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Author: admin | Category: Auto Car Loan Calculator | Date: 27.05.2016

As you can see, there are quite a few options for dealing with an upside-down vehicle in bankruptcy. To leave a comment, please either log in with your Facebook or Google+ account, or enter the captcha code and use the default comment system below. An upside-down vehicle simply means that the vehicle is worth less than is owed against it. By redeeming, Debtor would pay Big Bank a lump sum of $3,000 and Big Bank would release its lien.
In a cram down, Debtor would pay the value of the vehicle over the life of the Chapter 13 plan.
I wouldn’t recommend this option, as Debtor would eventually pay $15,000 for a $3,000 car. If Debtor surrendered the car outside of bankruptcy, Big Bank would sell it at an auction for around $20 and then sue Debtor for the deficiency (the difference between the value of the collateral and the loan balance). There are places that will give loans for this type of transaction, but their interest rates are quite high. That’s because you’re making payments for a longer period of time, and longer loans often have higher rates.To find out how much more you might pay, the Consumer Reports Money Lab calculated the difference between 48-month and 72-month loans on a $32,765 car, with a negotiated price of $30,520. Debtor cannot cram down the loan if the car was purchased less than 910 days before the bankruptcy was filed AND the loan was made to purchase the car, i.e. As the table below shows, the longer loan will cost you about $1,600 more, assuming a 10 percent down payment.

If Debtor can come up with the necessary funds, redemption is a great way to keep the upside-down car without overpaying for it.
If you put 0 percent down, the difference climbs to more than $1,800.And longer-term loans are more risky. So unless you make a substantial down payment or have a high-value trade-in, your new vehicle initially will lose value faster than you’re paying for it.Owing more than the car is worth is known as being upside down. At some point as you pay off the loan, you’ll no longer be upside down and will begin building equity in the vehicle. If you decide to trade in the car during that upside-down period, you’ll probably get less than what you still owe on the loan.
And the vehicle’s depreciated value is typically the maximum amount your insurer will pay you if your car is seriously damaged or stolen. If you’re within the upside-down period, that amount won’t be enough to pay off the remaining loan balance.As the graph below shows, the upside-down period on a 72-month loan with no down payment lasts until about the 30th payment, based on our $30,520 purchase price, current loan rates, and average depreciation. The first thing you should understand about leases is that whether you acquire the vehicle with a loan or a lease, you’re borrowing the entire value of the vehicle, minus any down payment or trade-in.
And you’ll be charged monthly interest on that amount reduced by what you pay back along the way. There’s the rub.With leasing, instead of paying off the entire car, your payments are based only on the projected depreciation. That’s because, unlike with a loan, you’re not building equity in the vehicle, which you must return when the lease is over.So over a 48-month lease, for our example, instead of paying off the entire net cost of the vehicle, you’d pay back only about half, which results in much lower monthly payments.

And because you’d be paying back less, that leaves a greater amount subject to a finance charge month after month. And if you take into account its value, the loan typically ends up costing less.The biggest saving grace for leasing is the sales-tax break you get in most states compared with buying the car.
In most states, leasing customers pay tax on the monthly payment instead of on the entire cost of the vehicle. But some of that benefit is offset because, unlike with a loan, the finance charges are taxed as well.
In Illinois and some other states, lessees must pay sales tax on the full vehicle cost, just as if they had made a purchase. But only in a period of very low interest rates would the tax savings under a lease offset the higher finance charges.
But even in that case, once you factor in a $500 lease-acquisition fee, the lease ends up costing more.

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