Solano Real Estate Scene: ‘Holy Batmobile,’ be wary of large car payments

A total of 1.7 million Americans were three months behind on their car payments in 1999. As of this month, a record-breaking 7 million people are driving around three payments behind, hoping to avoid the repo man or repo woman. Most of these borrowers owe more on their car than it’s worth and now have an even lower credit score than they had when they bought the car because 90 days past due crushes a credit score. Many are now trapped in a situation that cannot be resolved because they cannot refinance to a lower payment and voluntarily repossessing the car is never a viable good option because when a car is repossessed, the finance company sells the car and then pursues the borrower for the deficiency balance, which can be devastating. If the car is repossessed, the consumer no longer has the car to drive to work, his credit rating is in the tank and he still owes the deficiency balance left after the lender sells the car to a dealer or an auction house for a price that is usually much less than the balance due. Bankruptcy is the only remedy to escape the deficiency balance and if the consumer files bankruptcy before the repo, they still must surrender the car or bring the auto loan current. The bankruptcy law protects consumers from creditors but if a creditor has collateral to secure their loan like a car or a house, the bankruptcy court requires the debtor to pay the loan current or surrender the collateral to the creditor unless a bankruptcy Chapter 13 payment plan can be worked out and approved by the bankruptcy court judge. A vast majority of these delinquent borrowers are young, poor and middle-class consumers who get sucked into high interest rate sub-prime loans or they get seduced into a sexy car they cannot afford even at a low interest rate. Auto loans, large federally insured student loans, IRS and Franchise Tax Board tax liens, excessive credit card debt and lousy credit scores are the primary reasons that hinder a person’s ability to buy a house. Unless you are an Uber driver, a car is not an income-producing asset, it is almost always a liability. Look before you leap because once you drive off the lot you can’t turn back and 100 percent of the time the car is worth less than what you bought it for just 10 minutes after you burn rubber down the street in your hot new car. Be smart and never sign for a car payment of more than 5 percent of your monthly gross income and don’t forget about the cost of auto insurance and gas and maintenance.