Car repo rate heads for record high |
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Even though it is a depreciating asset, those with a fair
amount of equity in the vehicle may be able to sell and downsize,
thus eliminating their car payment and even creating some surplus
cash. For example, consider a vehicle valued at $18,000 with a $10,000
balance remaining with monthly installments for 36 months at 6 percent.
Selling the vehicle and paying off the loan would
free up $322 per month and bring in $8,000, which could be used to
buy a cheaper used car or possibly used for other purposes, if the
household can get by on one vehicle.
"If you have some equity in the vehicle, then
you do have some freedom to make positive changes to your economic
picture. (Lenders) would rather not repossess your vehicle and they
have options for you," says Reed.
No matter what kind of situation the vehicle owner
is in, Reed recommends talking with the lender and explaining the
situation. Besides selling the car or downsizing, owners may be
able to turn to their lender to reconfigure the loan, perhaps by
extending the term. If your lender isn't willing to renegotiate
the existing loan, look to other lenders to for a new loan -- at
terms better suited to your needs -- and pay off the existing loan.
Use Bankrate's
auto loan rate search to find national averages and rates in
your area.
Typically, if a consumer misses three payments and
will not communicate with the lender, a repossession order is put
in place. Even while missing payments, Reed says, drivers can at
least temporarily delay a repo by simply communicating with the
lender.
"They just want to know that you're not going to disappear
on them and close down completely. Repossession is a negative financial
situation for them as well because they have to pay to have it repossessed
and then they have to pay auction fees," says Reed.
Adam says that when people are trapped between a high
car payment and resetting mortgage, the worst thing they can do
is to simply skip vehicle payments and risk repossession. The effects
go beyond simply losing the vehicle -- a repossession can have a
very negative impact on a person's credit rating. And in a time
of tight credit and increasing lending standards, that can affect
a person's ability to get another vehicle.
"Defaulting on a car nowadays, with credit scores having the importance that they have, has huge consequences. It can even
affect your insurance and your ability to get a job in some cases," says Adam.
Similar to the housing market, one person's misfortune is another's opportunity. An increased number of repossessions are
creating some great deals in the used vehicle market and, Webb says, wholesale used vehicle prices have been down substantially.
Used vehicle sales across North America in the first
three months of 2008 fell by 7 percent from a year earlier, the
Bank of Novia Scotia says in it Global Auto Report, with one-year-old
models dropping 11 percent. The bank says it expects used-car prices
to "soften" through early 2009.
The Black Book, a guide to used vehicle prices, has reported that prices of premium used cars fell by 20 percent to 22 percent since
March 2007 and CNW Marketing Research says used sport utility vehicle sales in March were down 14 percent compared to last year.
At ADESA, says Kontos, not only are used vehicles coming at a cheaper price, but repossessed cars tend to be newer and in
better condition. In the past, repossessed cars tended to be five to seven years old when taken back and they usually were purchased used
by someone who was already a credit risk. But under current economic conditions, many of those cars being repossessed today and the owners
they are being taken from don't fit the typical mold.
"I think there are a lot more gems out there now," says Kontos.
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