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Ask Dave

Help! I'm $28K Underwater on a Car Loan

Chris and his wife have an SUV they're $28,000 upside down on. They need $48,000 to pay the SUV off. Dave explains that it is time to have a conversation with the bank that provided this loan.

QUESTION: Chris in Arkansas and his wife have an SUV they’re $28,000 upside down on. Negative equity was rolled into the loan in addition to a balloon payment. They need $48,000 to pay the SUV off. They might get $28,000 out of it if they sold it. Dave explains that it is time to have a conversation with the bank that provided this loan.

ANSWER: I think you need to sit down in person with your local branch manager at that bank and explain to them how screwed they are because they only have 50% collateral position in this, meaning they don’t have a truck that’s worth $50,000. They have a $50,000 loan. Really, what we have here is about a $25,000 unsecured loan and about a $20,000 secured loan. They just happen to be together. And begin to talk to them about the idea of selling the truck and accepting whatever proceeds come from the sale, and they release the title and you sign the note for the difference.

It’s kind of like you need to separate this in your mind and say, “I have a big, stinking, hairy truck payment on my $25,000 truck, and I also have another $20,000 in credit card debt.” That’s how you need to look at it because it’s separate, and you’ve got to separate it to get rid of a big portion of the payments, which is the truck payment itself and just get down to a big, unsecured loan, which is what this bank has.

Once you’ve separated these—and you need to separate this and you have a $25,000 or $28,000 or $23,000 or whatever it is unsecured loan with your bank that’s going to be like on a five-year note—it’s a separate note; it’s a completely separate note—and then you sell your truck as soon as you get the banker talked into this.

You need to go sit down with them and go, “Dude, you’re so screwed here. Really, you guys have got to work with me on this. We have a serious problem here. I cannot continue this the way it is. We have got to work together to cut my debt in half by selling this truck.” You’ve got to sit down with them, look them in the face, and show them what’s going on.

How in the world do they make you a $50,000 loan on a car? I mean, these people are brain damaged. How do they do that? That’s just ridiculous for them. I get how you could do it. You were just being stupid. I’ve been stupid. I get how you could do it, but I can’t get how a banker is this stupid. This is the dumbest loan on the planet right here. Who makes a $48,000 loan on a $25,000 car with a guy who makes $60,000 a year? This banker ought to be punched in the nose, man. Not by you. You need to go down there and beg for mercy, but oh my gosh. What a disaster.

Yeah, dude, you’ve got to start selling stuff, and you’ve got to take an extra job, and you guys are going to have to live on beans and rice. You’re going to have to clean this mess up. Hold on. I’m going to have Kelly send you a copy of the book The Total Money Makeover because, my friend, you need one.