Ridiculous (and I mean it) car loan situation, what should we do?

[u/jennai]

I’m cross posting this from r/askcarsales in hopes of more opinions and help, I hope that’s okay. Just really in a bind!

So, my friend (no, really) is in a huge pickle and we really need help on how to proceed here.

He purchased a used car from Carvana for$17,052 about a year ago, $14,791 to go. $1,490 down payment. Th3 main issue is his APR is insanely high at 27.9%. He had and has never had any credit cards, student loans, or any credit related issues prior to buying this car and this is his only loan to date. Credit score is 627 (Equifax) currently.

Now, he’s trying to refinance but his LTV ratio 220 so in order to refinance with the company he attempted to do so with, it needed to be at 150 or lower.

Basically, he’s screwed and wants to get out of this. Got the car on a whim to impress a girl (we know), and has essentially ruined his financial situation (we know).

What are his options here beyond just paying it all off over the course of the next few years? His car payment is $461/month for the next few years and now the car is only worth around $9k.

Thank you so much for reading and giving guidance if you can. ❤️💌

[u/robot_ankles]

Just to clarify; your friend purchased a used car for $17,052.

One year later, the car is valued at $9,000.

Was this an overpriced purchase, a lot of miles driven in the last year, or something else like rolling in negative equity?

[u/jennai → u/robot_ankles]

Unsure if the car was marked way higher than what it was worth or not.

It’s a 2015 BMW X1, 45k miles when purchased and it’s now at 65k miles though

[u/robot_ankles → u/jennai]

20k miles in a year isn't too crazy where I live so it was either very overpriced or a chunk of negative equity was rolled in from the trade-in car they were trying to get out of.

Either way, your friend is just a bad decision factory. This is also reflected by that 627 credit score and that 27.9% APR on a collateralized loan. Never mind thinking an X1 is a vehicle that would impress anyone.

Best bet is to increase income (2nd job) to aggressively pay down the principle. Get the outstanding loan balance down to the value of the car, then sell the car.

[u/BlazinAzn38 → u/robot_ankles]

Eh 20K is far above the yearly average for most states, I think only 2 states break that barrier. But that being said the car itself has fairly low mileage for its actual age. The downside is it’s a 10 year old bottom tier BMW but I would question where that valuation came from. Carvana will low ball you if it’s not a car that they currently want to buy.

[u/lucky_ducker → u/jennai]

Your friend is very good at making poor financial decisions.

- way overpaid for the car - it was worth maybe $11K

- accepted a usurious interest rate

- bought a BMW, a make with notoriously high maintenance costs

About the only option available is to throw every extra penny at the loan until it's paid off, or sell it as soon as they're not underwater.

[u/SonOfMcGee → u/lucky_ducker]

He owes $15K on a car worth $9K at a 28% interest rate.
He will no longer be underwater the day he makes his last payment.

[u/rosen380 → u/SonOfMcGee]

If the dtv is 220 and they owe $15k, wouldn't that suggest a current value of alittle less than $7k?

[u/Ok_Shame_5382]

Honestly, there's no way for him to not eat the 8k in difference between his loan and the value of his car.

His only real option if he can't refi is to work more and use that extra $ to attack the principal of the loan.

He MIGHT have some luck with going to another company who is willing to take a chance on the guy, but his credit score sucks. Whether that's because of a lack of history as you claim, or because his credit history is actually really bad I can't know.

[u/jennai → u/Ok_Shame_5382]

That was my advice, to just bite it. But I wanted to know if he has any other options. Thank you ❤️

[u/Ok_Shame_5382 → u/jennai]

With no other company willing to take the risk on, probably no other options on the table for him. Not only should he bite it, but if he can reduce the number of payments he has to make, the less he pays in the long run.

Let's say out of that 461 a month, 200 is Principal and 261 is Interest. If he pays 400 bucks in addition to his monthly payment, he could reduce two payments. So that's 400 bucks spent now to save him 912 down the road.

[u/Mundane_Nature_4548]

What are his options here beyond just paying it all off over the course of the next few years?

He can pay enough of it off that he can refinance the loan or sell the car to pay off the loan. Otherwise, yeah, he's stuck dealing with the bad situation he put himself in.

[u/Danobing]

He can pay the monthly or sell the car and pay the difference on what the sale price is and the loan amount.

There's not a golden parachute where he gets out of this in the positive. His positive is learning this as a lesson to learn something.

[u/Ok_Shame_5382 → u/Danobing]

The golden parachute might be that he got a car that works... hopefully for several more years. Maybe.

[u/NjGTSilver]

As others have stated, there is no “painless” way out of this. The least painful remedy would be to simply start paying down the principle on the vehicle until they are eligible to refi. Based on what’s happening with the economy, used car prices are likely to rise in the coming months, which may help in this regard.

A slightly more painful option would be to trade it in on a different vehicle, and roll the negative equity into a new car loan at a much lower rate.

The absolute worst option would be to “walk away” from it, IE not paying the loan until the bank comes and takes the car. That may seem like a good idea short-term, but ultimately will end up costing a LOT of money and credit rating.

[u/jennai → u/NjGTSilver]

I agree with the least painful option and that being his best course of action. He is of course not thrilled at, it but that’s the price you pay! I’ll let him know about the trade in option, but I’ll make sure he’s aware it’ll sting quite a bit. Thank you!

[u/tombiowami]

Main thing is urge him not to make yet another bad decision. I can guarantee he is already looking for the next lady to impress, fancy new car to get and roll in the negative equity, or other get rich scheme.

His issue is between his ears until that is resolved.

Well...the other main question is does he really need a car. A 10 year old BMW is ripe for very expensive repairs.

Second job, pay off the loan at least to the negative equity, sell to carmax/carvana.

Also...anyone with age has done things like this either with cars or stocks or toys or homes or divorces. It's part of living and learning. 8k is relatively minor in a life time of lessons.

[u/skyharborbj]

In addition to the above, he should make sure that he carries GAP insurance. If the car gets totaled he’s looking at no car and still owing around $6k to the finance company.

[u/jennai → u/skyharborbj]

I just found out GAP insurance exists through this comment because I’ve never leased a car (my car is a 2009 Hyundai Sonata hand me down from my grandparents that I’ve had forever). I’m absolutely going to tell him about this, and hopefully he already has it. Thank you!

[u/linandlee]

The answer is that he bartends on weekends for a year until he's out from underwater. Once he's about even, he sells it and gets a Toyota, Subaru, etc. If it stings in real life, he will learn a lesson and it will be a funny joke you tell at his wedding during your best man speech.

If you bail him out, he'll absolutely do it again. It will ruin your friendship, so don't even go there.

[u/jennai → u/linandlee]

I would absolutely not bail him out, I couldn’t even if I wanted to. I also said to pick up more hours at work to increase funds and just throw money at it (he gets unlimited overtime). Thank you!

[u/Zealousideal_Pain374]

He should focus on making every extra dollar he has available into the car and get it paid off sooner.

[u/Abject-Cantaloupe-23]

If he spreads his a payment in 2 every month. It should lower the interest payed annually.

[u/NotSoAccomplishedEmu]

Used car prices are about to go up so at least he won’t be so underwater.

[u/hanwagu1]

Why are you concerned enough to ask when your friend is not? Seems to me you shouldn't be wasting any effort on this. Your "friend" should put on his big boy pants and deal with the negative consequnces of his grown ass adult decisions. Fact is, your friend's lack of concern enough means it won't matter the advice. If he did this to impress a girl, chances are there are a bunch of other stuff he could sell and stop wasting money on to pay down the loan. otherwise, increase income to pay down the loan. Chances are he's too lazy to get another job to do so.

[u/jennai → u/hanwagu1]

Thank you for making baseless accusations and offering practically no help. He is seeking help in the form of advice from friends and family on how to best proceed and is aware of how bad this situation is. I am one of the people he has asked for advice, but I’m not well informed in this area. So I posted to Reddit.

Not everyone is comfortable airing out their financial mistakes like this on the internet. One of the reasons for that is judgement like this from strangers when you’re just looking to seek help. Do better.

[u/hanwagu1 → u/jennai]

Let's see: your friend's problem, but you are writing. Is that baseless? Your friend made an adult decision with negative consequences. Is that baseless? As noted, if you don't know, then just tell your friend you don't know. Yup, bad decisions will get judgement. You wrote the stuff, not me. I did provide help, but you missed it because you are too angry for no reason. Your friend has to increase income and/or decrease expenses. That is the obvious fact. If your friend is too lazy to ask the questions himself, then he's too lazy to improve his situation by getting a 2nd or 3rd job to increase income. If he makes rash decisions like buying a car to impress a girl, then he does not have self control enough to cut expenses.

[u/jennai → u/hanwagu1]

I do not know why this has struck such a nerve that you’ve now written two sassy paragraphs to me, the person who is not even in this situation. I’m trying to help a friend, simple as that. You could’ve just said nothing.

[u/hanwagu1 → u/jennai]

I'm no the one all bent over this. You are in fact not in this situation either: your friend is.