However, if you are deeply underwater only fully amortizing the loan (paying it off) will solve the problem.

Not necessarily. The first policy will be higher, that is true. But, ask your agent to rewrite your policy upon renewal. You will have a history of having a policy at that point, and if you were a good driver during that time, you may find yourself with a better rate.

Another option is that, if you are not driving the car too often, you may be able to switch to another kind of insurance plan which handles just driving occasionally for fun…forget what it’s called. Talk to your agent. :-)

@ Michael – what are Loan Loss provisions? When my brother turned his car in, the bank sold it at a huge loss and then sued him for the difference. So now he is paying for a car he hasn’t owned in over 2 years.

Also, with a car loan you will be unable to drop insurance. If you do, the bank will take out insurance on the car and force you to pay for it and I can guarantee it will cost more than you are currently paying. It is in every reputable car loan agreement.

Second, there’s a lot of misinformation floating around in the comments here. Repossession is the absolute worst thing you can do for your credit, and it will take the better part of a decade to recover. The lender isn’t just going to “absorb” whatever loss they take on your car when they repossess it – the borrower is responsible for whatever the balance is between what was owed on the vehicle at the time and the repo and what the bank sold the car for at auction.

If a person owes $10k and their vehicle is repo’d and sold for $6k, the bank sends the borrower a bill for $4k (and there are no payment plans). If the borrower doesn’t pay (and they never do), civil proceedings are begun. Most people end up with a judgment and wages are sometimes garnished.

By the way, you can guess what a repossession and a civil judgment will do to a person’s credit score. In this credit climate, a repossession is the proverbial “kiss of death.” No one will offer you credit until a few years have gone by.

Repossession is NEVER an option – especially if your credit is in good standing.

Trent – Can I give you a guest post or something on this topic? I’d be happy to give your readers a few options that haven’t been discussed here.

Quote:”Bill its not about the image, its the fact that I am unlikely to own the car past the point with no payments, so I’d rather bail now.This is compounded with the 0% deals out there (I am paying 8.9%). So, in doing the math I can get a newer car paying zero interest for 5 years.”

Why are you “unlikely to own the car past the point with no payments”?

Too many miles…it’s going to “wear out” before the payments end? Your “Lifestyle” has changed? What?

Do you think that after rolling your “Negative Equity” into the loan for the NEWER CAR (even @ 0% interest) you come out ahead?

Naw…in reality you are that much deeper into “The Hole” as far as equity. You would owe the cost of the NEWER CAR (which will loose 15 to 20% of the value/loan amount when you drive it “off the lot”)plus the amount that you had to add to your loan amount because you JUST HAD TO HAVE that NEW 2009 Zimbabwe Rhodesian Sport…

Do what ever you want (because you will anyway)

Invest in some “Dave Ramsey” Books…and write your poor choices in major purchases off as another learning experience.

On the other hand…It’s “PEOPLE LIKE YOU” that keep our economy going…as the “REST OF US” wise up!

Go Get’m Tiger!

You’re right, leaving a car sitting can have negative effects on a car. The fuel can go bad in the tank, too.

If you decide to let a car sit, you should probably fire it up at least once a month and make sure everything is still in good working order. I can’t remember if it’s better to leave it sitting with a full tank or with a low tank, so some research would be in order.

What’s wrong with the car you have, dude? Your car does NOT define you. Pay it off. Are you prepared for higher insurance rates, too? You think it’ll only be fifteen bucks more a month? Don’t kid yourself. Don’t buy into an image. No one who matters really cares if that car is a 2006 or a 2009.

Just curious, what’s the procedure on that? Is the loan then written off? It’s still a default and a deficiency judgement, right?

Be thankful you have enough money to sit back and call people who lose their cars “dishonest.”

I’ve also looked hard at those balance transfer offers, but I’m afraid they’ll change the terms and I’ll be even further up a creek. Debt vs debt doesn’t seem like a sound strategy, even at 1/4th the interest. Besides if you can’t get a loan for the whole amount you’re just stuck with an even larger payment until you pay off one of the loans.

Refinancing a used car is supposedly possible, but I haven’t had any luck getting terms I’d agree with, even with great credit. The bank doesn’t want to pay more than the car is worth either. They’ll give you a fine rate on a new car, but it seems like they want 4 points more for a used.

In the end I gave up sleep and picked up a side job to make the car payment. Then my FIL needed a car and bought mine off of of me and that immediately went towards the loan. It’s been 2 years and I’m not right side up yet, but I will be soon and I’ll have the damn thing paid off by next year. At which point I’d like to set it on fire, but I guess I won’t.