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Should I Pay Off Car Loan Now?

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  • Should I Pay Off Car Loan Now?

    It's been about 2 years since my CH7 BK discharge and I have been paying on time my monthly payments to Toyota $277 for my 2004 Solara with 170,000 miles on it. I did not reaffirm the debt, but just continue to make payments so they don't take the car. They have even been reporting payment history even though the account says included in bankruptcy on my credit reports.

    I am trying to decide what the best option is. I contacted my lawyer to see if maybe I could settle the account, but they said it was highly unlikely and I would have to pay the full amount of the loan. I currently owed around $3,500 and Kelly BB value of my vehicle in its current condition is about $2,237 private sale and $3,124 retail. The trade in value is about $1,608. These are all very ruff estimates and probably lower in reality.

    As far as the car, it runs great. I haven't had any major mechanical problems with it. Just basic maintenance. The only thing it really needs now that is a big job is new struts and shocks which will probably run me around $1,200.

    I have about 1 year and a few months left until the car is paid off, but I'm nervous because it's so old and has so many miles on it. I know though it's a Toyota and these cars sometimes can be run into the ground with upwards of 200,000 miles with basic maintenance which is what I am hoping for.

    I am trying to deicide if I should pay it off now in full or just wait until next year and continue making monthly payments. I would really like to increase my monthly cash flow and getting rid of this loan now will free up a lot of cash. I know if the car runs fine for at least another year, I'll have that money saved up and more which I used to pay it off.

    My concern is paying off the car and then something major happening to it. What's good now is that I can walk away from the loan and not be responsible for it if the car breaks down with a major repair. I would ultimately like to settle the account for less than owed, but I don't think Toyota will go for it, but I'm going to ask anyway.

    Does anybody have any advice on how I could go about getting a reduced payoff amount on the phone with them and should I do it now or just wait till next year when the loan is paid in full?

    I also don't really want to use that money to put as a down payment on a new car. I don't want to get back into any more debt, even though I would have a new car. I also don't want to really buy a car for $3,000-4,000 as I will be taking a chance purchasing a high mileage vehicle. I got really lucky with this one.

    Anybody know of any other options or what the best thing for me to do is. Also need some advice for trying to settle the account for less on my own if I go that route.
    Bankruptcy Life: My life before, during and after Chapter 7 bankruptcy @ http://BankruptcyLife.org

  • #2
    What interest rate are you paying? That is a big factor in a decision to pay off now or continue to make monthly payments.

    Even if you have to make major repairs in the next few years, keeping the old car will still cost less than buying a new one, especially when you consider the higher insurance premium you`ll pay on the new car.

    The lender probably won`t agree to a reduced payoff unless you default on the loan. Doing that is risky because if they won`t settle, you will either have to pay more than you otherwise would to bring the loan current or let them take the car.

    Since the car is running well, I would keep it and put some money aside for maintenance.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

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    • #3
      The interest rate is 6.24%. I don't think I can really default on it though because technically I can walk away because it was discharged in Ch 7. It's a ride through loan. I'm just making the payments, even though I don't have to so they don't take the car. I would think that if the lender knew how many miles there were on the car, it would make sense to settle the account now knowing the borrower can walk away from the loan and they can't go after them because it was already discharged and the debt not reaffirmed. Wouldn't they rather get something than nothing if my car breaks down or I total it and I walk away?

      I know I would pay more insurance on a new car. I also want to pay it off now so I can go ahead and lose the collision and comprehensive. If I put away the monthly payment and money I save on insurance, I could make it back in less time it takes me to payoff the loan in full which is something like 15 to 16 more installments. I definitely don't want to do any major repairs on the car. I'm even putting off doing the struts and shocks because it's just too old and I want to run it into the ground. I didn't do it because the car still passed inspection with the bad struts and shocks.

      I was thinking too if I pay it off now, I would have the title and I would be able to sell it for probably not much or trade it in and at least get something towards a new car if I had too, but I'm leaning more towards buying a used car next time and not carrying an interest bearing loan on an asset that falls in value every day.
      Bankruptcy Life: My life before, during and after Chapter 7 bankruptcy @ http://BankruptcyLife.org

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