Robbing Peter to Pay Paul
When times get tough, whether you’ve purchased a pre-owned car or a new vehicle, making car payments on time is often last on our list, especially when we consider essentials like mortgages, rent, food, and medical bills. Sometimes we rationalize that it’s just easier to rob Peter to pay Paul and skip the car payment for the month.
Another solution I hear more and more is where car owners are letting someone take over car payments on their behalf while the loan is still in their name. Is this a good idea and should you do it? What other options do you have in case the designated person can’t make the car loan payments either once they’ve agreed to do it.
Instead of having a repo on your credit report, there are some things you can do beyond allowing someone else to take over your monthly car payment.
Allowing Someone Else to Pay
There are consequences to letting someone take over car payments on your vehicle loan. The first one is obvious as the person you ask to make the payments has no right or title interest in the car, so what’s to keep them from not making the payments as agreed? You may hand over your car payment coupon booklet only to find out in a few months that your car is being repossessed for failure to make payments. In addition, the finance company will not want to hear your story about how your friend or family member was supposed to make the payments, especially if they’re not even on the loan as a co-signer.
The idea of allowing someone else that has not co-signed on the loan and is not responsible for the car payments is really not a good idea, so instead, below you’ll find some other ideas that might help in an economic crunch.
Car Payment Alternatives
If you find you’re in a bind each month and can’t make your car payments, here are some alternatives that will work much better than letting someone take over the payments on your loan:
- Call the Finance Company – As soon as you know you won’t be able to make your monthly nut, call the finance company immediately. Ignoring late notices will not make it easier when you do finally have to speak to a finance company representative. Edmunds, a consumer-based auto research website, recommends asking the finance company to give you the true market value of your vehicle at the time you make the call, as true market value can vary from month to month and also depends on mileage. If the true market value is more than what you owe on the loan, sell your car outright and payoff the loan. While you won’t have the car, you won’t have the monthly payment either and perhaps can find a more affordable vehicle.
- Interest Rates and Refinancing – Ask the lender if it is possible to refinance the car at a lower interest rate. If you’ve been timely on your payments, they may allow this, which will reduce what you owe each month. Although most car lenders won’t reduce an interest rate on an existing loan, you can ask to refinance for a longer term that will lower the payments. Doing this, however, may result in a higher interest rate, but your monthly payment will be lower, which is your overall goal.
- Loan Assumption – Most auto financing companies won’t allow this, but a few will, such as a credit union or bank. What is done here is you find someone (with good credit) to assume your loan, but they will have to qualify and the car’s title won’t be in your name anymore, meaning that person who is assuming the loan could take the car from you if they are making the payments. Once the loan is in another person’s name, you’re out of the loan as well as owning the car, so keep this option as a last resort.
- Upside Down – If you are upside down on what you owe on your car, meaning you owe more than the car is worth (true market value), you can still try and sell it and ask for friends or family members to loan you the difference to pay off the entire loan.
Please click on Page 2 to obtain advice from Jean Scheid, an auto dealer on why you shouldn’t allow a car payment takeover, or co-sign on a car loan for someone who is not responsible.
Buying a Car is a Big Decision
As a car dealer, I realize buying a car is a huge investment and many times I’ve had people walk through my dealership looking to finance cars they can’t afford. I usually tell them they can’t afford a high monthly loan payment based on their cash coming in each month, even if they have good credit and a financing company approves them.
Letting someone take over car payments on an existing loan is not a good idea. You have no avenue or resolution if they decide to stop making the payments. It’s also not a good idea to co-sign for a car loan if you’re not 110% sure the person who is first on the loan will indeed be responsible enough to make the payments each month. If you co-sign and your son’s girlfriend’s sister stops making payments, the financing company will look to you next to make those payments. If you co-sign you are just as responsible for monthly car payments as the first person on the loan contract.
Further, if you do let someone take over car payments on your loan, and they don’t make them, and you’re not aware about the stoppage, a finance company, especially these days, will attempt to repossess the vehicle within 120 days and that will be reported to all three credit bureaus.
My final piece of advice as a person in the car-selling industry is not to let an aggressive salesperson talk you into trading your car in and refinancing a lower priced vehicle. Why you ask? Not only will you be financing the lower priced vehicle, what you owe on your current car will be rolled into your new loan, making your car payment even higher. Fast-talking and pushy salespeople are good at this tactic so avoid it at all costs.
Before you allow someone else to make loan payments on your behalf, try working with the car financing company or one of the other options listed in this article. As an auto dealer myself, I would also suggest visiting the dealership where you purchased the car and see if they can sell it on consignment for you to help you pay off what you owe.
What To Do If you Can’t Make Your Car Payments (Edmunds) 7/23/10 (https://www.edmunds.com/advice/finance/articles/140846/article.html)
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