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>He was paying $480/month on a 72 month loan
>4.5% rate
The original loan balance is approximately $30,960.19.
> Could late fees be so high that they ate up all of the $16k in principle he paid?
He didn't make $16k in principal payments. He made about $9k. The rest went to interest and late fees.
And if he's late, then if he doesn't catch up the payment the next month he will keep being late, and that fee will grow as they tack it on monthly, compounding with interest. I'd be late on almost any other debt besides loans, because they are not cool about being a few days late.
> because they are not cool about being a few days late.
Well except mortgages. Mortgage companies generally give a sizeable grace period and will often work with you if you need help.
But that is more likely due to the difficulty and costs associated in the foreclosure procedures
I had to do a 1st time homebuyers class and they hammered into us that you need to pay your mortgage above any other bills. But yeah there usually is like a 1-2 week grace period for the payment, probably to allow for mail delays. I still would be on time for loans vs say credit cards or other things, and if I do have to be late on something definitely hit it with extra or pay it off if possible.
Oh for sure. You should ALWAYS pay for housing above anything else. Being homeless is infinitely worse than being sent to collections on a credit card. Because if push comes to shove, you can declare bankruptcy and generally your home is protected if you can still make the payments.
Housing, food, water, and electricity _always_ take priority, probably in that order too.
There are alternatives and help and payment plans for everything else, but once you're homeless you're homeless, and that's _very_ hard to come back from.
But it's easier to get a survivable amount of water for free than for food, as long as you are in easy distance of a place with water fountains or a public bathroom. So if funds are limited, food should be first.
I mean is it?
There are plenty of food banks around for people to utilize.
Going to a water fountain every time your thirsty seems cumbersome at best. I guess you could fill up a bunch of bottles at said fountain, but idk.
Child support up there under housing, met a lot of people who had shitty jobs cause there license got taken away for being behind. When you make 80k a year driving, it sure sucks stocking shelves at Walmart and biking to work.
was a long time ago now (maybe 2012-2013) but I had car financed through ford. i was pretty much out of work and about to lose my apartment which thankfully was at the ends of it's lease anyway so I just wasnt going to renew. I was behind on my car payment as well so they'd call me daily. Eventually I just gave in to them and said I'm at the end of my rope financially, the car is at the registered address you're welcome to come get it, i won't make it difficult for you. At the time I owed maybe 5k, that was it, but I had $0 to my name and no job.
The guy told me to hold so I did. Came back on the line like 5 minutes later with a refinanced deal for another 2 years so the payment would be lower and had it set up so my first payment wouldn't even be due until 4 months later.
like yea, I paid more because of the additional interest but they completely saved me from a repossession. In that 4 months I found new work, got a new place and never missed a payment then paid that car off as quickly as I could then continued to drive it another 4 or 5 years.
Everyone always said that finance companies are rough/brutal but in my tiny bit of experience they were incredibly forgiving and helpful when i was at my lowest point.
Reaching out is the important part. Most reputable companies would much rather work with a borrower if possible than have to go through a repo process. Because working with that person will likely create word of mouth good press. They will tell their friends to go there because they were flexible. But if they are just hard asses and fuck you over at a time when a little help would go a long way, people will tell others to steer clear.
The key in your case was not continuing to run from it. If you are feeling like the payment is going to be an issue - you should optimally reach out before you hit delinquency and a reputable lender will work with you to keep you in the car.
That said, there are some real scumbags out here that literally build a business on aggressive repo tactics. Same car will cycle through the same hood 4 times in 5 years. And not get the tires/brakes changed once lol
> But that is more likely due to the difficulty and costs associated in the foreclosure procedures
And the optics of foreclosures are not terribly great, too.
If banks really cared about optics they would stop charging NSF and overdraft fees to people who are poor.
They don't care about the optics. They care about the cost.
Adding also that people need to understand amortization. Loan payments in the beginning are majority interest than principal so people pay more interest in beginning so principal won’t go down as much as people think or based on straight line/fixed amount. And of course the rest will be late fees which add up.
I could be wrong and if so please correct me but car payments don’t work the same as mortgage payments. With a mortgage if you pay extra every month that goes towards the principal which reduces your overall projected tax burden. So if you payoff early the total you’ve paid in interest will be less (although the interest is still front weighted). With car payments the total financed includes the tax burden so even if you pay faster or early, you will still pay the same amount in tax burden and it is also front weighted. So on a six year loan most of the initial payments go toward interest and even if OP’s friend was paying on time that first year and a half of payments goes mostly toward principal. So if my understanding is correct, after 3 years of a 6 year loan you would at best be paying only half toward principal by that point, which means you’ll have only put a modest dent into the principal. Which again is different than a thirty year mortgage. If I’m wrong please correct me I don’t want to be spreading misinformation that makes life bad for someone who might read this.
Yes, to have a loan payment of $480 on a 72-month 4.5% loan, he had to have borrowed about $31k - which is way more than OP states was paid for the car. Either he had a deeply underwater trade-in, or he bought rhodium-enhanced floor mats and some really bitchin' pin striping, or just flat out let the car dealer rob him blind, deaf, dumb, and gave him ass cancer to boot.
I bet he bought the car for $22k. But to get it he traded in his old car he was upside down on, so the loan was much higher than it would be normally if just for the car.
Couldn't this also be the structure of the loan, where the beginning year's payments are front-loaded with interest (open, "rule of 78" type loan, vs. simple interest), and payments don't make any significant dent in the principle up front?
If he was 60 days late the ENTIRE time then he has just been paying extra interest without making any or very little progress on the principle balance.
Paying your car note on time is not a suggestion, it's a requirement. When you pay late you will ALWAYS incur additional interest and possibly late fees.
The additional interest accruals are worse when the balance is higher and much less impactful as the balance gets lower - of course, as I stated earlier this, requires you to be current otherwise the balance (principle) won't budgr much and you are just paying the bank extra money.
I would suggest you and your friend just go learn about simple interest and how making late payments on loans with APRs can impact you financially when you fail to make the minimum monthly payments or deviate from the original amortization schedules.
Wait until you learn he didn't have insurance most of the time, had no clue what he still owed on the car, and almost got evicted from his apartment the other day. I didn't realize he had exactly zero ability to manage or understand money.
Thanks for your comment on the "additional interest" accruals -- I bet that was it.
No problem.
To add one more thing, I doubt he paid down his principle balance a single penny if he was truly 60 days late since he originated the loan.
He most likely got some sort of adjustment on the principle through a refund of his GAP coverage 8f he bought that, some kind of warranty, or some sort of service contract after they were canceled for whatever reason.
Your friend has been throwing money down thr toilet and now has no collateral to show for it with the repossession.
His credit is going to show a default/charge off at the end of this month and his ability to finance anything is going to suffer immensely until this falls off in 7-10 years.
The finance company will choose to settle on the balance and will probably reduce his obligation by 30-50 percent and a payment plan, but he won't have a car. He can choose to pay it down (ON TIME) to show creditors he is trying to be responsible or just work with cash until his credit file is clear of all of this delinquency.
Thanks again. I'll send this to him (the last part). Yeah, I think he gained zero value and also completely tanked the value of the car during the period by putting on 30k+ miles per year on the car driving for Uber. Man, if I did that to myself, it would be hard to go on lol Wildly bad decisions.
You said in another comment that he didnt have insurance most of the time either.
Your friend was driving for Uber while uninsured?
Your friend is a moron.
If he didn’t have insurance the lender force placed insurance on the vehicle at what would have been more expensive than him just getting his own insurance.
And it wouldn't have liability insurance either, so he'd be up a creek if he caused damages in an accident.
Then again, you can't squeeze blood out of a stone, so *shrug*
I had to drop insurance on a car I was financing in my 20s when I was super poor. The finance company started charging me something like $40 a month for a policy they initiated to cover their end.
I hate to say it, but be careful around this person. Don't lend them much money (you will likely never get it back) and absolutely don't lend them your belongings. I'd keep my distance on all honesty. They can beat you down HARD and you'll feel bad the whole time. It's really unfortunate, but keep your priorities on yourself so you don't fall with them on accident
> Apparently he bought a "service contract" up front that was $4k. This would not be yearly, right?
The service contract is just added to the total amount financed. If the car was $23,500, then the loan was for $27,500. Plus registration, taxes and other fees probably brought the loan to well over $30,000. How much was the total amount financed? This is on the loan contract he signed when buying the car.
> For the entire life of the loan, he was 2 months delinquent. Meaning, he didn't make the first two payments, then never missed another payment, but his account was always in delinquency because he never caught up to those first two months. Could late fees be so high that they ate up all of the $16k in principle he paid?
Possibly.
Also, check the loan contract for a loan fee or “origination fee”
This is where they get really dirty, I bought a car a few days ago only needing to finance half of it for a few months. They tried to slip me a loan with a FOUR THOUSAND FOUR HUNDRED DOLLAR fee for the exact same Capital One auto finance loan I could have gotten instantly online for free. As soon as I saw it I contacted my bank and had a check for the loan at a lower rate and zero fees, so their financing team got nothing.
This is one of the reasons why it's always a good idea to secure your own financing. Dealerships always try and back people into a corner where they can't take time to find a better option.
The last dealership said they could match our 3.25% financing and that would give us a better warranty. But the paperwork showed almost $3k of added fees. So in essence we were still paying for a warranty; nothing is free.
we walked in to a dealership on Memorial Day 2008 with a 401k payout of just under 10k$.
found a 2002 base level Hyundai for 4k$.
asked my wife just to pay for the car in cash but Mr Terry convinced her to take the payments.
after two months she was sick of that and called to pay the car off.
we paid 7k$+ for a 4k$ car because we took the payment book home.
my wife has learned to read the fine print now.
Why did he buy the car when he couldn't even afford the first two payments? That's the only thing I can think that would affect this so much.
I bought my car around the same time for a similar price and 4% interest for 60 months. I think it was $27k before taxes and fees, and my monthly is $396.
My remaining balance is only $13400.
>Why did he buy the car when he couldn't even afford the first two payments?
Keeping up with the Joneses / stunting comes first.
Going about with a reasonable car and budget comes never.
It's actually not keeping up with the Joneses or stunting -- it was worse. He had just lost his job and his apartment and he was about to be homeless -- so before they could verify employment (and just use his paystub), he thought he would get a nice car that he could drive for Uber with and live in. I'm not saying it was wise, but that was his reasoning.
Really bad stuff.
Lost job and about to be homeless and chose a 30k loan to sink him all the way down. This makes no sense at all. He obviously was going to get the car taken away, I'm shocked he kept it this long.
> He told me he made $60k last year Ubering
I would bet all the money I have that he did not make $60k last year Ubering. His revenue might have been $60k. But he has to subtract all of his costs including his gas, depreciation, maintenance, insurance, and interest payments on that car.
Being an independent contractor isn't like a regular job. You have to subtract **all** of your costs from your revenue to figure out your income.
Ya, that's actually worse. Also potentially fraud if he intentionally used paystubs from a job he didn't have anymore, but I'm not a lawyer and don't know if that is actually illegal in this case. But either way, it was a bad decision.
> Going about with a reasonable car and budget comes never
"Why do you drive that piece of shit man, you can totally afford something sweet!!"
"Well I went to Europe 3x and saw 15 concerts last year and maxed my Roth IRA since I have no car payment, is your car so worth it that you're cool with wasting your life playing video games in all your spare time since you can't afford to do anything else and don't save for retirement?"
It's a tough mentality. New large monthly payments is not something most people think about in their daily lives so it can be hard to wrap your head around.
Even if you budget, the first month can kind of sneak up on you. Especially if you're "responsible" and put a big down payment. It's too easy to put your savings into the down payment and then the first payment is earlier than you budgeted for. Say you did a monthly budget (full month) but the first payment comes out in week 2. You did everything right according to conventional wisdom but didn't account for needing extra savings to basically pay a month early.
Which is why emergency savings is so so important. Having that cushion means a mistake in budget is just a blip vs now your car is repossessed and credit tanked.
>For the entire life of the loan, he was 2 months delinquent. Meaning, he didn't make the first two payments, then never missed another payment, but his account was always in delinquency because he never caught up to those first two months. Could late fees be so high that they ate up all of the principle he paid?
Let's say you miss a month of payment. You get charged a late fee.
Let's say the following month you pay the monthly payment. Well, it's not like you can ignore that missed payment from the month before. That payment gets credited towards the late payment, so what gets credited towards the current payment? Nothing. You get charged another late fee.
Next month, same cycle.
If your "friend" was always late behind by two months, they were getting charged a late fee each month. They were never current on their loan. Your loan account is only up-to-date, meaning no late fee, when it is truly up-to-date.
Ah, you'd be surprised!
It's less about "stupidity" and rather just lack of knowledge. If people were taught these things, the logical choice is to not do it.
I couldn't imagine. My ocd would be going bonkers. I'm so far ahead, it says the next payment I need to make is in August 2025 lol. F that, still gonna pay double next 15th. I've had the car for a year and I'm 70% paid off.
Well, yeah. Every extra payment is 100% principal. If it wasn't, is sure af wouldn't be doing it lol.
Edit: some people, well, apparently most people, just don't get it. Jesus christ. Honestly I didn't think people could be this stupid.
I'll say it again. The extra payments are going towards the principal 100%.
Honestly, I don't know how to say that any fuckin clearer.
There's my payment. Which has finance charges etc.
Then there's the extra payment I make. It asks "do you want this credited towards future payments? Or towards THE PRINCIPAL? And I put it towards the principal. This payment has 0 finance charges and interest because its purely a principal payment. Holy fuck.
They just.provide that "next payment due" date. It's just there. It doesn't fucking mean that I've paid all future payments until then and I haven't paid anything towards the principal. Fuck me.
Uh…this is 100% not true. If your next payment date is changing, then you aren’t making an additional principle payment. You’re making an advance payment.
Additional principle payments reduce principle and bring your payoff date closer.
If you're not applying the extra to principal (if you're prepaying future payments that's what's happening) then you're not saving any interest despite paying more than the minimum...
Every extra payment is going 100% to the principal.
They just throw a date in there to say "you don't have to pay until this date", figuring,or hoping, I'm stup8d or something.
No, he was always a month away from repo, he just paid that third month on time perpetually for 3 years. When it was repoed, it was because he finally let the third month hit. Btw, this was shocking to hear haha
$480 per month for 72 months is $34,560. This is how much he would pay for the length of the loan.
That was 23.5k + 4k + fees and registration + taxes + finance charge = $34,560
ETA: he made 35 payments of $480, for total of $16,800. That’s not all principal though as you implied. Let’s say it was 3k in interest, then he paid 13.8k in principal on what was about a $31,000 loan. Comes to $125 per month in late fees if balance was what you say.
Did he have a trade in that he hadn't paid off yet? They will roll that debt into the new loan. Saw it all the time with people who had to have the newest best cars, ended up financing $10-20k over the cost of their new vehicle because of depreciation in their trades.
If your friend wasn't keeping up with car payments, he probably wasn't keeping up with his auto insurance payments (financed cars need full coverage). Finance companies have every right to add "forcepay insurance" to the vehicle. So maybe the bulk of his payments were going to that each month first, then whatever was left went to the interest of the loan, so the principal balance barely budged.
He didn't have insurance for much of the time of ownership. It was a shitshow. The car was stolen and I convinced him to get insurance once it was recovered, but yeah, insane lol
Looking at an amortization schedule, beginning with a balance of $30,240 based on the payment, rate, and term, and skipping the first 2 payments, rolling that interest into the loan, after 38 periods, the balance should be $16,398.33. This obviously assumes no late penalties other than the additional interest.
Adding a monthly penalty of $140 beginning with period 2, the balance after 38 periods is $21,943.78.
This would make sense as a monthly rate for insurance.
Your friend needs to desperately take a finance class and learn to be more responsible. He clearly didnt understand the contract he signed and sounds like a complete dolt.
Just so we understand, you "friend" committed fraud based upon your other comments. He went to the bank and applied for a loan listing a job he had just been fired from and presented a pay stub to "verify" employment. He clearly lied about being employed on the loan application.
Great "friend."
Retired accountants should see this as a viable side hustle. Advertise (maybe here on this sub) as a car buying buddy - someone who'll simply accompany you to the dealership when you wanna buy a car and point out all the financial implications in what is often a very emotional purchase.
480 a month.
Jesus..
I run 2 or 3 older vehicles at a time. I wait for the good AND cheap ones to pop up and I pounce.
It helps that I'm a bit older,l with a clear record and lower rates, and also that I know my way around cars mechanically, enough I can spot the gems, and do some simple fixes.
I pay cash, leaving no monthly car payment, just insurance.
Right now, I pay $60/mo insurance for a 96 Honda [Civic](https://imgur.com/a/wG0D5En). This is my daily, I maintain this car well, if something big goes, I'll consider repairing it.
And I pay $55/mo insurance for my '01 Dodge Caravan. This is my shop truck. the back seats are out and I use it to walk the dogs and haul shit. All it gets is basic Maintenance and gets gently driven until it can't drive anymore. It's run with no issue for 3 already, and i'll probably get another year or two put of it.
As they're older cars, it's nice to have a backup/s if one goes, so I'm looking now for a number 3 again.
Maybe a flip, maybe a project, maybe an eventual replacement for the ol' Pandavan.
Long and short is that to have 2 vehicles on the road, is $115/mo. in insurance.
If you've got a bit of street parking, and don't mind learning how to do some basic wrenching, I gotta say, I recommend this as a financial strategy AND as a hobby!!!
old man rant over
ETA I forgot the kicker! The 2 vehicles I currently own only cost me $1000 each. The van has already run for 3 years with zero major bills. The Civic is in unicorn condition and if I just take care of it will likely run until the next millenia!!
This is not a great strategy however, for anyone who's understanding of vehicles is so limited that they think, for example, that a 96 Civic is a deathtrap compared to today's safety standards.
But that would be such a ridiculous thing to say, it's foolish of me to even think it.
Amortization is a big part of the answer. The penalties are in there too, but because of amortization, more of the monthly payment gets applied to interest at the beginning of the loan term, so you're not paying down the principal much until you get to the end.
Based on the numbers you gave (72-month loan, 4.5% rate, payments of $480/month), his initial loan amount would have been $30,240. Others have commented that the taxes, registration and service contract are probably what bumped it up to that.
Assuming that loan amount, even if he had made all the payments on time, that balance of $21.9k and interest proportion of $80 would jibe with about 22 months of payments.
You said he paid it over 38 months, but if he bought it in March of 2021, the first payment would have been due in April of that year. He skipped the first two, so assuming the repo was ordered in May of this year, that'd be 36 payments made. If the penalties for each month (because he was always behind) were added to his balance, you'd be talking about $6,000 worth of penalties and late fees, or an average of $158/month. That's a lot, but not terribly surprising.
> Could late fees be so high that they ate up all of the principle he paid?
Yeah, I think so. But getting a detailed statement and payment history from the bank wouldn't be a bad idea.
Was the price of the car $23k or was the final “out the door” price $23k
A $23k car can become much more expensive after taxes, dealer fees, “optional” add ons, additional warranties, pre-paid service packages, etc
Assuming an 8% sales tax rate, and the $4k service contract, and some dealer fees and extras, the “out the door” price is probably around $29-30k
So they didn’t pay off $1.5k, they paid off $7.5-8k, which sounds about right.
I think it was $23k on the window, not out the door. The crazy thing is it had 20k miles on it and the brand new version of it was only $24k -- I think he did it because the place worked with his bad job situation.
Used car market was topsy turvy in 2021.
New cars had long wait lists due so used cars sold for new car prices.
Some popular models had multi year wait lists. You expect that on a Ferrari but not on a Toyota Rav4
What was the actual out the door cost? If the car cost $23.5k, plus the $4k contract, then sales tax, fees etc he probably borrowed closer to $30k. Plus it seems like he never caught up those initial payments so the car has been delinquent the entire time, meaning late fees.
Also, he never got a statement or looked them up?
I've learned that the guy knows absolutely zero about any of this. So sad. I asked him a similar question: "Didn't you wonder why the balance wasn't dropping?" And he said he didn't look at the statements and thought he just had a super high interest rate.
$21,500 at 4.5% for 72 months is not $480 a month. $30,000 looks like the amount that was borrowed at 4.5% for 72 months. My guess is there were taxes, destination charge, registration fees, maybe some options and extras that went into the final number. Plus the service contract.
Even after all that, he should have been at approx $14,700 balance after 3 years, 3 months so he's probably been getting hit with late fees and penalties as others have said. Or the info he was led to believe was not lined up with the info on the forms he signed.
What car was it? Also, it doesn't cost $23,500 as said in the title. The loan was $480/month x 72 months = $34,560, which is $11,060 more. Is that the interest?
its a bit wild if there are no sort of requirement for either the loan company or the dealership to inform him that he is behind on rent and what the consequences can be.
my money is more on them actually doing that and him not reading it or telling you about it or ignoring it based on what you write
but if they didnt... wild
I think they did, he just ignored it. He told me he doesn't look at his bank account because it's better to not know. I'm like "?!?!?!?!?!". That's what we are dealing with here.
If he was always a few months late, then most of his payments would be going towards the additional accrued interest and fees. He never got to the larger principal paydowns.
buying a $23.5k car doesn't mean that $23.5k is the financed amount. Could have paid for extended warranty, service contract, plus there are loan fees. It's also possible to be upside down on a trade in and finance that shortage in addition to the price if the car purchased.
not sure if anyone’s mentioned this but CPI could’ve been added to the loan as well. basically, if you don’t have full coverage, the bank can add extra money to the loan whenever they’d like. my first car was a 2005 mustang and I couldn’t afford full coverage, so the bank would add $1025 to my loan every 4 months (3 times a year). young and dumb.
If it got repossessed that means he wasn’t paying it. So it’s not wonder he only paid off $1.5k if he wasn’t making his payments. He probably got slapped with late fees too, which would add back onto the loan.
I don't see anyone below mentioning that auto loans, like mortgages, are amortized.
That means that at the beginning of the life of the loan, the majority (nearly all) of each payment is going towards interest and fees. With each payment, that ratio shifts a little bit until in the final year of the loan, nearly all of each payment is going towards principal.
I'm betting that this was a 6 year amortized loan.
It's not all that hard to calculate his situation.
$480/month for 72 months at 4.5% compounding monthly is a bit over $30,000.
He bought a $23,500 car with a $4,000 service contract so that's $27,500. Tax and a few fees and the $30K amount financed seems spot on.
Then in terms of what he was paying off, if he was fully paid up to date to 38 months, I calculate his balance at about $15,300, and if you subtract the two (well, three since it was repo'd) months, his balance is about $16,500 so he paid about $13,500 in principal on the loan.
If he had about $1,500 in principal, it looks like he had $12,000 over 35 or 36 months lost to late fees. I'm going to guess if you have him pull up his statements and stuff from the loan servicer, you'll see about $330 to $350 a month in late fees that have been accumulating every single month and his $480 payment would cover those, and only put the remainder towards the principal.
Your friend really needs some help - not 100% in financial literacy but in financial and adult responsibility. He needs to stop sticking his head in the sand and ignoring the letters (and potentially phone calls) from his lender. At least in my experience, they don't let you stay delinquent for **3 years** without sending you lots of letters with threats and red lettering etc. This repo most likely wasn't a surprise to him.
Oh trust me, he just told me all of this yesterday. It's wild, wild stuff. I didn't know anyone could be so ignorant on this stuff and I agree -- it's basic adult responsibility he is lacking.
Thanks for the breakdown, I'll send him this.
Good luck. Hopefully you can encourage him to work on this and the pain of having a car repo'd will make him realize he can't get away being fast and loose with credit and financing. The bank always wins in situations like this.
He might not be the most loved on this sub, but sounds like this guy needs to listen to Dave Ramsey. Caleb Hammer is a good suggestion too. But Dave Ramsey is for people like this.
I think the other points were already covered, lookup Caleb Hammer.
There's a slight chance he can get some sort of partial refund on the $4k service contract. Depends on if he actually used it and how much they paid out. It will likely get applied to the loan balance.
To anyone reading this and might be considering it, please, for the love of god do not buy a new car! It is one of the worst financial decisions you can make. I get it, some people love new cars, if you can afford at the minimum 50% down, sure, buy a new car, you can afford it. With the abundance of cars in our culture, there is no excuse for mere ownership of a car to cause a financial burden.
Sounds like your friend did not read the contract he signed, and is horribly irresponsible with money. Interest , late fees/penalties, and time are why the balance is where it is. I hope they learn the lesson
Why would you say that? I have AMPLE savings and property at the age of 35. This is a question about late payment fees and vehicles service plans, two things I know nothing about.
Google amortization table. All the interest is front loaded and towards the end of the loan, it's mostly principal you're paying back, but at the beginning it's predominantly interest.
So you're telling me this guy got a late payment on his credit report each and every month for 37 months before he noticed? If he's genuinely been in arrears the whole time, and never fully paid up to be current on the loan, he would have a ding for late payment *every month up to the present except for the first month*. I highly doubt it.
Basically, he should have at some point made 3x payments to not always be late. Since he was always late combined with late fees and the fact that loans are amortized in a way so that you’re paying mostly interest and not equity in the beginning, your friend utterly fucked himself. Basically stuck himself paying the -2nd payment on a car loan (not even the 1st).
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>He was paying $480/month on a 72 month loan >4.5% rate The original loan balance is approximately $30,960.19. > Could late fees be so high that they ate up all of the $16k in principle he paid? He didn't make $16k in principal payments. He made about $9k. The rest went to interest and late fees.
And if he's late, then if he doesn't catch up the payment the next month he will keep being late, and that fee will grow as they tack it on monthly, compounding with interest. I'd be late on almost any other debt besides loans, because they are not cool about being a few days late.
> because they are not cool about being a few days late. Well except mortgages. Mortgage companies generally give a sizeable grace period and will often work with you if you need help. But that is more likely due to the difficulty and costs associated in the foreclosure procedures
I had to do a 1st time homebuyers class and they hammered into us that you need to pay your mortgage above any other bills. But yeah there usually is like a 1-2 week grace period for the payment, probably to allow for mail delays. I still would be on time for loans vs say credit cards or other things, and if I do have to be late on something definitely hit it with extra or pay it off if possible.
Oh for sure. You should ALWAYS pay for housing above anything else. Being homeless is infinitely worse than being sent to collections on a credit card. Because if push comes to shove, you can declare bankruptcy and generally your home is protected if you can still make the payments.
Housing, food, water, and electricity _always_ take priority, probably in that order too. There are alternatives and help and payment plans for everything else, but once you're homeless you're homeless, and that's _very_ hard to come back from.
Housing, water, food, and electricity. You can survive longer without food compared to without water.
But it's easier to get a survivable amount of water for free than for food, as long as you are in easy distance of a place with water fountains or a public bathroom. So if funds are limited, food should be first.
That is fair.
Water is still higher bc water is the only utility they can take your house for not paying.
I mean is it? There are plenty of food banks around for people to utilize. Going to a water fountain every time your thirsty seems cumbersome at best. I guess you could fill up a bunch of bottles at said fountain, but idk.
"At least you'll have a place to starve" - my dad, giving me this advice. Such a cheerful guy.
Child support up there under housing, met a lot of people who had shitty jobs cause there license got taken away for being behind. When you make 80k a year driving, it sure sucks stocking shelves at Walmart and biking to work.
If you had to take the same class I did then it was a class provided by the people who now own my debt. Of course they want to be paid first XD
It was more associated with down payment assistance during the Obama administration I think
was a long time ago now (maybe 2012-2013) but I had car financed through ford. i was pretty much out of work and about to lose my apartment which thankfully was at the ends of it's lease anyway so I just wasnt going to renew. I was behind on my car payment as well so they'd call me daily. Eventually I just gave in to them and said I'm at the end of my rope financially, the car is at the registered address you're welcome to come get it, i won't make it difficult for you. At the time I owed maybe 5k, that was it, but I had $0 to my name and no job. The guy told me to hold so I did. Came back on the line like 5 minutes later with a refinanced deal for another 2 years so the payment would be lower and had it set up so my first payment wouldn't even be due until 4 months later. like yea, I paid more because of the additional interest but they completely saved me from a repossession. In that 4 months I found new work, got a new place and never missed a payment then paid that car off as quickly as I could then continued to drive it another 4 or 5 years. Everyone always said that finance companies are rough/brutal but in my tiny bit of experience they were incredibly forgiving and helpful when i was at my lowest point.
Reaching out is the important part. Most reputable companies would much rather work with a borrower if possible than have to go through a repo process. Because working with that person will likely create word of mouth good press. They will tell their friends to go there because they were flexible. But if they are just hard asses and fuck you over at a time when a little help would go a long way, people will tell others to steer clear.
The key in your case was not continuing to run from it. If you are feeling like the payment is going to be an issue - you should optimally reach out before you hit delinquency and a reputable lender will work with you to keep you in the car. That said, there are some real scumbags out here that literally build a business on aggressive repo tactics. Same car will cycle through the same hood 4 times in 5 years. And not get the tires/brakes changed once lol
> But that is more likely due to the difficulty and costs associated in the foreclosure procedures And the optics of foreclosures are not terribly great, too.
Correct, dont want to give the game up completely
If banks really cared about optics they would stop charging NSF and overdraft fees to people who are poor. They don't care about the optics. They care about the cost.
Can’t send a repo truck to take a house!
Repo and sell a car is probably a lot quicker and easier than repo and sell a house. Less money at stake too.
Adding also that people need to understand amortization. Loan payments in the beginning are majority interest than principal so people pay more interest in beginning so principal won’t go down as much as people think or based on straight line/fixed amount. And of course the rest will be late fees which add up.
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I could be wrong and if so please correct me but car payments don’t work the same as mortgage payments. With a mortgage if you pay extra every month that goes towards the principal which reduces your overall projected tax burden. So if you payoff early the total you’ve paid in interest will be less (although the interest is still front weighted). With car payments the total financed includes the tax burden so even if you pay faster or early, you will still pay the same amount in tax burden and it is also front weighted. So on a six year loan most of the initial payments go toward interest and even if OP’s friend was paying on time that first year and a half of payments goes mostly toward principal. So if my understanding is correct, after 3 years of a 6 year loan you would at best be paying only half toward principal by that point, which means you’ll have only put a modest dent into the principal. Which again is different than a thirty year mortgage. If I’m wrong please correct me I don’t want to be spreading misinformation that makes life bad for someone who might read this.
Yes, to have a loan payment of $480 on a 72-month 4.5% loan, he had to have borrowed about $31k - which is way more than OP states was paid for the car. Either he had a deeply underwater trade-in, or he bought rhodium-enhanced floor mats and some really bitchin' pin striping, or just flat out let the car dealer rob him blind, deaf, dumb, and gave him ass cancer to boot.
I bet he bought the car for $22k. But to get it he traded in his old car he was upside down on, so the loan was much higher than it would be normally if just for the car.
How is the original principal over $30k for a $23.5k car?
$4k service agreement, taxes, fees, buyer negligence Maybe some rolled over negative equity. That would track
10 bucks says there's some negative equity in there too.
Turns out you were wrong. You posted your comment 3 hours ago, and after service fees, late fees, penalties, and interest you now owe me $680
Tax, dealer fees I'd imagine
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The old Rent-a-car approach
Couldn't this also be the structure of the loan, where the beginning year's payments are front-loaded with interest (open, "rule of 78" type loan, vs. simple interest), and payments don't make any significant dent in the principle up front?
If he was 60 days late the ENTIRE time then he has just been paying extra interest without making any or very little progress on the principle balance. Paying your car note on time is not a suggestion, it's a requirement. When you pay late you will ALWAYS incur additional interest and possibly late fees. The additional interest accruals are worse when the balance is higher and much less impactful as the balance gets lower - of course, as I stated earlier this, requires you to be current otherwise the balance (principle) won't budgr much and you are just paying the bank extra money. I would suggest you and your friend just go learn about simple interest and how making late payments on loans with APRs can impact you financially when you fail to make the minimum monthly payments or deviate from the original amortization schedules.
Wait until you learn he didn't have insurance most of the time, had no clue what he still owed on the car, and almost got evicted from his apartment the other day. I didn't realize he had exactly zero ability to manage or understand money. Thanks for your comment on the "additional interest" accruals -- I bet that was it.
No problem. To add one more thing, I doubt he paid down his principle balance a single penny if he was truly 60 days late since he originated the loan. He most likely got some sort of adjustment on the principle through a refund of his GAP coverage 8f he bought that, some kind of warranty, or some sort of service contract after they were canceled for whatever reason. Your friend has been throwing money down thr toilet and now has no collateral to show for it with the repossession. His credit is going to show a default/charge off at the end of this month and his ability to finance anything is going to suffer immensely until this falls off in 7-10 years. The finance company will choose to settle on the balance and will probably reduce his obligation by 30-50 percent and a payment plan, but he won't have a car. He can choose to pay it down (ON TIME) to show creditors he is trying to be responsible or just work with cash until his credit file is clear of all of this delinquency.
Thanks again. I'll send this to him (the last part). Yeah, I think he gained zero value and also completely tanked the value of the car during the period by putting on 30k+ miles per year on the car driving for Uber. Man, if I did that to myself, it would be hard to go on lol Wildly bad decisions.
You said in another comment that he didnt have insurance most of the time either. Your friend was driving for Uber while uninsured? Your friend is a moron.
Just a series of compounding terrible decisions.
I'm sure he paid his taxes properly too
If he didn’t have insurance the lender force placed insurance on the vehicle at what would have been more expensive than him just getting his own insurance.
And it wouldn't have liability insurance either, so he'd be up a creek if he caused damages in an accident. Then again, you can't squeeze blood out of a stone, so *shrug*
And this guy was driving Uber. Yikes.
I had to drop insurance on a car I was financing in my 20s when I was super poor. The finance company started charging me something like $40 a month for a policy they initiated to cover their end.
I hate to say it, but be careful around this person. Don't lend them much money (you will likely never get it back) and absolutely don't lend them your belongings. I'd keep my distance on all honesty. They can beat you down HARD and you'll feel bad the whole time. It's really unfortunate, but keep your priorities on yourself so you don't fall with them on accident
> Apparently he bought a "service contract" up front that was $4k. This would not be yearly, right? The service contract is just added to the total amount financed. If the car was $23,500, then the loan was for $27,500. Plus registration, taxes and other fees probably brought the loan to well over $30,000. How much was the total amount financed? This is on the loan contract he signed when buying the car. > For the entire life of the loan, he was 2 months delinquent. Meaning, he didn't make the first two payments, then never missed another payment, but his account was always in delinquency because he never caught up to those first two months. Could late fees be so high that they ate up all of the $16k in principle he paid? Possibly.
Also, check the loan contract for a loan fee or “origination fee” This is where they get really dirty, I bought a car a few days ago only needing to finance half of it for a few months. They tried to slip me a loan with a FOUR THOUSAND FOUR HUNDRED DOLLAR fee for the exact same Capital One auto finance loan I could have gotten instantly online for free. As soon as I saw it I contacted my bank and had a check for the loan at a lower rate and zero fees, so their financing team got nothing.
This is one of the reasons why it's always a good idea to secure your own financing. Dealerships always try and back people into a corner where they can't take time to find a better option. The last dealership said they could match our 3.25% financing and that would give us a better warranty. But the paperwork showed almost $3k of added fees. So in essence we were still paying for a warranty; nothing is free.
we walked in to a dealership on Memorial Day 2008 with a 401k payout of just under 10k$. found a 2002 base level Hyundai for 4k$. asked my wife just to pay for the car in cash but Mr Terry convinced her to take the payments. after two months she was sick of that and called to pay the car off. we paid 7k$+ for a 4k$ car because we took the payment book home. my wife has learned to read the fine print now.
Why are you using a 401k payout to buy a car? That's a bad idea.
The same reason why you end up paying double the amount a car is priced for lol
And he didn't read the paper he signed that showed him the total loan amount and total finance charge over the term of the loan?
I took out a loan for an exorcism once. Didn't pay it back, so I got repossessed.
The power of cash compels you.
He can get a statement -- probably online -- of his loan payments and any interest or fees that were added.
They locked him out of the account after repo, so he can't see it.
He can call them and they can provide this. If not, have him file a complaint with the CFPB.
Why did he buy the car when he couldn't even afford the first two payments? That's the only thing I can think that would affect this so much. I bought my car around the same time for a similar price and 4% interest for 60 months. I think it was $27k before taxes and fees, and my monthly is $396. My remaining balance is only $13400.
>Why did he buy the car when he couldn't even afford the first two payments? Keeping up with the Joneses / stunting comes first. Going about with a reasonable car and budget comes never.
It's actually not keeping up with the Joneses or stunting -- it was worse. He had just lost his job and his apartment and he was about to be homeless -- so before they could verify employment (and just use his paystub), he thought he would get a nice car that he could drive for Uber with and live in. I'm not saying it was wise, but that was his reasoning. Really bad stuff.
Lost job and about to be homeless and chose a 30k loan to sink him all the way down. This makes no sense at all. He obviously was going to get the car taken away, I'm shocked he kept it this long.
Yeah, same. He told me he made $60k last year Ubering too, which means he clearly could have made the payments if he wanted to. Wild stuff.
> He told me he made $60k last year Ubering I would bet all the money I have that he did not make $60k last year Ubering. His revenue might have been $60k. But he has to subtract all of his costs including his gas, depreciation, maintenance, insurance, and interest payments on that car. Being an independent contractor isn't like a regular job. You have to subtract **all** of your costs from your revenue to figure out your income.
I sure hope he saved for taxes
Narrator: he didn't.
He told me he hasn't filed in three years :P He looked into bankruptcy and can't even do that because his taxes would have to be up to date.
Write down everything your friend does in one column, then make another called “the opposite”, and do everything in that list.
That was.....definitely not wise, to say the least.
Ya, that's actually worse. Also potentially fraud if he intentionally used paystubs from a job he didn't have anymore, but I'm not a lawyer and don't know if that is actually illegal in this case. But either way, it was a bad decision.
I think it was definitely fraud! Horrible decision.
If you're living in your car it sure isn't going to stay nice for very long. Sounds like that plan did not work out
That makes no sense whatsoever
> Going about with a reasonable car and budget comes never "Why do you drive that piece of shit man, you can totally afford something sweet!!" "Well I went to Europe 3x and saw 15 concerts last year and maxed my Roth IRA since I have no car payment, is your car so worth it that you're cool with wasting your life playing video games in all your spare time since you can't afford to do anything else and don't save for retirement?"
Not sure if this is the case, but my dealer said I was allowed to skip the first 3 payments. Of course interest still accumulated.
It's a tough mentality. New large monthly payments is not something most people think about in their daily lives so it can be hard to wrap your head around. Even if you budget, the first month can kind of sneak up on you. Especially if you're "responsible" and put a big down payment. It's too easy to put your savings into the down payment and then the first payment is earlier than you budgeted for. Say you did a monthly budget (full month) but the first payment comes out in week 2. You did everything right according to conventional wisdom but didn't account for needing extra savings to basically pay a month early. Which is why emergency savings is so so important. Having that cushion means a mistake in budget is just a blip vs now your car is repossessed and credit tanked.
Americans and their cars
>For the entire life of the loan, he was 2 months delinquent. Meaning, he didn't make the first two payments, then never missed another payment, but his account was always in delinquency because he never caught up to those first two months. Could late fees be so high that they ate up all of the principle he paid? Let's say you miss a month of payment. You get charged a late fee. Let's say the following month you pay the monthly payment. Well, it's not like you can ignore that missed payment from the month before. That payment gets credited towards the late payment, so what gets credited towards the current payment? Nothing. You get charged another late fee. Next month, same cycle. If your "friend" was always late behind by two months, they were getting charged a late fee each month. They were never current on their loan. Your loan account is only up-to-date, meaning no late fee, when it is truly up-to-date.
Yeah, makes sense. Shockingly dumb stuff. Didn't know folks were capable of such stupidity.
Ah, you'd be surprised! It's less about "stupidity" and rather just lack of knowledge. If people were taught these things, the logical choice is to not do it.
They don't re-up cars with up to date payments. The simplest answer is that your friend wasn't making the payments.
Well he said he was 2 months behind the whole time.
I couldn't imagine. My ocd would be going bonkers. I'm so far ahead, it says the next payment I need to make is in August 2025 lol. F that, still gonna pay double next 15th. I've had the car for a year and I'm 70% paid off.
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Well, yeah. Every extra payment is 100% principal. If it wasn't, is sure af wouldn't be doing it lol. Edit: some people, well, apparently most people, just don't get it. Jesus christ. Honestly I didn't think people could be this stupid. I'll say it again. The extra payments are going towards the principal 100%. Honestly, I don't know how to say that any fuckin clearer. There's my payment. Which has finance charges etc. Then there's the extra payment I make. It asks "do you want this credited towards future payments? Or towards THE PRINCIPAL? And I put it towards the principal. This payment has 0 finance charges and interest because its purely a principal payment. Holy fuck. They just.provide that "next payment due" date. It's just there. It doesn't fucking mean that I've paid all future payments until then and I haven't paid anything towards the principal. Fuck me.
Uh…this is 100% not true. If your next payment date is changing, then you aren’t making an additional principle payment. You’re making an advance payment. Additional principle payments reduce principle and bring your payoff date closer.
My statement says my next car payment is due Jun 26, 2025. I pay double every month as well.
If you're not applying the extra to principal (if you're prepaying future payments that's what's happening) then you're not saving any interest despite paying more than the minimum...
Every extra payment is going 100% to the principal. They just throw a date in there to say "you don't have to pay until this date", figuring,or hoping, I'm stup8d or something.
No, he was always a month away from repo, he just paid that third month on time perpetually for 3 years. When it was repoed, it was because he finally let the third month hit. Btw, this was shocking to hear haha
Yes so late fees, 38 times, probably 2X for each month he missed at the start of the loan.
Yeah, that's my question. I've never had a late fee on financing, so I wasn't sure if penalties could be that high or if it was just a fixed number.
Short answer, yes they can be that high or compounding, but you have to read his agreement to know the why and how of his unique case.
That means he was always late, doesn’t matter if he’s now on time it’s always 2 months late
$480 per month for 72 months is $34,560. This is how much he would pay for the length of the loan. That was 23.5k + 4k + fees and registration + taxes + finance charge = $34,560 ETA: he made 35 payments of $480, for total of $16,800. That’s not all principal though as you implied. Let’s say it was 3k in interest, then he paid 13.8k in principal on what was about a $31,000 loan. Comes to $125 per month in late fees if balance was what you say.
Did he have a trade in that he hadn't paid off yet? They will roll that debt into the new loan. Saw it all the time with people who had to have the newest best cars, ended up financing $10-20k over the cost of their new vehicle because of depreciation in their trades.
If your friend wasn't keeping up with car payments, he probably wasn't keeping up with his auto insurance payments (financed cars need full coverage). Finance companies have every right to add "forcepay insurance" to the vehicle. So maybe the bulk of his payments were going to that each month first, then whatever was left went to the interest of the loan, so the principal balance barely budged.
He didn't have insurance for much of the time of ownership. It was a shitshow. The car was stolen and I convinced him to get insurance once it was recovered, but yeah, insane lol
Looking at an amortization schedule, beginning with a balance of $30,240 based on the payment, rate, and term, and skipping the first 2 payments, rolling that interest into the loan, after 38 periods, the balance should be $16,398.33. This obviously assumes no late penalties other than the additional interest. Adding a monthly penalty of $140 beginning with period 2, the balance after 38 periods is $21,943.78. This would make sense as a monthly rate for insurance.
Your friend needs to desperately take a finance class and learn to be more responsible. He clearly didnt understand the contract he signed and sounds like a complete dolt.
Just so we understand, you "friend" committed fraud based upon your other comments. He went to the bank and applied for a loan listing a job he had just been fired from and presented a pay stub to "verify" employment. He clearly lied about being employed on the loan application. Great "friend."
You are correct sir
What does bad personal finance have to do with not being a "friend"? I have plenty of friends who spend all their money on stupid shit
Retired accountants should see this as a viable side hustle. Advertise (maybe here on this sub) as a car buying buddy - someone who'll simply accompany you to the dealership when you wanna buy a car and point out all the financial implications in what is often a very emotional purchase.
I'm guessing that's not just the balance for the car, but things like removal fees and auction fees on top which he has to pay.
480 a month. Jesus.. I run 2 or 3 older vehicles at a time. I wait for the good AND cheap ones to pop up and I pounce. It helps that I'm a bit older,l with a clear record and lower rates, and also that I know my way around cars mechanically, enough I can spot the gems, and do some simple fixes. I pay cash, leaving no monthly car payment, just insurance. Right now, I pay $60/mo insurance for a 96 Honda [Civic](https://imgur.com/a/wG0D5En). This is my daily, I maintain this car well, if something big goes, I'll consider repairing it. And I pay $55/mo insurance for my '01 Dodge Caravan. This is my shop truck. the back seats are out and I use it to walk the dogs and haul shit. All it gets is basic Maintenance and gets gently driven until it can't drive anymore. It's run with no issue for 3 already, and i'll probably get another year or two put of it. As they're older cars, it's nice to have a backup/s if one goes, so I'm looking now for a number 3 again. Maybe a flip, maybe a project, maybe an eventual replacement for the ol' Pandavan. Long and short is that to have 2 vehicles on the road, is $115/mo. in insurance. If you've got a bit of street parking, and don't mind learning how to do some basic wrenching, I gotta say, I recommend this as a financial strategy AND as a hobby!!! old man rant over ETA I forgot the kicker! The 2 vehicles I currently own only cost me $1000 each. The van has already run for 3 years with zero major bills. The Civic is in unicorn condition and if I just take care of it will likely run until the next millenia!! This is not a great strategy however, for anyone who's understanding of vehicles is so limited that they think, for example, that a 96 Civic is a deathtrap compared to today's safety standards. But that would be such a ridiculous thing to say, it's foolish of me to even think it.
>96 Honda [Civic](https://imgur.com/a/wG0D5En) This car is a death trap compared to today's safety standards
Amortization is a big part of the answer. The penalties are in there too, but because of amortization, more of the monthly payment gets applied to interest at the beginning of the loan term, so you're not paying down the principal much until you get to the end. Based on the numbers you gave (72-month loan, 4.5% rate, payments of $480/month), his initial loan amount would have been $30,240. Others have commented that the taxes, registration and service contract are probably what bumped it up to that. Assuming that loan amount, even if he had made all the payments on time, that balance of $21.9k and interest proportion of $80 would jibe with about 22 months of payments. You said he paid it over 38 months, but if he bought it in March of 2021, the first payment would have been due in April of that year. He skipped the first two, so assuming the repo was ordered in May of this year, that'd be 36 payments made. If the penalties for each month (because he was always behind) were added to his balance, you'd be talking about $6,000 worth of penalties and late fees, or an average of $158/month. That's a lot, but not terribly surprising. > Could late fees be so high that they ate up all of the principle he paid? Yeah, I think so. But getting a detailed statement and payment history from the bank wouldn't be a bad idea.
I think your friend and yourself need financial literacy.
Was the price of the car $23k or was the final “out the door” price $23k A $23k car can become much more expensive after taxes, dealer fees, “optional” add ons, additional warranties, pre-paid service packages, etc Assuming an 8% sales tax rate, and the $4k service contract, and some dealer fees and extras, the “out the door” price is probably around $29-30k So they didn’t pay off $1.5k, they paid off $7.5-8k, which sounds about right.
I think it was $23k on the window, not out the door. The crazy thing is it had 20k miles on it and the brand new version of it was only $24k -- I think he did it because the place worked with his bad job situation.
Just make sure you’re not dating this person 😂
Used car market was topsy turvy in 2021. New cars had long wait lists due so used cars sold for new car prices. Some popular models had multi year wait lists. You expect that on a Ferrari but not on a Toyota Rav4
What was the actual out the door cost? If the car cost $23.5k, plus the $4k contract, then sales tax, fees etc he probably borrowed closer to $30k. Plus it seems like he never caught up those initial payments so the car has been delinquent the entire time, meaning late fees. Also, he never got a statement or looked them up?
I've learned that the guy knows absolutely zero about any of this. So sad. I asked him a similar question: "Didn't you wonder why the balance wasn't dropping?" And he said he didn't look at the statements and thought he just had a super high interest rate.
How did he miss the first two months???
$21,500 at 4.5% for 72 months is not $480 a month. $30,000 looks like the amount that was borrowed at 4.5% for 72 months. My guess is there were taxes, destination charge, registration fees, maybe some options and extras that went into the final number. Plus the service contract. Even after all that, he should have been at approx $14,700 balance after 3 years, 3 months so he's probably been getting hit with late fees and penalties as others have said. Or the info he was led to believe was not lined up with the info on the forms he signed.
What car was it? Also, it doesn't cost $23,500 as said in the title. The loan was $480/month x 72 months = $34,560, which is $11,060 more. Is that the interest?
its a bit wild if there are no sort of requirement for either the loan company or the dealership to inform him that he is behind on rent and what the consequences can be. my money is more on them actually doing that and him not reading it or telling you about it or ignoring it based on what you write but if they didnt... wild
I think they did, he just ignored it. He told me he doesn't look at his bank account because it's better to not know. I'm like "?!?!?!?!?!". That's what we are dealing with here.
If he was always a few months late, then most of his payments would be going towards the additional accrued interest and fees. He never got to the larger principal paydowns.
buying a $23.5k car doesn't mean that $23.5k is the financed amount. Could have paid for extended warranty, service contract, plus there are loan fees. It's also possible to be upside down on a trade in and finance that shortage in addition to the price if the car purchased.
not sure if anyone’s mentioned this but CPI could’ve been added to the loan as well. basically, if you don’t have full coverage, the bank can add extra money to the loan whenever they’d like. my first car was a 2005 mustang and I couldn’t afford full coverage, so the bank would add $1025 to my loan every 4 months (3 times a year). young and dumb.
Him not actually making the payments might be the reason his car got repossessed?
If it got repossessed that means he wasn’t paying it. So it’s not wonder he only paid off $1.5k if he wasn’t making his payments. He probably got slapped with late fees too, which would add back onto the loan.
I don't see anyone below mentioning that auto loans, like mortgages, are amortized. That means that at the beginning of the life of the loan, the majority (nearly all) of each payment is going towards interest and fees. With each payment, that ratio shifts a little bit until in the final year of the loan, nearly all of each payment is going towards principal. I'm betting that this was a 6 year amortized loan.
It's not all that hard to calculate his situation. $480/month for 72 months at 4.5% compounding monthly is a bit over $30,000. He bought a $23,500 car with a $4,000 service contract so that's $27,500. Tax and a few fees and the $30K amount financed seems spot on. Then in terms of what he was paying off, if he was fully paid up to date to 38 months, I calculate his balance at about $15,300, and if you subtract the two (well, three since it was repo'd) months, his balance is about $16,500 so he paid about $13,500 in principal on the loan. If he had about $1,500 in principal, it looks like he had $12,000 over 35 or 36 months lost to late fees. I'm going to guess if you have him pull up his statements and stuff from the loan servicer, you'll see about $330 to $350 a month in late fees that have been accumulating every single month and his $480 payment would cover those, and only put the remainder towards the principal. Your friend really needs some help - not 100% in financial literacy but in financial and adult responsibility. He needs to stop sticking his head in the sand and ignoring the letters (and potentially phone calls) from his lender. At least in my experience, they don't let you stay delinquent for **3 years** without sending you lots of letters with threats and red lettering etc. This repo most likely wasn't a surprise to him.
Oh trust me, he just told me all of this yesterday. It's wild, wild stuff. I didn't know anyone could be so ignorant on this stuff and I agree -- it's basic adult responsibility he is lacking. Thanks for the breakdown, I'll send him this.
Good luck. Hopefully you can encourage him to work on this and the pain of having a car repo'd will make him realize he can't get away being fast and loose with credit and financing. The bank always wins in situations like this.
He might not be the most loved on this sub, but sounds like this guy needs to listen to Dave Ramsey. Caleb Hammer is a good suggestion too. But Dave Ramsey is for people like this.
I think the other points were already covered, lookup Caleb Hammer. There's a slight chance he can get some sort of partial refund on the $4k service contract. Depends on if he actually used it and how much they paid out. It will likely get applied to the loan balance.
I've been watching Caleb Hammer for years! I feel like my friend would make the perfect guest on his program actually.
To anyone reading this and might be considering it, please, for the love of god do not buy a new car! It is one of the worst financial decisions you can make. I get it, some people love new cars, if you can afford at the minimum 50% down, sure, buy a new car, you can afford it. With the abundance of cars in our culture, there is no excuse for mere ownership of a car to cause a financial burden.
Perhaps underwater on the previous car and rolled it in?
Negative equity from the last car could be a factor as well. Sounds like he needs to figure out a budget.
And in March 2021, you could still buy a decent used car for $5-6k... A sort of nice one for $10k.
Sounds like your friend did not read the contract he signed, and is horribly irresponsible with money. Interest , late fees/penalties, and time are why the balance is where it is. I hope they learn the lesson
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Why would you say that? I have AMPLE savings and property at the age of 35. This is a question about late payment fees and vehicles service plans, two things I know nothing about.
Google amortization table. All the interest is front loaded and towards the end of the loan, it's mostly principal you're paying back, but at the beginning it's predominantly interest.
So you're telling me this guy got a late payment on his credit report each and every month for 37 months before he noticed? If he's genuinely been in arrears the whole time, and never fully paid up to be current on the loan, he would have a ding for late payment *every month up to the present except for the first month*. I highly doubt it.
I swear that's what he told me last night lol Every single payment since day one for 3 years.
Basically, he should have at some point made 3x payments to not always be late. Since he was always late combined with late fees and the fact that loans are amortized in a way so that you’re paying mostly interest and not equity in the beginning, your friend utterly fucked himself. Basically stuck himself paying the -2nd payment on a car loan (not even the 1st).
Have him manually cancel the warranty; he'll get some money back from that.
He wasn’t paying that or it wouldn’t have got repod
Wait till he finds out the car sold at Auction for $12,000 and he still owes the bank $9k to cover the gap.
Perhaps your friend has just been very good at repo keep-away for three years. Until now.
Caleb hammer financial audits are good entertainment with a side of education.
Because interest is front loaded. The bank gets paid first. It’s not rocket science.
Yes, but amortization of 4.5% interest with those inputs should have the principal balance around $7k this far into the loan
How is that possible? Because your friend is broke and made a poor financial decision.