So you’ve got a car and payments, but they’re becoming unmanageable. Often, vehicles are bought through loans, which can lead to trouble if either your income drops or what you owe exceeds the car’s value—known as negative equity. What can you do when faced with this situation?
The Rising Trend of ‘Give Car Back’ Searches
It’s becoming a bigger issue than people realize. Google searches for terms like ‘give a car back’ have skyrocketed, hitting an all-time high in the first quarter of 2023. Meanwhile, average car payments have surged, reaching almost $900. This surge is accompanied by an increase in auto loan delinquencies, surpassing pre-pandemic levels.
Options in a Tough Spot
When the value of your car falls below what you owe, selling it becomes challenging. Another option is a ‘car short sale,’ where you approach the lender and essentially hand the car back due to the negative equity. However, getting the lender to agree involves specific criteria and paperwork.
Understanding Car Short Sales
Unlike repossession, a short sale might impact your credit less. If approved, the lender waives the negative equity difference. This option also guarantees the vehicle’s value and offers a smoother process, possibly including insurance or loan rebates.
Navigating the Process
Banks aren’t proactive about advertising these programs, so you might need to dig through their documents or websites to find information. Some lenders have specific departments for short sales, requiring proof of your financial hardship and the vehicle’s condition.
Advantages and Incentives
A short sale can save you from accruing additional fees and debts. It informs the lender of the vehicle’s condition and might save you money by returning all keys and remotes. Appealing to the lenders’ interests could make them prefer a short sale over repossession.
Preventing the Snowball Effect
Acting before the situation worsens is crucial. Choosing a short sale allows you to retrieve your belongings from the car, preventing the surprise of waking up to an absent vehicle filled with your possessions.