Is your car loan troublesome?
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Not every loan is a good deal. Perhaps you made a poor financing decision or had to borrow to buy a car when your credit wasn’t great. If you’re struggling to pay your car loan, bankruptcy offers some options. Here’s a look at some reasons that a car loan can fail, and how Greensboro bankruptcy might help.
Do you have a subprime auto loan?
About 20% of vehicle loans are classified as subprime, according to credit bureau Experian. “Subprime” is a term for a financing agreement where the interest rate is greater than the prime lending rate. That means it’s much higher than what you would get if you had good credit.
Subprime loans can result in much higher car payments. Worse than subprime loans are the buy-here-pay-here finance arrangements which can be as high as credit card interest rates. If you’ve got a terrible financing deal, it can be hard to keep up the payments, and you might be better without it.
Is your car in disrepair or very high mileage?
If your vehicle is always breaking down, has high mileage, or needs repairs all the time, it makes the cost of ownership much higher. When you’re paying a monthly auto note on top of constant repairs, it can quickly become financially unmanageable.
A car with high mileage or mechanical problems is also worth far less than one in good repair. That means if you want to get rid of the car, you might not be able to sell it. Alternately, you might be able to sell it, but not for enough to pay off the loan. That’s a problem.
Do you have negative equity in your car?
Another consideration for Greensboro consumers is the equity in the vehicle. Equity is the fair market value of the car minus what you owe to the lender. In some cases, you might have negative equity. It means you owe more than the car is worth.
You might also hear the phrase “upside down” on a car loan. It means you don’t have equity in the asset. When you buy a new car, you’re usually upside down from the start unless you got a really good deal. Over time, as you pay the debt, your equity should increase.
When you have positive equity (you owe less than it’s worth) in an asset, you can sell it if you don’t want the asset anymore or can’t afford it. Positive equity gives you options. When you’re upside down, you can feel trapped with nowhere to turn.
Get out of a bad car loan with Greensboro Chapter 7
When you have problems with your car loan, you might also be experiencing other financial stress. Chapter 7 bankruptcy is a fast debt relief solution that gets rid of credit card and medical bills and can also help with car loans. Here are the options at hand.
1 – Reaffirm the loan: Even if your car loan isn’t a great deal, you might want to stick with it. If your payments are current, you can leave the loan out of your bankruptcy. The lender might want you to reaffirm it (sign a new agreement), but your attorney might advise against it. You can simply keep the loan payments going so long as you’re not past-due when you file bankruptcy.
2 – Surrender the car: If you’re not happy with the loan and can do without the car, you can give it back to the lender as part of your Chapter 7 bankruptcy. You can tell the lender you’ve filed bankruptcy and they should take the car. They will sell it at auction and assess the shortfall amount. That shortfall is unsecured debt and dischargeable in bankruptcy.
3 – Redeem the car: Another option is to redeem the car (i.e., pay it off) for a lesser price than you owe. In bankruptcy, the judge may allow you to pay the lender a lump sum equal to the fair market value of the car, even though it’s less than the loan balance, and keep the vehicle. If you can scrape up the crash, this could be your best option.
To find out more about car loan options during Greensboro bankruptcy, contact the Law Offices of John T. Orcutt. Read reviews from our clients and then call +1-919-646-2654 to schedule a free Greensboro bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.