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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308483  
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 5:19 AM
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A little over a year ago, (like, a month before I got my membership here), I borrowed $9500 from my boss at 5% to buy a 1999 nissan sedan for $8600. I pay $200/month normally, and owe about $7000 on it now.

I am trying to reduce my expenses and I don't really think I want a car that costs that much right now, plus I will be leaving my job in the next 2 - 6 months and it's not clear if the loan will need to be paid back immediately.

The problem is I am upside-down and I can't really tell, but I believe my car is depreciating faster that I am paying it off, so I may be going further into debt each month. I look on CL and the 2001 version of my car (I don't see many 1999s or 2000s) seems to be selling for about $6000!! I checked Kelly Blue Book, which says my car should be worth about $6500.

How do I tell if I am getting further into debt each month or closer to breaking even?


Since you actually borrowed $900 more than you bought the car for, I would imagine you were upside down from the beginning, and with a $200/month payment, probably haven't made much of a dent in the 'upside-downness'. That said, there is one really important question that you need to answer: Is the loan for the car actually a lien on the title to the car, so you will have to pay the loan back to get clear title to the car?

If it is, then you do need to worry about being upside down, because to sell the car, you will need to come up with the extra money to pay off the loan. In this case, you should probably check edmunds.com also; and make sure with both edmunds and kbb you are looking at the private party sale price, not the retail price. Also, if there is a CarMax in your area, you may want to take the car over to them what they will give you for it. Based on all these, you can figure out how 'upside-down' you are and determine how much money you will need to come up with to get clear title to sell the car.

If the loan is not an actual lien on the car, then you need to separate the 'car' from the 'loan'. The loan is just another unsecured debt that you happened to use the money you got from it to buy the car. There is no issue with being 'upside-down' because the lien does not actually encumber the car.

That said, because it's a loan from your boss, there may be an expectation that if you sell the car and/or leave your job, that the loan will be paid off. As long as you are still working there, and use most/all of the money that you get from selling to pay down the loan, I would guess that your boss would let you continue to make payments on the rest, but you should probably approach your boss with a question like "Now that DP has gotten a great job, she really wants a truck, so we're thinking of selling the car. However, we may not get as much as I owe you - is it okay if I continue to make payments after we sell it?" Then at least you'll know if the expectation is that the entire amount be paid when you sell. (Although if there is not a lien encumbering the car title, there is actually no legal obligation to pay it back any faster than the $200/month, no matter what you do with the car.)

So your biggest problem with this scenario is that you will need to come up with the $7k in 2 - 6 months when you leave your job, if you haven't sold the car by then; or the rest of the loan amount at that point if you have sold the car. It's probably not a good idea to approach your bost with this scenario ;-) so you need to figure out how you're going to come up with the money to pay back the loan in case the day you give your notice, your boss demands the money. Again, if there is nothing written in the note that you signed (you did sign a promissory note, didn't you?), then there would be no legal obligation to pay it back any faster than the $200 a month you are currently paying, but to leave on the best terms, in case you ever need a reference, you don't want to make the loan issue the thing that your boss will remember over and above everything else.

Good luck!

AJ
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