My Friend Ended Up Getting Her Car Repossessed. Here’s How It Happened

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It’s important to make a plan if you need to sell a car before it’s paid off. Learn what happens when you have a car loan you can’t afford. 

Not too long ago, my friend told me about a big money problem that she was having. She had stopped making payments on her vehicle and, in the end, the car ended up getting repossessed.

My friend isn’t alone. Around 1.2 million vehicles were repossessed in 2022 and the automotive organization, Cox Automotive, predicted that 1.5 million would end up getting repossessed in 2023. And while my friend made some questionable decisions that led to the repossession, she was also led astray by some bad advice from car salesmen who just wanted to make a deal.

Here’s how she found herself in this unpleasant situation.

Car dealers gave her a loan she couldn’t really afford

Unfortunately, my friend got in way over her head because many car dealers are willing to offer financing to just about anyone, even in situations where it makes no sense to do so. Since the car is collateral and guarantees the loan, the lender doesn’t really face much risk of loss since it can repossess and sell the car if the buyer stops paying.

My friend had a pretty good credit score, although she had a limited amount of irregular income. She also already had a car with a loan on it. Her plan was to buy a new car first, sell the old one, and then use the proceeds from the car sale to pay off the old loan.

She was pretty confident she could sell the car she had, and the dealer she bought the vehicle from didn’t question that she already had a car loan on her credit report. It gave her a car loan despite that the two loans together would eat up a significant amount of her income. Plus, when combined with her other obligations, she’d be left spending about 65% of her earnings on the cars, housing costs, and other debts.

Unfortunately, it’s not practical to devote that much income to debt payments. The reality was, she could not afford two car loans even though the dealer was willing to arrange the financing for her.

Confusion about what would happen to her car loan was a big issue

Now, my friend absolutely should have been realistic about her personal finances and whether she could afford both loans. But, the problem is, she was overly optimistic about what her car would sell for and she wasn’t clear on what would happen to her payments if she couldn’t sell it for all she owed.

It turned out that she couldn’t sell her car for enough to pay off the debt she had. And her contingency plan was that she’d sell the car, pay off most of the loan, and then just make lower monthly payments for the rest of the debt over time. Unfortunately, it doesn’t work that way, though. In order for her to sell the car, she would have had to pay off the loan in full.

She tried to get a personal loan to cover the difference between what she could sell the car for and what she owed on it, but because she already owed so much, no lender was willing to work with her. She couldn’t sell her car, she couldn’t afford the payments on it, and she was stuck — so her car got repossessed.

To avoid this mistake, remember two big things:

You can’t sell a car until you’ve paid the loan off in full. So if you’re underwater and owe more than your vehicle is worth, you need to deal with that before even considering getting a new vehicle. Ideally, you should keep your current car until it’s paid off and then still keep driving it so you can avoid having a car payment for a while.You shouldn’t assume that you can afford a loan just because a dealer is willing to give it to you. You need to think about your own financial situation, look at the payments, and be sure you can afford it based on your current monthly budget and financial obligations before you take on the debt.

Having a car repossessed can be costly and damaging to your credit, so before you get a car loan or take on any kind of secured debt, keep these tips in mind.

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