Car Loans and negative equity.

Stephy_babey

First off may I say hello, I am new to these threads.

I have a friend who has come under some strained circumstances due to car loans and I offered to post on his behalf in the hope that someone would be able to give some great advice.

The story starts when he took out a car loan for a small car from Stoneacre which started at a low payment, for example I think it was £150 pcm, but I cannot be sure. For the sake of argument we will assume this is correct.

He then found out he was due to expect a baby and therefore needed a larger car to support this change in circumstance. He went back to stoneacre who often promise to exchange your car for a new car and keep the low payments. However on arrival this offer miraculously disappeared and he was somewhat caught up in car dealership magic and was encouraged to take a new car on negative equity... but get this... in his Dad's name.

So now his dad is economically responsible for this car despite it being his son's. The car payments are now double what they were and as you can imagine my friend is struggling to put this money together. He has stacked up roughly £5000 of negative equity and still has £12000 to settle on a car that is worth less than half of that.

He cannot hand the car back because it will give his father bad credit as they have only served 1 year out of the 5 year term.

Any suggestions on how he can get out of this or reduce his payments?

Thanks for reading

Steph

forgotmyname

If the finance is in his fathers name then thats who they will chase for payment. What will he think about
debt collectors knocking on the door?

How far are you into the loan? Did they consolidate the loan into one? Or still paying the old one?

Reducing the payments would be at the discretion of the loan company, But they will be looking at the fathers
finances not the sons, Its in his name.

Not looking good, Hopefully someone may know a way around and pop on here soon for you.

johnnyroper

the only way round i can see is to get a bank loan which will almost certainly be a lower rate than the car finance.
apart from that then i think you are stuck until the half way point is reached then car can normally be handed back and agreement cancelled (check paperwork it will say on there)

bigjl

Stoneacre aren't somebody I have come across before, just Google them, they are a large dealership. Your mate has been a victim of "shiny car syndrome", the reason they needed a guarantor is because his credit wasn't good enough, I doubt that his dad got the finance in his own name, much more likely to be a guarantor.

A salesman/salesperson is just that a person paid and employed to get you to buy something that you don't really need, the bigger the price on the car you buy the more commision he or she will get. They have no real interest in you or your personal circumstances, though there are exceptions to that rule.

Your mate has no option but to complete the agreement, he shouldn't focus on what the car is worth as he didn't pay for it, he has actually only paid just over £3k, the rest is interest on a loan secured on the car, cars depreciate, that is a fact of life. All these things will be in the contract that he and his dad signed.

This will be a learning experience for him, he also isn't serving a term, he is paying back a loan over a pre agreed time period, when he completes this agreement then the car is his.

What the dealership have done is probably "ghosted" a deposit by giving him an inflated trade in price for his old car, to provide enough paper equity in the deal to secure the new car, a fairly common practice.

Another lesson he will have learned is that a small car doesn't mean that you can't take your child in it, unless he was stupid enough to buy a Smart 2 seater.

People manage very well with Clios and Corsas.

Legally, as already stated, he has the right to hand back the car after, from memory, two thirds of the agreement has been paid.

He might be able to ask his dad if he wants to have the car, and sell his current one, as his dad may be better placed to pay for the payments. Then your mate can buy a cheap car from the classifieds which he might have been better doing in the first place.

Another option is to talk to the finance co and ask them to increase the term of the loan, which is unlikely as it is already 5 years.

Above all, remind your mate that a car is a depreciating asset, it will never be an investment, except in a small number of exceptions.

Unless there is something wrong with the car he just needs to suck it up anf pay for it, surrendering a car under the terms of the agreement is legally correct but it in itself might cause problems with his dads credit history. As this voluntary surrender will be recored on his file and this information will impact of his ability to secure more finance, finance companies hate it when you do this, as they then have the expense of disposing of it, normally at a loss.

Stephy_babey

Thanks to everyone for their responses, I apologise Bigjl if some of my coinisms were coming across as naive to you, I understand its a loan not a term, I was just being satirical. I know how hard this is to address in forums so it is my fault and not yours.

I do believe he has learned his lesson although I cannot speak for him and whilst it is easy to scold him for his decisions in hindsight, I really am just looking to be able to help him. I feel it is outrageous that a car company should be allowed to coherse someone into such debt.

The loan is in his fathers name, he's not the guarantor. This was encouraged by stoneacre and the full loan of the previous car was added onto the new loan.

The price of his car currently is that of two cars, surely there is something that prevents dealers from being allowed to do this? Furthermore are there any companies who would be willing to write off the debt in exchange for his new car and just add the negative equity onto a new loan so he would have to pay just £5000 of neg equity than £12000? Therefore he'd be able to take a car worth maybe £1000 on finance + the neg eq and pay significantly less, or would this be something avoided by most dealers?

bigjl

They are not allowed to "ghost " a deposit, in other words giving an excessive trade-in for the old car.

It isn't unusual for the balance of the old car to be put on the balance of the new car, probably the reason that the new loan needed his dad to be the "hirer".

This has happened many times before and the main person to blame, sadly, is your mate and the finance company that was happy to do this deal, things like this are what got the world economy into trouble in the first place.

The dealer hasn't acted illegally, unless they fiddled with the figures to show a deposit or equity in the old car. Some may view it that they went above and beyond to help out a desperate client that needed to get a bigger car due to changes in circumstances.

This kind of financial deal is very common in North America, and I woudl suspect that the finance company concerned is probably American.

Very few dealers would be able or willing to try and rejig the agreement in any way that would help your mate, they are a business, and want to make money not friends, not fair, but the way it is.

There is nothing to be gained from trying to trade the car now, every car he gets will have a profit margin in it, the more cars he does this with the more profit margins he is paying for, I have been in the same position before, not surprisingly when I was in my very early 20's, I was lucky that my dad didn't sign up as he felt it would make things worse. Which with hindsight it would have.

Your mate needs to suck it up and pay for the car, 4 years isn't that long. Currently the negative equity is the accrued interest and two lots of profit for the dealer, as your mate sold the first car before he made any dent in this figure before he sold it he is in the position that he is.

Remember the dealer buys the car for say £4k, sells it to you for £5.5k, you borrow say £5k, and the interest (over the full loan term) is say £1.5k. So the debt is £6.5k, you then pay off £600, leaving £5.9k, then trade it in and get given £3.8k for it, leaving £2.1k left on the balance sheet, you might get £300 off for early settlement leaving £1.8k to be added to the next car.

These figues are just rough guesses, but you can see the point, if your mate jumps again then he will end up more in debt and not even have a newer car to run around in.

The best advise from somebody that did this 20 years ago is to keep the car and pay for it, even if he has to get a few quid from his dad in the process, to help with the payments.

I was young and impetious once, as where most of us, if I knew then what I know now I would have paid the loan off even if I had to work 6 days a week to do it, even if he surrenders it in a few years he will still need a car.

Also to blame in this is his Dad, as he facilitated the entire situation, but apportioning blame won't sort this out, your mate wanted the car, he has it, he just needs to pay for it. Other than letting it be reclaimed and ruining his dads credit there is no easy way out of this.

iolanthe07

He then found out he was due to expect a baby

The publicity arising from this amazing happening should be enough to pay all his debts.

bigjl

iolanthe07 wrote: »

He then found out he was due to expect a baby

The publicity arising from this amazing happening should be enough to pay all his debts.

Lol, I did think that same..........

Stephy_babey

iolanthe07 wrote: »

He then found out he was due to expect a baby

The publicity arising from this amazing happening should be enough to pay all his debts.

I see your point, some rushed underthought wording on my behalf, apologies. Obviously I meant that his girlfriend was expecting a baby and he was due to be a father.

Thank you for your advice Bigjl, I think he realises this as well as I do but I offered to help find any advice I could on the subject matter and I guess this is conclusive.