The first reaction many people have when they cannot afford a vehicle's payments is to sell it. However, if the consumer borrowed money to buy the vehicle, the creditor almost certainly secured the loan by putting its name on the title. By doing so, the creditor has the right to repossess the vehicle if the debtor fails to repay the loan and prevent a sale of the vehicle until the loan is fully repaid. So why not just sell the vehicle and repay the creditor?
It is a virtual certainty that you are upside down on the loan. Almost every vehicle on the road today with a loan or lease attached to it is worth less than the balance of the loan. Why is this so? Unless a person has a loan with an unusually brief repayment period, vehicles depreciate at a rate that is faster than a consumer can pay off the loan.
According to a 2007 study by the American Automobile Association, the average annual cost of depreciation on a new vehicle is $3,392 per year. A new vehicle loses 15% to 20% of its value the moment a consumer buys it and turns it into a used car. Therefore, buyers who borrow money to buy or lease a vehicle should expect to be upside down for the duration of their loans.
Here, your financing terms are unbeatable -- a six-year loan at zero APR for a vehicle is amazing. You cannot refinance to get a better rate because a better loan does not exist. Your problem is the balance, the sales price, is simply too high.
If you cannot repay the loan on the vehicle you have three choices:
1) Do nothing, and eventually the creditor will hire a vehicle repossessor to take the vehicle from you. This is the least desirable option because the repo man will probably take the vehicle at the most embarrassing or inopportune time. This is also the most expensive option for you.
2) Return the vehicle. This is known as voluntary vehicle repossession. See the Bills.com resource All about voluntary repossession to see an extensive discussion of this option. This is not a great option, but it is the most likely unless your income improves and you can afford the monthly payment.
3) Try to negotiate different terms with the creditor. I am very pessimistic about this option. However, it is worth making one phone call to the creditor to see if there is any hardship program available for people in your situation.
Vehicle repossession is unpleasant, but if you cannot afford the terms it is your only option.
I hope this information helps you Find. Learn & Save.