Tuesday, October 17th, 2017

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Ask YOUNG MONEY: What should I do if I can’t pay off my auto loan?


I have an auto loan and I will be getting laid off soon. If the car gets repossessed, can I work out a deal with the bank?



Dear Tom,

The lender may offer some sort of hardship program to give people in your position a few months to get back on your feet. If your lender is a local bank or credit union, go in and talk to them and ask for help. A large, national lender will be more difficult to deal with because of the size of these companies and the fact that you can’t talk to someone face to face. Assistance will vary by lender, and it’s important that you talk to them prior to the cars being repossessed. After repossession a consumer loses most of their negotiating power and, generally, the only deal the lender will want to work out at that point will be a repayment schedule on the amount still owed on the loan after it is sold at a wholesale auction.

Many people do not realize that the borrower is responsible for any difference between what is owed on the car loan at the time of repossession and what the lender is able to sell the car for …plus repo and legal fees, and other fees. This usually adds up to several thousand dollars. Far too many people think that once the car is taken away it is the end of their worries and debt.

If it were me, I would put the car up for sale immediately if I couldn’t afford the payments. It will be virtually impossible to sell the car for enough to satisfy the full loan since most people owe more on their car loans than the car is worth but, it is worth a try.

Now is also the time to start looking for new jobs in order to try to keep up with the car and house payments, as well as other basic expenses such as food, utilities and medicine. It makes no sense to wait for the layoff to happen to start looking for other work.

One of the most important things you can do right now is to sit down and create an income and expense analysis by writing down all income and every expense. Be sure to include savings if you have any that can be used to pay bills. Look very closely for any expenses that can be cut immediately in order to preserve cash. Look for expenses such as cable TV, cell phones, long distance calls, entertainment, etc. All these are fun things, of course, but they are also the non-essential expenses most families can do without for a while. Most of these services are easy to cancel right away.

Your main goal is to find income sources as soon as possible. Contact everyone you know and mention you are looking for work. And, don’t overlook having a weekly yard sale or offering to do work for neighbors if you have skills that can be used. It is survival time!

Good luck and please keep in touch.

Mike Schiano

Mike "The DebtBuster" Schiano is a nationally syndicated radio talk show host and book author. His show can be heard via the Web at www.inchargeradio.com. Send your personal finance questions to him at mike@askthedebtbuster.com.


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