How To Get Out Of High Car Payments

  • November 2, 2023
  • 3 min read

In a recent revelation by Kelly Blue Book, the authoritative voice on vehicle values, a concerning trend has emerged in the automotive market. Car loans on used vehicles have surged to a staggering 125% of the car’s actual value. In this blog post, we dissect this alarming phenomenon, exploring the reasons behind the surge and shedding light on potential solutions for those entangled in high-negative equity loans.

The Troubling Numbers: Car Loans Exceeding Vehicle Values

Picture this scenario: you purchase a $10,000 car, a rarity in today’s market. Shockingly, the loan on that car would amount to $12,500, representing 125% of the car’s value. Even at a more plausible price point of $20,000 or $25,000, the loan on a used car is still surpassing its actual value. What makes this situation even more dire is that these loans are not reflective of a new car’s value but are incurred on vehicles that have already experienced depreciation.

Understanding Negative Equity: A Common Predicament

Many car owners find themselves in a predicament known as being “buried” in their cars—meaning they owe more on their vehicles than the cars are worth. If you have a vehicle loan, unless you are in the last year of payments, there’s a high probability that you are in this situation. Negative equity poses a significant challenge, affecting both personal net worth and the financial flexibility of individuals.

Root Causes: Unpacking the Reasons Behind Excessive Car Loans

Why are car loans reaching such alarming levels? Several factors contribute to this financial conundrum. Financing additional expenses such as taxes, extended warranties, or add-ons by dealers can inflate the loan. Moreover, individuals often carry over negative equity from their previous vehicles, compounding the loan amount. Dealers marking up car prices above book values further exacerbate the problem.

An Echo from the Past: Drawing Parallels with the Housing Crisis

The situation bears a resemblance to the housing crisis of 2008 when homeowners found themselves owing more on their homes than their actual worth. Mirroring the concept of short sales in real estate, a similar approach can be applied to vehicles. Many banks have official procedures for short sales on vehicle loans, offering a potential solution for those grappling with high payments and negative equity.

Navigating Solutions: The Potential of Vehicle Short Sales

A vehicle short sale involves a systematic approach, including a condition report, title check, and demonstrating financial constraints. By compiling a comprehensive package and presenting it to the bank, individuals can potentially negotiate a short sale that relieves them from the burden of an overbearing car payment. This approach proves beneficial for both parties, as banks may prefer a short sale over the complexities of repossession.

Empowering Consumers with Financial Awareness

The surge in car loans exceeding vehicle values underscores the importance of financial awareness for consumers. Understanding the implications of negative equity and exploring innovative solutions like vehicle short sales can help individuals regain control over their finances. As the automotive landscape evolves, informed decision-making becomes paramount in navigating the complexities of car financing.

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