single mothers who themselves had no knowledge of credit or student loans, and started our bad financial decisions early. we paid off my so's student loans, but mine are a bit too large for realistic payments at this point. we have already started having financial discussions with our oldest who is 12, we both want to get our kids started in the right direction and with a firm understanding of credit and finances by the time they hit adulthood. rather than be like us, out the door at 16 and 18 with no knowledge of predatory lending and no financial guidance from our parents.

im not sure what you would consider living within our means, though. i never said we couldnt afford to make our car loan payment. we can and have for 18 months solid. the question is how would that $400/mo better serve us considering our income has decreased, the car is costing us more than we planned for when we purchased it (the aforementioned lies were regarding the working condition of the car and the warranty that was suppose to be on it and it is now in need of repair), and our credit in its current condition. its not like we are taking out other loans or have any CC debt. we dont go out to bars, smoke, drink, or party. ive been reading about dave ramsay's TMM, and trying to implement some of the ideas it entails. we started a savings fund. we cut out our cable services above the basic+expanded my job gives us, that saved us $85/mo. i willingly admit tho that we are electronics junkies. at this point tho, we have pretty much everything we need and have no excuse for more electronics.

i am not quite ready to lay down and give up because of past bad financial decisions. thats why i am here. i believe we can and will turn things around, and more importantly, teach our kids better than we were taught so they dont get caught in the same mistakes we made. i was just hoping fwf and the knowledgeable people who post here could give some insights as how best to go about turning it around.

the car is running. theres a knock in the engine that could possibly be serious and expensive to fix. the warranty that they said the car had and that was posted on the big warranty window sticker that cars have, was non-existent. according to them it had a 50k mile warranty and we bought it at 27k. we found out 3 days later (after driving it and finding numerous serious issues that made it unsafe to drive at night) the warranty was already expired and it was out of warranty. we contacted them about it, they eventually agreed to take the car back, but after we drove the 80 miles to the dealership, they refused again. capital one refused to revoke the loan despite numerous calls and details about the false warranty information and issues with the car. attorney generals office advised us to seek legal council. we couldnt afford a lawyer and couldnt find one willing to work pro bono for this type of thing.

lesson learned. pay cash.

So was this a 7 year loan? It seems based on your payments the rate is a lot higher than what you are saying.

patch96 said: Your answer to a car problem/bad loan is another car/bad loan and then another car/bad loan. You have to find SOME WAY to break this debt cycle.

You have too many excuses and not enough solutions. You use debt to get out of your problems. You have to change INTERNALLY. You have to DO something to make a change. Learn to work on cars and get a $500 to $1,000 car to run for 3 years.

im not sure how you got that impression, but i already said we usually pay cash for cars, not finance them with loans. over the past 11 years, we bought 6 cars prior to this one that we paid cash for, no loans. we have bought one since, cash no loan. the highest we've paid for a car, besides the financed one, is 2800 out the door, and that was for our latest. kbb value on it was over 5k, we got an excellent deal. all the rest we paid between 1000 and 1400 for. of those previous 6 cars, we sold one, gave one to my mother in law, lost three to mechanical issues such as blown head gasket and two shot transmissions. and one we returned after we purchased it through a mechanic who got it as a salvaged abandoned vehicle at his shop when we discovered it was abandoned because the owners didnt want to pay to repair it because it had a lien on it from a loan (OH maybe i should consider this option =P). we almost always have two vehicles and my so does most of the simple repairs himself (brake pads, starters, etc).

the only other car i ever financed was in 1994 and i paid it off early in 96. i seriously doubt i will every finance a car again.

there is no debt cycle. we dont use debt to get out of our problems. we dont even really have debt besides this car loan and student loans from 90-96.

azurecrayon said: patch96 said: Your answer to a car problem/bad loan is another car/bad loan and then another car/bad loan. You have to find SOME WAY to break this debt cycle.

You have too many excuses and not enough solutions. You use debt to get out of your problems. You have to change INTERNALLY. You have to DO something to make a change. Learn to work on cars and get a $500 to $1,000 car to run for 3 years.

im not sure how you got that impression, but i already said we usually pay cash for cars, not finance them with loans. over the past 11 years, we bought 6 cars prior to this one that we paid cash for, no loans. we have bought one since, cash no loan. the highest we've paid for a car, besides the financed one, is 2800 out the door, and that was for our latest. kbb value on it was over 5k, we got an excellent deal. all the rest we paid between 1000 and 1400 for. of those previous 6 cars, we sold one, gave one to my mother in law, lost three to mechanical issues such as blown head gasket and two shot transmissions. and one we returned after we purchased it through a mechanic who got it as a salvaged abandoned vehicle at his shop when we discovered it was abandoned because the owners didnt want to pay to repair it because it had a lien on it from a loan (OH maybe i should consider this option =P). we almost always have two vehicles and my so does most of the simple repairs himself (brake pads, starters, etc).

the only other car i ever financed was in 1994 and i paid it off early in 96. i seriously doubt i will every finance a car again.

there is no debt cycle. we dont use debt to get out of our problems. we dont even really have debt besides this car loan and student loans from 90-96.

I stand corrected.

i actually considered that =P

Are you working in your field of study? Is there a chance to increase your income? There is not much you can do when you only have $24k/yr to support a family of five.

azurecrayon said: the car is running. theres a knock in the engine that could possibly be serious and expensive to fix. the warranty that they said the car had and that was posted on the big warranty window sticker that cars have, was non-existent. according to them it had a 50k mile warranty and we bought it at 27k. we found out 3 days later (after driving it and finding numerous serious issues that made it unsafe to drive at night) the warranty was already expired and it was out of warranty. we contacted them about it, they eventually agreed to take the car back, but after we drove the 80 miles to the dealership, they refused again. capital one refused to revoke the loan despite numerous calls and details about the false warranty information and issues with the car. attorney generals office advised us to seek legal council. we couldnt afford a lawyer and couldnt find one willing to work pro bono for this type of thing.

lesson learned. pay cash.

Here is the information on several free legal aid places right in your neighborhood. I found them via MichiganLegalAid.Org.

Free Legal Aid - Saginaw, MI

The third one seems to offer services which you may be able to use.

25% is just a ridiculous loan, IMO.

Tell them to lower the rate by 50% or GTFO.

hkgfnt said: Here is the information on several free legal aid places right in your neighborhood. I found them via MichiganLegalAid.Org.

Free Legal Aid - Saginaw, MI

The third one seems to offer services which you may be able to use.

thank you for the research, unfortunately we purchased the car in washington state before we moved to michigan, so i am not sure services here could help us at all. on top of that it has been two years. but i may look into it.

we wouldnt really leave the car in the local ghetto.... mainly because its not safe to drive into there, much less get out of your car =P

we arent decided one way or the other on the car, thats why i was looking for options and alternatives. i will definitely try contacting capital one and seeing if they are willing to work with us to lower our rate as the first option.

OP "turning over the keys" is the same as a repossession, and in the long run your going to end up paying more for it. If it is repossessed the finance company is going to sell it at auction (probably at a steep discount) and then sue you for the difference. With the judgement they may be able to garnish your wages for the difference. Your best bet is to.
1. Contact the finance company and try to renegotiate the terms of your loan.
2. Sell the car for as much as you can get for it and take out a loan for the difference or talk the finance company into loaning you the difference. Either way their lien is unsecured for any amount owed beyond the vehicle's value.

Do you manage a storage facility or an apartment complex?

just a suggestion, but why dont one of you pick up a second job? even if its a burger king.
a place like Home Depot or lowes pays very well. i work part time at Home Depot just on the weekends and i bring in an easy 700$ a month or 800$ if i get extra hrs. do that for a year and you can have the car payed down after you get them to cut your rate.