Car Series (2 of 4): Your car is costing too much. Let’s fix that.

**This article was lovingly written by a non-robot human for her fellow humans.**

If you feel like the financial weight of your car(s) is too much, you're not alone and there are options. Below I've listed the most common situations I see in my work as a Financial Counselor and ways to lessen the burden. 

This one is lengthy, so if you can't digest it now, save for later. Read what resonates, skip over the rest. Seeking quick ways to save money on vehicle expenses today? Scroll to the bottom.

Issue #1 of 4 included a homework assignment designed to help you better understand your financial situation with your car(s). It's necessary information to know if you're ready to take action on the items below, so make sure to do that step first if you haven't already! Looking the numbers in the face can be intimidating, but we can only fix what we're willing to look at. 

Situation 1: Underwater

Roughly 30% of trade-ins are underwater, meaning more is owed on the car than it's actually worth. When a car underwater is rolled into a new loan, an average of $7k in debt is transferred to this loan, resulting in an average payment of $944/mth (Lending Tree). 

This can be a really challenging cycle to exit once you're in it, so, if you're underwater, you have a few options that don't involve trading your car in: 

1. Keep driving it. If it needs maintenance, shop around to get the best deal and only fix what is necessary. 

2. Pay extra toward principal. Even $50 here and there can move up your payoff date. 

3. Sell privately. This usually keeps more in your pocket than a trade-in. Check Kelley Blue Book for the value, clean that sucker out and take some fancy photos in a parking lot with the sunset in the background. You'll need to cover the difference between the sale price and your payoff in cash, but this is a much smaller hole than a trade-in creates. It's also worth negotiating with the creditor to see if they will accept less.

4. Downsize. Sell and buy something cheaper, with cash (ideally). Issue #4 will have more details on how I did this with a car 6 years ago, instantly freeing up money.

Situation 2: High Interest Rate

It's worth looking into whether you're paying more than you need to. Recent studies (Experian) reveal the average refinance dropped rates from 10.40% to 7.97%, saving $83/mth. Refinancing through a credit union put 20% more in people's pockets.

This may be worth looking into if your credit score has increased or you have a decent amount of time left on your loan. Getting a quote can take 15-20 minutes - I suggest getting a few to cross compare. Pay attention to the total cost, not just the monthly payment. Lower payments that stretch your loan out longer can cost more in the end, keeping you in the cycle that you desire to exit.

Situation 3: Lease Regret

I'm admittedly biased when it comes to leases - only in rare situations do I think they're a good idea. So many people enter leases because of the enticing lower monthly payments, lower interest rates, and covered maintenance. But having a lease is like long-term renting with debt attached. You make payments for years, then never actually own anything in the end. 

If you desire to exit the lease cycle, you have options:

1. Resist trading-in. Leases are designed to keep you coming back. Dealerships make you feel safe in a shiny, new, fully functioning car with a lower than average monthly payment. It's tempting. I totally get it. But putting so much focus on the monthly payment instead of the total money out of your pocket (and it's usually a LOT on the back end) is so misguided. Signing a new lease just restarts the cycle you're trying to exit.

2. Transfer it. Websites like Swapalease and LeaseTrader provide ways to connect with individuals willing to take over your lease. Cash incentives may help in attracting someone. Call your leasing company to make sure this is permitted - ask about any fees associated and what happens if the new person stops paying.

3. Buy it out. There's always a buyout price and if the car happens to be worth more than that number, buying it can equal money in your pocket. Review your contract and compare it to a similar used cars' present day value on Kelley Blue Book. Call your leasing company to ask whether a dealer or 3rd party buyout is permitted.

4. Inquire about hardship options. Is cash flow the real problem? It's worth a call to the leasing company to ask about options to extend the lease, adjust the payment, or work out an arrangement.

5. Terminate early. This is where it can get really expensive… Ask the leasing company about penalties, fees, etc that you would owe. Get an exact payoff quote in writing before taking any action. 

6. Ride it out. Sometimes finishing the lease is the best and cheapest option.

   • If you're on track to go over on mileage, ask whether you can buy extra miles now (usually cheaper than at end of lease). 

   • Fix small dings or worn tires before turning it in for inspection (cheaper than what the dealership will charge). 

   • Use the remaining months to save what you'd need for your next car to lessen the burden at purchase time.

Situation 4: Falling Behind

If this is you, you're not alone and you aren't a terrible human being. The cost of living is through the roof and wages aren't rising to meet those costs. That can make car affordability really challenging. I commend you for seeking ways to make a change as opposed to avoiding the situation, which only makes things worse.

Here are some things you can do about it:

1. Inquire about hardship options. Lenders prefer to work with the humans on the other side of the loan as opposed to lose money on a repossession. Give them a call and ask about:

   • Deferment: This is where they'd allow you to skip a payment by adding it to the end of the loan.

   • Lower payment: This is usually temporary. 

   • Changing your due date: Aligning this with your paycheck will show them that you're honestly trying to make this work. Having it come out on that same day may also remove any temptation for that money to be spent elsewhere.

Whatever you do - get it in writing (ask for a confirmation email / letter).

2. Return the car. This can make financial sense if you obtain a written agreement that you do not owe anything else on the loan. Also, try to have the creditor state in the agreement that they will not report the default to a credit reporting bureau.

3. Consider the full picture. If your car payment(s) are wrecking your budget monthly, the above short-term fixes only buy you time. This is when selling, downsizing, or refinancing may be the best long-term solution (see above situations).

Important notes on repossessions: 

• They can occur as early as the first missed payment, without advance notice.

• If you anticipate a repossession, remove your personal property such as tools, GPS devices, media players, etc from the vehicle. They have a way of disappearing after seizure.

• If you are behind on your car loan, it's risky to bring your car in for repairs to the dealer or anyone else the creditor knows or to your creditor's place of business to discuss a work-out agreement. You may have to walk home if you fail to reach a satisfactory agreement.

• Losing the car unfortunately doesn't mean you're in the clear. There is still a debt that you owe.

  • The lender may sell it at auction and if they sell for less than you owe, you'll owe a deficiency balance (the difference plus fees). The creditor should send you a summary of the balance - verify the accuracy of these amounts.

  • The CFPB recently reported the average deficiency balance as $11k on average. You have the right to question the creditor on the reasonableness of the amount owed - the burden of proof is on them.

  • Lenders can sue for this balance but they'll also frequently accept a lump-sum settlement for less than the full balance - or agree to a payment plan. 

  • The forgiven amount often becomes taxable income, so it's always good to check with a tax professional in these cases. 

• There is free and low-cost help via Nonprofit credit counselors, legal aids, & bankruptcy attorneys (perform a Google search in your area). Additionally, active-duty military have extra protections.

Here are several things you can do TODAY to save money on your car(s), depending on your situation:

Multiple-Vehicle Households

1. Look into 'pay per mile' insurance for the car that rarely moves.

2. Use the same insurer. Multi-car discounts are widely available.

3. Ask your insurance company if listing your highest-risk driver (a teen, for example) on the cheapest, oldest car lowers your premium.

Insurance

1. Independent agents can cross-compare several companies' rates on one call. Do this at every renewal and you'll likely save $$$.

2. Ask agents to look into what discounts you may qualify for but are currently missing (i.e. bundling, low mileage, good student, etc)

3. Determine if you may be paying twice for certain extras like roadside assistance, which may be covered both by your insurance policy AND your credit card or AAA, for instance.

4. Common rule of thumb: collision and comprehensive cost more than 10% of the car's value each year, consider dropping them. Note: Do this only if you own your car outright and can afford to replace it.

Gas

1. Stack your discounts by combining a gas cash-back app with grocery fuel points, a gas station loyalty app and a cash-back credit card (note: this math only maths if the credit card is paid in full monthly).

2. Carry cash and seek out stations that offer discounts for using it.

3. Compare prices along your route using apps like GasBuddy.

4. Remove empty roof racks and clear out your trunk to lose drag/weight, thereby saving you on fuel.

Repairs

1. Review your owner's manual for guidance on things like how many miles in between oil changes. Many cars can last longer than the windshield sticker guidance most quick-lube shops provide.

2. Cross-compare repair shop quotes or use an estimator like RepairPal before making big financial decisions.

3. Take advantage of free services. Tire repair shops will often rotate tires and repair flats if you bought tires there. Auto-parts stores read check-engine codes and test batteries for free.

4. Don't underestimate your own abilities. For short jobs like cabin air filters, wiper blades, or tail light replacement, YouTube can provide all of the guidance you need to self-repair.

5. Consider the nature of the repair and prioritize. Repair shops can provide you a list of what is urgently needed for safety reasons versus what can wait - act accordingly based on your budget.

6. If car repairs always feel like emergencies, consider setting money aside each month into a fund to reduce your stress load.

Your homework this week: Pick one small action from your individual situation above and do it this week. Just one.

Up Next: Considering buying a new car? Before you enter a dealership, in Issue #3 (of 4) I'll walk you through exactly what to do so that you take charge of the situation and get exactly what you're looking for. We'll discuss common traps, negotiation tactics, and how to drive away with what you can actually afford.