Underwater car loan, drowning pretty bad

[ehren92]

Hi there, I learned the hard way and have gotten myself into some bad debt with numerous car loans. I have 12k saved, a monthly income of about $3k, and am currently paying 630 a month for a 2013 prius, plus 270 a month for insurance. My loan pay off amount is currently at $30k, the car is valued at $20k, $10k rolled over from my previous loan (like I said I learned the hard way!), my question is do I keep the prius and continue making the payments and get a lower interest rate by refinancing or should I pay down my loan until I can sell the car and break even. After doing so I would consider buying a cheap gas saver for around 3-5k cash or finance a lower mileage 8-9k car so I can still hold onto some cash without going completely broke while also purchasing a vehicle well under 100k miles. Keep in mind I drive quite a bit, probably average around 30k a year, so my prius will definitely see 100k miles long before I'm even half way through my pay off amount, but then again it gets well over 40 mpg even with a lead-foot. I am considering a 2009 mazda3 with 72k miles, it gets decent mpg, reasonably priced at just under 9k, excellent condition and will satisfy my car cravings in and out. I am a car guy, I've owned 7 cars and a motorcycle in the past 5 years so I would love to go with the mazda route, however I'm completely open to all opinions and will consider all options as my main goal is to get completely out of debt as smart and efficient as possible.

[sblatner]

I'll let others advise about the finances (though I would probably want to get out of that loan) but wanted to let you know we have a 2010 Mazda 3 that we love. Even our teenage boys like to drive it.

[disneysteve]

I have 12k saved, a monthly income of about $3k, and am currently paying 630 a month for a 2013 prius, plus 270 a month for insurance. My loan pay off amount is currently at $30k

Welcome.

I think it's a disgrace that they made a $30,000 car loan to someone only earning $36,000/year. That is predatory lending at it's worst.

Your car loan shouldn't exceed 10% of income. Yours is at 21%. Add in the insurance and you are spending 30% of your income on your car which is insane.

Get rid of the Prius. Sell it for as much as you possibly can. Use your 12K in savings to make up the difference. With whatever you have left, buy a beater used car and drive that until you can build your savings back up (which won't take long since you won't have $630/month going to your car loan) and then upgrade to a better car.

[JoeP]

I agree about the predatory lending comment. I'll also add that you are your best advocate when it comes to making financial decisions, but that is predicated upon the assumption that you are equipped to understand enough about basic finances. Sounds like either you weren't, or you had that knowledge and disregarded it for some reason.

In any case, I'd get rid of the Prius and buy a good used car that can hold you over until you have gotten out of this situation.

Then, going forward, make it a point to avoid making this costly and stressful mistake again.

[bjl584]

Get rid of the car. You should have plenty of savings to make up the loan difference.

Just make sure that you save the extra $630 a month that you'll have. Don't spend it someplace else.

[RobertReyna]

I agree with all points, this sounds like predatory lending at its finest (or should that be worst) but I also believe that you might be better off getting rid of the car and getting yourself something a bit more affordable. This does not seem like a feasible option right now.

[ua_guy]

I think we need more information.

What's the current loan term on the Prius?
What's the interest rate?
Your credit Score?

What's the breakdown of your other expenses and debts?
What's your age, and are you saving for retirement?

Why are you putting 30k miles/year on a car?
Why is insurance so expensive for you?

I'm more a believer in what makes sense in a given situation versus regurgitating the best financial recommendations chapter and verse. Spending 30% of your income on a car isn't the end of the world, provided you're able to sustain yourself and make good choices with the other 70% --and become disciplined to work on reducing vehicle expense as such a significant percentage of your income.

Not to browbeat you, as you've already figured this out, but you really screwed yourself to the wall here. You're upside down in the world's most boring car and you're paying exorbitant rates for insurance. The fact that you've gone through 7 cars/bikes in 5 years and landed in a really bad spot with money says it might be something more than just being a "car guy" that becomes bored with a car quickly. If you feel that's true, good luck in figuring out the root cause--addressing it could help you avoid putting yourself in a bad spot with money.

[PauletteGoddard]

do I keep the prius and continue making the payments and get a lower interest rate by refinancing or should I pay down my loan until I can sell the car and break even

I read this once and thought keeping the Prius with a refinance would be a good option, and then I read your circumstances and history more carefully, and advise you to consider paying down and selling.

I have a late-model Prius and am biased, no question. The length of time you own vehicles (five and a motorcycle in seven years) is different from how long I own vehicles, and there are other differing factors that lead me to believe that a late model Prius is not suitable for all budgets. You researched alternatives and that's smart. At 30,000 miles per year I can see why the Prius would be attractive. It's a great low-maintenance car past the warranty period expiration too. Get a car with much lower or better yet no monthly payment, keep or build some $$ aside for maintenance. A beater will have lower insurance too, based on my experience.

Good luck with your decision!

[dczech09]

Spending 30% of your income on a car isn't the end of the world, provided you're able to sustain yourself and make good choices with the other 70% --and become disciplined to work on reducing vehicle expense as such a significant percentage of your income.

If the OP was making $1,000,000 per year and was spending 30% of that on a car, that would be one thing. However, the OP is only making $36,000. If that is net, this is still bad situation. If that is gross, then this is an even worse situation. And I say this to put gravity on the situation.

With 21% going to the car, that does not leave much for the OP to live on especially when you consider that most household expenses are regressive (the lower your income, the more you feel those expenses).

The OP should never have got into this deal, and they know it. The lender should have known not to write this deal. This really proves one thing: you cannot depend on a lender to tell you what you can and cannot afford. So I really hope that others reading this thread to the time to understand all of this!

With all that being said...

I agree with what has been said. The OP needs to sell the car for as much as possible, and cover the rest of the loan with savings. Purchase an inexpensive car with cash or a VERY small loan that can be paid off in a couple of years.

After that, I would advise that the OP save up cash for emergencies and never do this deal again.

Also, look into that $270 per month for insurance. That seems pretty high. Is this because the insured vehicle is a Prius? It may also have to do with the OP's risk profile, or maybe there are multiple vehicles? Not enough information, but that $270 per month jumped out at me.

[ua_guy]

If the OP was making $1,000,000 per year and was spending 30% of that on a car, that would be one thing. However, the OP is only making $36,000. If that is net, this is still bad situation. If that is gross, then this is an even worse situation. And I say this to put gravity on the situation.

With 21% going to the car, that does not leave much for the OP to live on especially when you consider that most household expenses are regressive (the lower your income, the more you feel those expenses).

The OP should never have got into this deal, and they know it. The lender should have known not to write this deal. This really proves one thing: you cannot depend on a lender to tell you what you can and cannot afford. So I really hope that others reading this thread to the time to understand all of this!

With all that being said...

I agree with what has been said. The OP needs to sell the car for as much as possible, and cover the rest of the loan with savings. Purchase an inexpensive car with cash or a VERY small loan that can be paid off in a couple of years.

After that, I would advise that the OP save up cash for emergencies and never do this deal again.

Also, look into that $270 per month for insurance. That seems pretty high. Is this because the insured vehicle is a Prius? It may also have to do with the OP's risk profile, or maybe there are multiple vehicles? Not enough information, but that $270 per month jumped out at me.

Not having a car AND blowing more than 80% of his savings right now sounds kind of like a dumb idea, just sayin'.

For all we know, this person lives at home or has a cheap living situation. He also drives double the national average, so it might be wise to understand why he needs to drive so much instead of a prescriptive statement to get rid of a perfectly reliable and economical car AND every last ounce of cash he has.

[TheKayla]

Why is your insurance so high? Is it your location, situation, or can you look into lowering that? I also have a Prius and refuse to sell mine because I drive a ton too (plus I'm in love and its my personal indulgence, there's my bad excuse) -- it evens out by far for me to have bought a car a few thousand cheaper, although I still wish I would have bought an older one to save some money right after college. If you sell this one you can still find cheaper hybrids -- have you thought of trading your 2013 Prius for an older version too? There's hardly any different in mileage from 2nd gen+, so you could still get the gas benefits. Plus, they're pretty sturdy, so its not like buying one a few years older would up your maintenance costs.

Prius's keep their value fairly well (for a car), but of course it still drops pretty fast because it is a car. If you're in over your head, I'd swap for something older sooner rather than later. If you decide not to sell it, just be sure to drive it to the ground and save up cash for your next car.

[dczech09]

Not having a car AND blowing more than 80% of his savings right now sounds kind of like a dumb idea, just sayin'.

For all we know, this person lives at home or has a cheap living situation. He also drives double the national average, so it might be wise to understand why he needs to drive so much instead of a prescriptive statement to get rid of a perfectly reliable and economical car AND every last ounce of cash he has.

Are you trying to say that keeping such a large car payment is a better alternative?

The OP is "car poor." Spending some of the savings to free up cash flow may be a good option. It is only temporary after all. And they can always get a more inexpensive vehicle that is just as reliable. Its not like they are going to go without a car.

We can only make recommendations with the information that is provided.

[ua_guy]

Are you trying to say that keeping such a large car payment is a better alternative?

The OP is "car poor." Spending some of the savings to free up cash flow may be a good option. It is only temporary after all. And they can always get a more inexpensive vehicle that is just as reliable. Its not like they are going to go without a car.

We can only make recommendations with the information that is provided.

Yes. At least temporarily. There seem to be some things that the OP could fix-- like moving closer to work, or finding a job closer to home, or maybe a better paying job in his field. Dumping all his cash (cash which represents opportunity) just to pay off a car loan to be debt free isn't logical to me. I think the OP should fix his commute/driving habit, find cheaper insurance, and then look at dumping the car. In his present situation, he needs a reliable vehicle that can put down a lot of miles without a lot of issues. The gas savings alone of owning the Prius at 40++ mpg starts to become compelling compared to owning something that only gets 25-30mpg, as gas prices are beginning their spring rise.

[dczech09]

Yes. At least temporarily. There seem to be some things that the OP could fix-- like moving closer to work, or finding a job closer to home, or maybe a better paying job in his field. Dumping all his cash (cash which represents opportunity) just to pay off a car loan to be debt free isn't logical to me. I think the OP should fix his commute/driving habit, find cheaper insurance, and then look at dumping the car. In his present situation, he needs a reliable vehicle that can put down a lot of miles without a lot of issues. The gas savings alone of owning the Prius at 40++ mpg starts to become compelling compared to owning something that only gets 25-30mpg, as gas prices are beginning their spring rise.

This is all fair. However, the OP would have to reduce his mileage DRAMATICALLY in order for this to work long-term. He could easily down-size to a car with a $200 or less payment and put the extra cash flow towards other things.

The fact that he rolled over $10,000 from a previous car onto this loan says a lot. And the fact that he came to this forum and brought up his $630 monthly payment and $270 on insurance says a lot.

He is spending easily more than 1/3rd of his income on the car, insurance, fuel, etc. It is going to take a lot more than just changing his commute to fix the problem.

I used to commute 200 miles per day (round-trip) for a job that paid $13.50 per hour. I did this for a very short while after I graduated from college and was looking for a better opportunity. That was not fun. It was tight as this was just 2009 when gas prices were still pretty high. I say this to point out something: it isn't the commute that is the problem - it is the car that is the problem.

A Prius is an awesome car and sure it provides some great savings on gas in the short-term. However, that level of car is a luxury and is not for someone who is scraping by on $36,000 per year. Either his income needs to go up dramatically, his expenses need to go down dramatically, or he needs to sell the car.

Either way, something big needs to happen to fix this and selling the car is probably the safest bet. He needs a long-term solution, not a band-aid.