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Author: misssteak One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308881  
Subject: Stupid Car Loan Help Date: 6/14/2007 2:18 AM
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Hi,

I wrote about this as part of another thread (FYI, buying a house is now on the back burner...and also my partner got a different job making about twice what she was making before which is YAY!) but I am struggling with this part now.

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.

I will not replace the car (my partner is now buying the truck on her own since she's rich ;). She will buy the truck when I sell the car (we only need one vehicle in the household. As far as expenses, insurance will go down (we are looking at $3000-$4000 trucks) and gas might go up (though my car gets a dismal 16 mpg in the city!).

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?

Thanks,

Steak
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Author: Abfacken Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254409 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 3:19 AM
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Well, you've got about 3 years left on the car - it'll be 11 years old at that time, so it's understandable to be concerned. How much did the car go for on kbb when you bought it? Also, are the loan terms written down?

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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: 254410 of 308881
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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Author: Fuskie Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254424 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 12:58 PM
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Second to lending money to family members is borrowing money from your employer. This goes for 401k loans as well as OP's situation.

Fuskie
Who encourages all Fools to avoid entering into contracts that limit their freedom to pursue their career objectives, whatever direction they might take...

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Author: misssteak One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254428 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 2:06 PM
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I know, I know, borrowing the money for this car was a mistake on many levels. I bought the car from my employer's friend without even LOOKING AT THE RETAIL VALUE OF IT! Based on my pre-Fool history, this was "as per usual" for me. My boss thought it was a good and safe thing to do, and seemed totally rich to me, so I figured he knew what he was talking about. Duh.

I bought it primarily because I was traveling so much for work that I was getting enough mileage reimbursement to pay for the monthly payment, insurance, gas, etc. At that time, I thought I would travel at that level For Ever, and also that I would stay in this exact job For Ever. I loved it and couldn't imagine anything different, plus it was the first job I'd ever had that paid me well.

And in just one short year...

Anyway, no, the loan is a personal loan from my employer and is not tied to the title; I have the title free and clear. The note I signed states only the amount I borrowed, the interest rate and compounding method, monthly payment, and date that replayment started. It does not mention the car.

My friend thinks that if I hang on the car another 6 months that it will "catch up" in worth and I will have less of a deficit, but I kind of want to put it on the market at a reasonable price right now so that I feel less pressured to take a lower offer.

Also, the project that I'm working on now (which may end up being MY "final" project) is in southern CA, and I live (and the car is registered) in OR. Right now my boss and I have a rental car that we've been renting for 4 months and will continue to keep out for another 3 months or so, charged to the client. Retail prices for the my car model seem about 15-20% higher down here...what if I drive the car down here and use it for work for a few months, then try and sell it here? I will get mileage reimbursement while I am here and our client will save money by not having to pay as much for a rental car.

Thoughts?

Thanks

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Author: bethdig Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254432 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 3:00 PM
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I know, I know, borrowing the money for this car was a mistake on many levels. I bought the car from my employer's friend without even LOOKING AT THE RETAIL VALUE OF IT!

So, does that mean that you spent the extra $900 you borrowed on the car, although it wasn't worth that much in the free market? Ouch. Well, I did plenty of dumb things in my pre-Foolish days too, so chalk this one up as a lesson learned!!

Also, the project that I'm working on now (which may end up being MY "final" project) is in southern CA, and I live (and the car is registered) in OR. Right now my boss and I have a rental car that we've been renting for 4 months and will continue to keep out for another 3 months or so, charged to the client. Retail prices for the my car model seem about 15-20% higher down here...what if I drive the car down here and use it for work for a few months, then try and sell it here? I will get mileage reimbursement while I am here and our client will save money by not having to pay as much for a rental car.

This idea seems fine in theory, but tricky in practice because it seems as though you will have to sell the car in an extremely tight window of time, i.e. just after you finish your work obligations but before traveling back up to Oregon. I'm guessing that those times coincide very closely, so unless you found someone willing to commit to buying the car but wait to take ownership, that would be tricky. Although it doesn't seem as though it would hurt to bring your car down and drive it regardless, seeing as how you would get the mileage reimbursement. Unless you would be racking up mileage sufficient to decrease the value of the car by a greater margin than you are being compensated for - I think this happens at around 15,000 miles per year.

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Author: SeeFoolRun Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254444 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 8:24 PM
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We bought our most recent vehicle from CarMax. Their valuation of the trade-in was pretty much inline with what we expected. They use their own pricing formula based on the amount they typically resell that particular make & model. So it isn't necessarily inline with NADA or KBB. Some models may be higher or lower depending on how they sell at CarMax. It's worth having them look at it - at least you know the car is worth at least $X and can sell it immediately for that much if you choose.

Sounds like your employer can't really do much other than complain if you quit & don't repay the loan balance in full. You both have to stick with the terms of the loan agreement. It might be better paying it in full so you don't have to deal with him any longer after you're gone, but @ 5%, you might want to continue the $200 payment & use your money elsewhere.

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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254445 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/14/2007 8:54 PM
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254444

that must be *some* kind of antlers, right??

bb

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Author: TicoHombre Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254482 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/16/2007 7:59 AM
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254444

that must be *some* kind of antlers, right??



What does that mean?

TH

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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254527 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/17/2007 11:41 AM
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The origins of antlers:

http://boards.fool.com/Message.asp?mid=18210798

and I quote:


                              
    B                       B    
    B  A                B  B     
      B                  A       
      B    A        B    B       
      B   B          B   B       
        B             B          
        B             B          
         B           A           
          B         B            
          A         B            
           B       B


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Author: TicoHombre Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 254542 of 308881
Subject: Re: Stupid Car Loan Help Date: 6/17/2007 11:01 PM
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Thanks! BB

I kept checking back hoping for an answer.

Appreciate it! Now I can get some sleep.

TH

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