Attention Car Owners – Do You Need a Reality Check?

This is a guest post from Joe Plemon from Plemon Financial Coaching who authors the blog Personal Finance by the Book.

“Geraldine”, a sassy lady portrayed by the late Flip Wilson, answered her husband thusly when he demanded an explanation for yet another new dress: “The Devil made me do it! I was walking down the street minding my own business when he snuck up behind me and pushed me into that dress store. He MADE me try on! Then he pulled a gun on me and forced me to buy it and sign your name to a check.”

Geraldine’s humor is timeless because so many of us can relate to it. For example, have you ever bought a new car and then wondered what possessed you to do it? I doubt if it was the devil, but the devil’s first cousin, car fever, will have the same results.

Do you currently own a car you wish you had never bought? Are you asking yourself if you should try to sell it or just live with it? This post is designed to help you think through this dilemma.

Start by asking yourself these questions:

How much do I owe on it?

If you paid cash, then you are probably not facing a financial crisis necessitating the sale of the car. If you simply don’t like the car, then take your time, sell it and pay cash for another one. If you are in debt, move on to question two.

How big a burden is this car on my budget?

If one hiccup in your life will cause you to start missing payments, then you need to amputate this car before that hiccup occurs. Even if you are easily making your payments, you still might be deceived into thinking all is well. Long term debt on a depreciating asset such as a car is a formula for staying perpetually in car debt. To break that cycle, you need to get the car paid off in 24 months or less and then keep driving it while you save cash for your next car. If you are on track to do so, then keep the car and enjoy it. If not, you should seriously consider getting rid of it.

If I am seriously considering selling, how do I go about it?

Knowledge is power. First, you need to learn if you are upside down (owe more than the car is worth). Check to learn the private party value* of your car. If this value is less than what you owe, you are upside down. *(Use private party value because you are money ahead selling the car yourself).

But how does this work? Here is an example: You owe $22,000 on your “Geraldine” car and you could sell it for $18,000 (private party sale on, thus putting you $4,000 upside down. If you decided to buy a $3,000 car (we will call the “beater”), your new debt would be $3,000 plus $4,000 = $7,000. You are still upside down, but you have eliminated $15,000 of debt.

How do I go about selling a car I am upside down on?

Unless you have an extra $4,000 available, you will need to borrow it in order to get the title released. So where do you borrow the money from?

Start by checking with the title holder. You have done your homework, so explain your rationale. In effect, you are asking for an unsecured loan on your upside down amount. Most lenders are not thrilled by this, but explain that this same amount of the current loan is already unsecured and you are simply asking that they move this amount from a more expensive car to a less expensive car.

If the title holder balks, don’t give up. Try your credit union or your home town bank, explaining that you will be moving your business to them. If you simply can’t find financing, consider other options such as selling stuff (Craigs List or Ebay or yard sales) or temporarily working a part time job.

REALITY CHECK: Are you ready to get your Geraldine car out of your life? Good! Doing so will not only be a huge relief, but will teach you to never again succumb to car fever. Still, you need to go into this decision with both eyes open, so the following pros and cons will help you preview the reality of your decision:

The Good

  • LESS DEBT. You have just reduced your total debt by $15,000!
  • OUT OF DEBT QUICKER: From our example, with an 8% loan and monthly payments of $400, your Geraldine car will be paid for in 5 years and 9 months. Your “beater”, on the other hand, will be paid off in only 19 months.
  • STAY OUT OF DEBT: Once the beater is paid off, you could save $4,800 toward another car by making payments to yourself for one year. Assuming your beater would bring $2,000, you could upgrade to a $6,800 paid for car. Had you stuck with your Geraldine car, it would have depreciated to about $12,000 by now and you would still owe $13,300 on it.
  • PEACE: You will know that you have taken the steps to undo that Geraldine decision. This is a great feeling.

The Reality Check

  • INCONVENIENCE: Selling your car and buying another is a hassle.
  • A DOWNGRADED DRIVE: Face it: your Geraldine car is nicer than a beater will be. Be prepared for it.
  • LESS DEPENDABILITY: No doubt your beater will have some issues. You need to be realistic in assuming that it will not be as dependable as a newer car.
  • MORE MAINTENANCE: With less dependability comes more maintenance.
  • FRIENDS WON’T UNDERSTAND: Reality? Yes. Negative? Not really. Just be prepared for it.

One Final Reality Check

You may not be able to arrange the necessary financing. Why? Either your credit score is not adequate or you are too far upside down. Should this be your scenario, you will need to strategically pay down all other debt in order to free up enough cash flow to make huge car payments. Keep the car until it is paid off or you will be swimming in car debt for years to come.

Readers: Have you ever regretted a car purchase? What did you do and how did it work? What tips would you offer?


  1. I got in trouble for saying this before, but I think owing money on a car is one of the stupidest things anyone can do. Just MHO. Not only the expense of the loan & interest, but more car means you are paying more in sales tax, more in license fees every years, more in insurance. Add that stuff to the tally and see how much a “new” car actually costs.

  2. My wife and I bought a new car a while back, and I’m still smarting from it. We definitely needed a car — hers was dying, we just had a baby, etc. And I’d just gotten a big promotion, so we went a little crazy and bought a Subaru Outback.

    It’s a great car, and we bought a floor model with zero bells & whistles (no sunroof, no heated seats, manual transmission). But still: Never again.

  3. I just traded some work for a Jeep Grand Cherokee with all the bells and whistles: leather, heated seats, premium stereo — catch? It has lots of miles and some hail damage. But can’t beat the price. And its been running great for 6 months now. Not one problem. I love it that I don’t have any qualms about driving the heck out of it.

    Growing up I was the kid who had cool cars. My dad bought me anything I asked for: an Iroc Z28 in the 80s and later a Stealth sports car. At the time I thought they make me look oh so cool, but now I realize that I looked just like an insecure little brat trying to find her identity through her car.

    There is a great episode of the TV show “Friends” where Ross gets a red sports car thinking it will make him look cool and then he sees a seriously dorky guy driving by in the same car, giving him the thumbs up with a “don’t we look cool” look. He realizes that he looks just as dorky as the dork guy in his red sports car.

  4. We recently purchased a used 2000 Acura RL with only 100,000 miles on it for $4500.

    This was our first used car purchase since we married (we both bought new cars just before marrying).

    I can not even begin to explain how good it feels to ride in that car! It is paid for, it was cheap and it should still last another 10 year with good care.

    And, as we’d been saving for a while, we took the rest of the money we would have spent (we’d budgeted more, but found a great deal) and took a 2 week trip to Europe (traveling cheaply of course!)

    Used car smell is awesome!

  5. Laurie,

    Congrats on driving a paid for car. Once you pay cash for a car, you will continue to do so from now on, thus saving a ton of money while just plain feeling good about it.

    “Used car smell is awesome!” is a great quote. I will be using it!

  6. Lisa,
    No trouble here. Car payments will suck the life out of most budgets. Why do people succumb to “car fever”? I have heard it said that people buy cars they shouldn’t buy with money they don’t have to impress people they don’t know. NOT smart!

  7. It’s funny, but as a car person, I’m hardly ever tempted to buy new…. Most of my car lusts come in multiples, and are cars much older than most people consider buying. 🙂

    That being said, I own two and owe on one, making a total of three. Amount I owe = less than $2k, which I’m slowly paying off, sort of, to build credit. (21 years old, never had a car loan, my other car was paid for with cash. Other one paid off after five months.) I’m making the monthly payment and putting extra into a savings account.

    When I have enough in the account to pay off the loan, I’ll axe it completely. I’m hoping to achieve this by March or April, I don’t make a whole lot of money. 😛

    Funny thing about owning an “impressive” car — People FLIP out when they find out it’s paid off. I’m not kidding. It’s strange. (Not that we really think our car is super impressive, but other people seem to find her so. Definitely did not buy it with that intention, either.)

  8. @ Foxie,
    Sounds like you are on track to have all of your “car lusts” paid for. Strange how people are astonished that anyone can have a paid for car. I suppose the fascination is because so few of us do.

  9. we just did this. we sold our lincoln aviator in november wiping away $14,000 in debt. luckily we were not upside down – we sold it for what we owed. then we borrowed $2,000 from our local bank and bought a kia rio. we actually had neighbors calling us asking if we needed financial help. now, we are paying off the rio and am putting the $450/month payment in savings and will buy something nicer in late 2010. we have vowed never to have car payments again. i really think they are the down fall of the middle class in america.

  10. @Joel,
    We all do things we later regret. The key (as you have done) is to learn. Many people never do.

    Buying a car with hail damage isn’t for everyone, but I love the fact that you did and got a great price. The hail damage is sort of a badge of honor. The “Friends” story is a great one. “Cool” can turn to “dorky” in an instant, especially when we try to be defined by the car we drive.

  11. @Stacie,
    You REALLY get it! A Lincoln Navigator for a Kia Rio. I love it! Of course your neighbors don’t understand, but being “normal” often means being broke in America. Thanks for sharing. Your story will encourage others.

  12. I confess, the last car I bought was new (although it only cost me $10,500). It was a 2003 malibu and at the time, I got a great price on it.

    It’s paid off now, and I’m going to drive it until parts start to fall off.

    Now that I got that “buy a new car” feeling out of my blood, it’s only used cars for me!

    I wish I had the Acura that Laurie has!!! Cheap and stylish… you can’t beat that!

  13. Don,
    Isn’t driving a paid for car a great feeling? You ARE saving up to pay cash for your next one aren’t you?
    And yes, I too wish I could get a deal on an Acura like Laurie found. Sweet.

  14. Having a car that’s paid in full is a key part of being able to survive on just over minimum wage. It’s been a tough couple of years for me. Any big surprise it was due to poor financial decisions I made during my 20’s and early 30’s?

  15. @Elliot,
    The good thing about those tough years is that you have learned by the greatest teacher: experience. And having a paid for car on close to minimum wage shows others that it can be done. Keep on doing smart things, even when things are tight, and things will get better. Every time.