You Lose Control With Repossession

Jose is having difficulty making his car payments. Should he allow it to be taken? Can the bank take a lien against his house?

QUESTION: Jose from My Total Money Makeover is having difficulty making his car payments. Should he allow it to be taken? Can the bank take a lien against his house?

ANSWER: Sure. Of course they can. You don’t want to go through a repossession if you can avoid it, because you lose control of the price of the car. When they repo it, they’re going to sell it and sue you for the difference. If you sell it, you get to work out a higher price, thereby having a lesser amount you’re going to owe different. You can either negotiate that with your bank if you have a bank that you’re working with, or you can go to a bank or credit union and get a loan for the difference.

So you owe $20,000 on a car that sells for $17,000, and you’re $3,000 in the hole. If your loan is with General Motors, they’re not going to work with you on the $3,000 difference. If your loan is with your local bank, they might. Either way, if you can’t get your current lender to work with you on the difference by making you a small loan—an unsecured loan—then you go and borrow the money somewhere else. But if you get this car repossessed, they won’t sell it for $17,000 even if it’s worth $17,000. On the repo lot, it’ll bring $11,000. Instead of owing $3,000 as the difference, you’re going to get sued for $9,000. You make yourself a bigger mess because you lose control that way, and I wouldn’t do that.