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Stuck in an Upside Down Loan

By Erin Keene

I have a bad ass car: a Volkswagen Passat, V6 special edition GLX, with leather seats, sunroof, 6 disk CD changer, tinted windows– and all it cost me was twice as much as it’s worth!

Desperate to turn in my old “junk bucket” with its rusty paint chipping off, ripped seats and roll-up windows, I dashed to the dealership. Puttering around the Toyotas, the Nissans and the Hondas, nothing interested me until I saw the luxurious Passat!

Although it was out of my price range, I thought, “I’m getting a loan anyway, so why not pay a little extra every month to live in style?” The salesman let me test-drive it and once I took that smooth ride I was hooked.


Being that I had “new” credit the banks had no track record to trust me on and therefore could charge a higher interest rate– which they did. If you have really good credit– for example, if you have assets you have paid off or paid all credit card bills on time over a period of time– you can get as low as 3% interest. Nine percent is the average, while some people with really bad credit pay up to 28%! When financing a car, you have to keep in mind that you will be paying about 10% more than the final price.

Needless to say, my monthly payments were much higher than I planned on paying. I thought I was being smart by buying the 2,400 mile warranty, but what they say is true: once your contract is up, everything starts to break.

That car has had so many problems! The alternator, the radiator, the starter, the brakes, everything… It currently has a crack in the thermostat housing, whatever that is. Being that it is German, the parts to fix it were very expensive. Plus, there are a limited amount of garages that will work on it.

Five grand in repairs later, I am still stuck making payments on an amount that is more than the car is worth. This is what they call being in an “upside down” loan.

I’ve tried to sell it– but no one wants a problematic car. I’ve tried to fix it, but more things keep breaking. I’ve tried to turn it in for another car, but the dealership won’t give me the full amount I owe on the Passat, effectively tacking the difference onto my new car payments.

Remembering my first car, the “junk bucket,” I now realize it is much better to pay in full what you can afford than to go broke riding in style. It may have been embarrassing to drive around, but I spent a hard-earned $4,000 for it. Had I stuck with it or made smarter choices I wouldn’t have to deal with never ending payments.

PS: Let me know if anyone wants to buy a bad ass Passat for $6,000.
Erin’s car buying tips:

  1. Never pay more than 10% interest: get a co-signer, someone with good credit who trusts you to make your payments on time (like your parents).
  2. Before you go to the dealership, figure out how much you can spend each month for the next 5 years. Subtract 11% from the total of those 60 payments to get your spending limit– and don’t even test drive a car over that amount.
  3. Get a really reliable car if you do not have money for maintance. Even though the Toyotas, Nissans and Hondas may not look the sportiest, they have the best reputation for reliability. If they are out of your price range, go for the Kias or Hyundais.
  4. Obviously, put down as much cash as possible.

0 0 176 01 June, 2005 Advice, Lifestyle, Money June 1, 2005

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