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We got a new auto loan and soon realized we REALLY couldn't afford the $200/mo increase in payments. What are our options?

We signed a contract for a new auto loan, less than 24 hours later I called the salesman to tell him we had changed our minds because we realized we ...

We signed a contract for a new auto loan, less than 24 hours later I called the salesman to tell him we had changed our minds because we realized we REALLY couldn't afford the $200/mo increase in payments. The salesman told me he didn't know if we could bring the vehicle back and he would have to talk to the GM and would get back with me. He called 2-3 days later and said we were "funded" for the loan. I don't see how that is possible being that I lost my job recently and I don't see how they verified me having employment. My main question is this: What would happen if we just took the car back to the dealership and dropped it off. I have been told that if we default on the first payment that the dealership would have to buy the car back from the bank. Is this true? I have located the phone number/web address of the Finance Company listed as lien holder on my contract and want to call them and let them know that I don't have a job (in case they haven't verified it) and let them know we have tried giving this car back. What should we do?

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Unfortunately, from the moment that the sales contract was signed, you were most likely legally bound to own and pay for the car described in the contract.

Many people believe consumers have a "cooling off" period during which they can call the whole thing off as if the signed contract never existed (which is true in certain states, and subject to specific restrictions). With a few exceptions, contracts such as automobile purchase agreements do not offer a cooling off period. So, the lender is on sound legal footing refusing to allow you to rescind the agreement. The facts surrounding the verification of your employment don't help you because it is not the lender's duty to make sure you can meet your obligations that you voluntarily undertook when you applied. However, you should still call the finance company directly and explain that you have lost your job and are unable to pay this new obligation. The finance company, not the dealer, is who will suffer if you default on your loan, so they may be willing to help you.

If this strategy does not work, you may want to see an experienced bankruptcy attorney for advice. An attorney will be able to educate you on all consumer issues, not just bankruptcy. Some states have a generally more liberal rescission policy that your attorney may be able to advise you about.

If you simply return the vehicle and stop making payments, the finance company will likely consider the matter a voluntary repossession. The lender will auction the vehicle, probably for a lot less than you paid for it, and you will then be responsible for the difference between the loan amount and the auction price, which is called a "deficiency balance". The lender will probably attempt to collect the deficiency through standard collection tactics, such as referring the account to a collection agency. They could also sue you for the deficiency and obtain a judgment which they could then enforce through wage garnishment or bank levy, if allowed by your state law.

Deficiency balance

Even if you surrender your vehicle to your lender voluntarily, the lender has the legal right to collect on any balance remaining on the debt after the car is sold at auction. This type of debt is referred to as a deficiency balance. The creditor may even file a lawsuit against you to collect on the unpaid deficiency balance. You should therefore only proceed with a voluntary repossession if you truly cannot afford the loan, as you will likely still owe the lender a significant amount of money, even after you no longer have the use and benefit of the property.

A deficiency balance is an unsecured debt, which the law treats the same as credit card debt, a payday loan, or medical debt, among other consumer debts. To see your rights and options for resolving the deficiency balance, read "Collections Advice."

Again, I think you should consult with an attorney to learn about your rights as a consumer and the options available to you to resolve this situation.

Best of luck,


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  • LG
    Honolulu, HI,
    Apr, 2011
    I've been approved for a used auto loan through the credit union and will be unemployed the day I am suppose to sign the contract for the used auto loan with a private owner. Could the credit union decide to change the contract agreement before I make the first payment to them based on the fact that I was unemployed the day I signed the contract? and possibly keep the car because they have a lien on the title? Could they do this at any point in time even if I'm never late on a payment?
    • BA
      Apr, 2011
      Until the paperwork is signed by you and the lender there is no contract. In other words, until the contract is signed, either party can walk away without recourse.

      You mentioned several scenarios whereby the lender takes possession of the vehicle. Read your contract to understand its terms and conditions. What you mentioned sounds far-fetched to me, but then I do not have your loan contract in front of me so I cannot say if what you suggested is possible.
  • BA
    Jun, 2010
    By federal law, a derogatory entry will appear for 7½ years after the date of first delinquency.
  • A
    Jun, 2010
    If you paid off your repossed vehicle, how long will it stay on your credit?
  • BA
    May, 2010
    The motorcycle repair shop may have a mechanic's lien on the bike. The shop will be paid for its repair work first if the bike has any value, assuming you authorized the work. After the shop is paid, the creditor will repossess the bike, and sell it at an auction. It will probably get pennies on the dollar in comparison to the balance of the loan. The shortfall is called a deficiency balance. You have liability for the deficiency balance. You have the right to sue the rider who wrecked the bike to recover your losses.

    Two lessons here: 1) Insure your vehicle immediately. If you cannot afford the insurance do not buy the vehicle. 2) Do not buy a vehicle for another person. If another person has poor credit, lend them the cash if you feel generous, but use your credit score for your own needs and not the convenience of others.
  • M
    May, 2010
    i purchased a brand new motorcycle under my credit for someone i know in 2008. A few weeks later someone i know got on the motorcycle and crashed straight into a wall. The motorcycle is completely 100% totaled. At the moment when the accident took the motorcycle did not have insurance. The motorcycle payment have never been paid ever since the accident. The loan has been in collection ever since the accident and the motorcycle was dropped off at a repair shop. It has been 2 years since the loan was taken out. I do not have money to pay it neither does the person who was involved in the accident. My credit is ruined and i dont know what will happen to the motorcycle loan. Do i still have to pay the loan? If a lein is put on the motorcycle by the repair shop what will happen when the bank comes to take the motorcycle back and they see that the motorcycle is 100% totaled? what will happen to my loan?