Q: I’m curious if I have any options. I have a 2006 Chevy Cobalt (completely bottom of the line). I owe about $6,500 and it’s probably worth about $4,000 toward a trade. I just had my first child and it is way too small. My credit is beyond horrible. I’ll actually be filing for bankruptcy in a few months, not including my car. What can I do? I really don’t want to buy a used car as I had a horrible experience in the past. I’m looking to try and get into a Hyundai/ Kia that is just bigger with a warranty, or even a lease. Do I have any options without a co-signer? Is it harder to get a lease than a loan? Can I trade my car and put the new vehicle in someone else’s name and if I can trade it, will my bank approve of it?
S.H. – Raynham, Mass.
A: Your options are limited. However, some people have money saved up going into bankruptcy. If so, you can use that money as collateral toward your next auto loan securing financing, even with a great interest rate. If not, look into bank or credit union "repos." These vehicles may cost you a bit more, but lending institutions are willing to go the extra mile to sell them. Lenders have been known to implement flexible financing terms to sell their "repos." Lenders need to get these vehicles off their books as they continue to depreciate!
A co-buyer as you know is your best option. Most lenders will want the stronger buyer on line one and you as the co-buyer on line two for several reasons. First, most lenders have a scoring system, which carries a greater focus on the first buyer. The stronger credit person will score better on line one, even though both the buyer and co-buyer will be equally responsible for the auto loan.
Second, all deals with a trade-in are a buy/sell transaction. A person can trade or sell only their property and not someone else’s. Therefore, asking another person to buy a vehicle using your Chevy Cobalt as a trade-in (buy/sell transaction) is not acceptable. The state can only give you tax credit for your trade-in, not someone else.
Third, having another person buy a vehicle for you in their name and financing it is against most lenders approval criterion and policies is even against the law in some states. A person can buy a vehicle and completely pay for it and then gift it to you through legal channels. Lenders have been known to ask the auto dealer to pay off an auto loan, and then they find out that the vehicle was for someone else (something known in the auto industry as a "straw purchase"); this can be a very costly scenario for the auto dealer.
The best policy is to be up-front about everything with all lenders about your situation as you seem to be. Don’t shy away from pre-owned vehicles with factory warranties or factory certifications. These vehicles make a lot of sense when the buyer is in a negative equity situation like you. Good luck.
Agustin Vasquez, Jr. – General Manager, Mack Massey Chrysler Jeep Dodge, El Paso, Texas