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What you can do if upside down on loan

Mark Cappel
UpdatedApr 15, 2024

We are going through a separation and divorce and have a mini van that we can't afford to keep. Is there a way to negotiate a

We are going through a separation and divorce and have a mini van that we can't afford to keep. We are upside down on the loan to value and still have 3 years left on the loan. Is there a way to negotiate a settlement with the credit union to return the vehicle, or what is the procedure if we stopped making the payments? We have never been late or missed any payments in 3 years.What are our options, because we can't afford to keep making payments at this point?

Your question, about being upside down on your auto loan, is one that I am seeing quite frequently... so you are not alone. Essentially, it will boil down to a trade off between your credit score and how much you want to save. I believe that calling your credit union and trying to negotiate a payoff balance is certainly your best first step... but it is unlikely that they won't take the normal course of action which is to repossess (either a voluntary repo, where you hand over the van, or an involuntary repo) the auto and then to collect on the deficiency balance after the mini-van is sold.

If the creditor ends up repossessing it, the creditor will likely sell the car at auction. Once the vehicle is sold, you will probably be responsible for the current amount owed on your loan, less the money received at auction. This remaining debt is called a "deficiency balance". Given the fact that the vehicle is relatively new, meaning you probably still owe a fair amount of the original loan, you could end up owing a large deficiency balance, possibly as much as $10,000 or more. Once the creditor has sold the vehicle and determined the deficiency balance, it can begin collection efforts on the account like any other unsecured debt (since you would no longer have the car, the debt would be considered unsecured). You would likely receive calls from collection agencies attempting to collect on the account. In a worst case scenario, the creditor could sue you to obtain a judgment against you, which could result in bank levies, a lien on your property, and/or wage garnishment depending on the laws in your state. Some states restrict a creditor's ability to collect on deficiency balances, so I encourage you to consult with an attorney licensed to practice law in your area to discuss the implications of vehicle repossession under your state law before you decide how to proceed.

Generally speaking, allowing a vehicle to be repossessed can be a bad idea. You will probably be stuck with a deficiency balance plus you will lose the use of the car. In almost all cases, I discourage consumers from allowing their vehicles to be repossessed, as a repossession frequently causes a consumer's financial difficulties to worsen rather than improve. The repo will also dramatically impact your credit rating... so decide what is best for you.

I recommend that you try to borrow the money your bank, credit union, or friends and family, to pay it off. Maybe you can refinance your home and pay off the balance of the loan.

If you want an introduction to pre-screened mortgage lenders, makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at:

Free Mortgage Refinance Quote

To read more about auto refinance loans, I encourage you to visit the website.

I wish you the best of luck in resolving your dispute with your auto finance company, and hope that the information I have provided helps you Find. Learn. Save.



Struggling with debt?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q4 2023 was $17.503 trillion. Housing debt totaled $12.612 trillion and non-housing debt was $4.891 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Each state has its rate of delinquency and share of debts in collections. For example, in North Carolina credit card delinquency rate was 4%, and the median credit card debt was $410.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.