Updated: Apr 3, 2019
With the rise and fall of he economy, I see advice from time to time about what to do if you can no longer afford that shiny new car you bought right before your employee centered and values driven company boasted to its shareholder how great the company is doing on Monday, and then laid you off on Tuesday. Sometimes the advice I see published says give it back to the bank. Rarely is that the best decision.
Before I tell you why giving your car back is rarely a good idea, I will start with some kind and free advice about financing a car or any other property other than your homestead:
(1) If at all possible, just pay cash so you own it outright. Do this even if you have to buy less than a perfect shiny new vehicle. Just get something safe and relatively reliable. As the commercial says, get the car fax. Know what you are buying.
(2) If you cannot pay cash, make as big of a down payment as possible. Your goal is to owe less on your car than the retail market value. Being in this position is critical for people who may have to sell their car if there is a job or other financial emergency. Your car is then an asset for you and not a liability. Remember that your car loses big value immediately when you buy it.
(3) If you cannot afford a big down payment, you cannot afford a new car. Buy the best available previously owned car so that you don't lose so much value at purchase, and then in an emergency you can possibly make money by selling it or at least you won't be so upside down.
(4) Never, ever, ever, ever under any circumstances co-sign for anybody's darn car. If you must help someone, buy the car yourself, then insure that car to high heaven, and then work out some sort of deal with the person who you will let drive it. Just trust me here. Cosigning destroys families and friendships. Just don't do it! And, if you do buy a car for someone else's use. Make sure you have a key to that darn thing yourself. You will inevitably go get it!
Now that I gave you the best possible advice for buying a car, here is why what I said above is so important, especially if you give the car back or if the bank repossesses it. At some point after the return or repossession, you will get a letter from your creditor stating that they intend to sell the car at a private auction or sale. They are not going to sell it for what the car will sell for at retail. And, after some dealer buys it, you are going to get a bill for the difference between what they sold the car for and the amount that was due on your loan.
And, here is the shocking thing! You actually owe that money! How can they do that you ask? Here is why! When you finance a car, you are not financing it with the company that sold it to you. You are likely financing with a financing company or with a bank. That finance company or bank pays the full amount to the person or dealer from whom you bought the car. They are already out the full some of money. You are promising to pay a certain sum of money to the bank. And, if you fail to pay and default, the bank has the right to take your car for what it's worth at the time and then charge you the rest. Remember, cars lose value over time. That's why it's important that when you buy a car, you don't end up owning more to the bank than the car is worth.
If you do not pay the difference or shortfall, you can expect to get sued. Don't believe me? Then go check out the docket on any county court. (Dallas County Court at Law One and Two are good ones to look at.) You will see many suits by automobile financing companies suing people for shortfalls after repossession. And guess what? The finance company will make you pay, and there is not much you or an attorney can do to settle it without your paying something. How do I know? Because there is a good chance I could be the attorney you have to settle with!
So, take my advice. Buy the safest and most reliable car you can afford. Besides, then you can afford flowers, candy, and a good night out to build memories with your love instead of nightmares because of credit.
Joseph E. “Jody” LaFleur, Esq.