Thursday, November 21, 2024

Scott,
My son purchased a car for $15,000 at a high rate of interest. He's been paying for 32 months and he still owes $11,000. He has just been laid off and to top it off the car has blown the engine. I would like to help him pay the loan off to keep his credit rating but would like to negotiate the amount down. What are the chances? Would he be better off to let it be repossessed? This would be to nobody's advantage. Please advise. 
--Jim

Jim,

Thanks for writing!

The good news, certainly for your son, is that you're willing to help him. And because of that you'll be able to save him some money and keep his credit history clean. Since your son probably has your character, it's a good bet that he'd make sure to repay you when he's back on his feet.

Here are a few ideas to save money, while helping your son at the same time:

1) Buy the car from your son. 
Since you are willing to help out financially, you may be able to save money by buying the car from him. That's because you're more likely to be able to get a better rate on a loan for the car.

Check with your credit union or local bank and find out what the deal is for used car loans. The bank will loan you an amount based on the book value of the car, but the rate will most likely be far less than the current rate.

If you cannot get the full $11,000 needed to pay off the original amount you may want to consider using a credit card cash advance if the rate is low. Call your credit card bank and see what they have to offer. Tell them that if they give you a good deal you'll use their line of credit otherwise you'll be calling your other credit cards to see who wants to make a profit. Or, if you have a low rate transfer offer on one of your credit cards, you could cash advance one credit card and immediately transfer the balance to the lower rate card.

So between the bank loan and other financing you can take possession of the car and save money over the current financing.

2) Fix the car. 
The car is still worth quite a bit of money. Replace or repair the engine and keep track of that cost.

3) To sell or not to sell.
At this point you have a functioning car that's been refinanced at a lower rate. Your son's credit history looks good because the car has been paid off. Now the question is, "Will your son want the car when he gets on his feet or will he want a less expensive vehicle?"

If he wants to keep the car, then you could sell it back to him for the unpaid balance plus the cost of repairs. Or he could pay you monthly for all the financing.

If he doesn't want to keep the car then sell it. Take that money and pay off as much of the financing as possible. You may not get enough from the sale to repay the entire amount. In that case you'd need to work out how that difference would be paid.

As far as negotiating the amount goes, it's always worth it to give the lender a call and see if they'll reduce the balance. However, in this case, I believe the chances are slim.

The above suggestions are the ideas I would consider. I hope you find them useful.

Good luck and please let me know what happens!

Regards, 
Scott

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