What to do with an expensive, upside-down car loan?
First suggestion: Investigate refinancing the auto loan with a reputable credit union or bank.  I reduced my costs by changing my auto loan to Pentagon Federal Credit Union, which charges about 4% interest rate (compared to 6% which was the standard about 2 years ago).  (for instructions on how to join penfed, look at my other post here.) Second suggestion: get involved with the better business bureau. 25% interest is ridiculous, I would file a complaint against the auto dealership. If you can't sell it, refinance the bugger.  Even if you can knock the interest rate down to 8% and take out a 3-year loan, you'll save about $100 per month.  Or really kill the payment (but pay more interest) by taking out another 6-year.  A 6-year at 9% on $12k is only $215/month. My credit union routinely advertises specials on car loans.  It shouldn't be difficult to get out of the usurious loan you have now. As for others' advice about getting another job, having been a PhD student I hesiate to suggest that you get another one, because your job is probably your life right now.  But can your wife (or even you) start a blog on a subject that interests you?  A few posts a week add up over time, and pretty soon you have a real asset that can be another basket to put your eggs in. Does the full time PHD student extend to 70-80 hours/week or more? If not, can you pick up an extra job to aid with living expenses? Also, whose name is the debt in? Is your wife paying to avoid the black mark on her credit record or her mother's? Basically what it looks like to me is that you guys currently have a car you cannot afford and that her mother doesn't seem to be able to afford either, at a ridiculous interest rate on top. Refinancing might be an option but at a payoff amount of 12k you're upside down even when it comes to the KBB retail value. I'm somewhat allergic to financing a deprecating asset (especially at a quick back of the envelope calculation suggests that she's already paid them around $18k if you are indeed three years into the loan). What I would be tempted to do in your situation is to attempt to negotiate a lower payoff to see if they're willing to settle for less and give you clean title to the car - worst thing they can say is no, but you might be able to get the car for a little less than the $12k, then preferably use your emergency money to pay off the car and put it up for sale. Use some of the money to buy her a cheaper car for, say, $4k-$5k (or less if you're mechanically inclined) and put the rest back into your emergency fund. The problem I see with refinancing it would be that it looks like you're underwater from a balance vs retail value perspective so you might have a problem finding someone to refinance it with you throwing some of your emergency money at it in the first place. An option that no one has yet suggested is selling the car, paying off the loan in one lump sum (adding cash from your emergency sum, if need be), and buying an old beater in its place.  With the beater you should be able to get a few years out of it - hopefully enough to get you through your PhD and into a better income situation where you can then assess a new car purchase (or more gently-used car purchase, to avoid the drive-it-off-the-lot income loss).   Even better than buying another car that you can afford to pay for is if you can survive without that car, depending on your location and public transit options.  Living car free saves you not only this payment but gas and maintenance, though it costs you in public transit terms. Right now it looks as if this debt is hurting you more than the amount in your emergency fund is helping.  Don't wipe out your emergency fund completely, but be willing to lower it in order to wipe out this debt. You could do a voluntary repossession. While a repossession never looks good on your credit a voluntary repossession is slightly better. A good friend of mine had a situation like this about 11 years ago.  She was in an accident didn't have replacement coverage insurance and was left with a large chunk of debt on a wrecked vehicle that she then rolled into a new car. In the end it came down to the simple fact that she could not afford a car loan on a vehicle that never was worth as much as she owed.  Since the car was worth less than the loan she really couldn't sell it to fix the problem. She called and arranged a voluntary repossession.  She stopped making payments, and parked the car till they came and picked it up.  (Took about 4 months and 20 phone calls from her for them to come get it.)  In the mean time, I purchased her a much older used but decent car for a couple thousand and she paid me back over the next year.  The total she paid me back was less than the money she would have paid in the 4 months it took them to come get the car.  In fact by the time they picked up the car she had paid back over half on the car I bought her. Yes the repossession did stay on her credit for seven years but during that time she was approved for a mortgage, cellphone plans, and credit cards etc.  Therefore I don't know that it did that much damage to her credit. When her car was sold at auction by the repo company it sold for much less than the loan amount. Technically she was on the hook for the remaining amount. The outstanding balance on the loan was then sold several times to several different collection agencies. Over the years since then she has gotten letters every now and then demanding she pay the amount off, she ignores these.  Most of these letters even included very favorable terms (full forgiveness for 20% of the amount)  At this point the statute time has run out on the debt so there is no recourse for anyone to collect from her. The statute time limit varies from state to state.  Some states it is as long as 10 years in others it is as short as 3 years. What this means is that counting from the date of the repossession, incurrance of debt, last payment, or agreement to pay whichever is later if the statute period has elapsed and the lender/collector has not filed a suit against you by the end of the period then they have effectively abandoned the debt and cannot collect.   Find out what that period of time is in your state.  If you can avoid the collection agencies till that period runs out you are scott free. You just have to make sure that you do not ever send them any money, or agree to pay them anything as this resets the calendar. If you do not want to wait for the calendar to run out if you wait long enough you will probably be offered favorable terms to pay only a fraction of the remaining amount, you just have to wait it out. Note, I normally would not endorse anyone not paying off their debts.  However sometimes it is necessary and it is for this type of situation that we have things like this and bankruptcy. The answer depends on your wife's overall situation, whether you are in a community property state, and other factors. I'm assuming that since your wife paid $5,000 more for a car than it was worth, has a six-year, 25% auto loan and you talk about repossession as a routine event, that her credit history is extremely poor. If that is the case, you're unlikely to be able to refinance, particularly for more than the car is worth. You're in a bad situation, I'd look for a legal clinic at a nearby law school and find out what the law says about your situation in your state. If she has other debt, your best bet is to put the car in a garage somewhere, stop paying and demand better terms with the lender -- threaten bankruptcy. If they don't go for it, and your wife has other debt, she should look into bankruptcy. Given the usurious terms of the loan, you have a fighting chance of keeping the car in a Chapter 13. Find out and the legal implications for this before proceeding. If she doesn't have other debt, you need to figure out to get the thing repossessed on the best possible terms for you. If it's her mother's car, you're in a moral dilemma.  Bottom line, get rid of this thing asap. And make sure that going forward you are both controlling the finances. the best thing to do is file bankrupt. your credit will be shot for 7 to 10 years. however usually 3 years after the bankrupt people will give you small lines of credit. then you rebuild on the small credit lines. and never get into a bad loan again you learn from mistakes. there is no shame in a mistake if you learned from it. I rebuilt my credit by using fingerhut. small credit limit on a cap 1 credit card 300 dollars unsecured card. personal loan of 1500 dollars to buy a old clunk for a car as I did not want to have five years of car payments. you can also get a secured credit card. and build credit with that. the bank will explain how to build credit using your own money. also you should know a lot of banks like your bankrupt stat. because they no you cant file for several more years. meaning if you don't pay your loan they can garnish you and you cant file bankrupt. you can get a new car loan with good interest rate. by taking 5000 dollars of your 15000 dollars savings down on the new loan. making your new car loan have better payments cheaper and better interest. and get a secured credit card of 2000 to build towards a unsecured credit card. keep all your new credit tabs small and pay on time.i would not use all your nest egg savings. that is not smart. get a lawyer and file. stay in school you will have a fresh start and you learned about upside down loans. don't listen to people trying to tell you bankruptsy is bad. it in a lot of ways gives you the upper hand in a no win debt or debts.
"My grandma left a 50K inheritance You don't make clear where in the inheritance process you are.  I actually know of one case where the executor (a family member, not a professional) distributed the inheritance before paying the estate taxes.  Long story short, the heirs had to pay back part of the inheritance.  So the first thing that I would do is verify that the estate is closed and all the taxes paid.  If the executor is a professional, just call and ask.  If a family member, you may want to approach it more obliquely.  Or not.   The important thing is not to start spending that money until you're sure that you have it.   One good thing is that my husband is in grad school and will be done in 2019 and will then make about 75K/yr with his degree profession. Be a bit careful about relying on this.  Outside the student loans, you should build other expenses around the assumption that he won't find a job immediately after grad school.  For example, we could be in a recession in 2019.  We'll be about due by then.    Paying off the $5k ""other debt"" is probably a no brainer.  Chances are that you're paying double-digit interest.  Just kill it.   Unless the car loan is zero-interest, you probably want to get rid of that loan too.  I would tend to agree that the car seems expensive for your income, but I'm not sure that the amount that you could recover by selling it justifies the loss of value.  Hopefully it's in good shape and will last for years without significant maintenance.   Consider putting $2k (your monthly income) in your checking account.  Instead of paying for things paycheck-to-paycheck, this should allow you to buy things on schedule, without having to wait for the money to appear in your account.   Put the remainder into an emergency account.  Set aside $12k (50% of your annual income/expenses) for real emergencies like a medical emergency or job loss.  The other $16k you can use the same way you use the $5k other debt borrowing now, for small emergencies.  E.g. a car repair.   Make a budget and stick to it.  The elimination of the car loan should free up enough monthly income to support a reasonable budget.  If it seems like it isn't, then you are spending too much money for your income.  Don't forget to explicitly budget for entertainment and vacations.  It's easy to overspend there.   If you don't make a budget, you'll just find yourself back to your paycheck-to-paycheck existence.  That sounds like it is frustrating for you.  Budget so that you know how much money you really need to live." NO, you pay off the Highest interest charging accounts first. The zero interest loan should be the Last one you pay off. Basically payoff your student loan and put the extra money to the car loan Not sure if it is the same in the States as it is here in the UK (or possibly even depends on the lender) but if you have any amount outstanding on the loan then you wouldn't own the vehicle, the loan company would. This often offers extra protection if something goes wrong with the vehicle - a loan company talking to the manufacturer to get it resolved carries more weight than an individual. The laon company will have an army of lawyers (should it get that far) and a lot more resources to deal with anything, they may also throw in a courtesy car etc. "You won't be able to sell the car with a lien outstanding on it, and whoever the lender is, they're almost certain to have a lien on the car.  You would have to pay the car off first and obtain a clear title, then you could sell it. When you took out the loan, did you not receive a copy of the finance contract?  I can't imagine you would have taken on a loan without signing paperwork and receiving your own copy at the time.   If the company you're dealing with is the lender, they are obligated by law to furnish you with a copy of the finance contract (all part of ""truth in lending"" laws) upon request.  It sounds to me like they know they're charging you an illegally high (called ""usury"") interest rate, and if you have a copy of the contract then you would have proof of it.  They'll do everything they can to prevent you from obtaining it, unless you have some help. I would start by filing a complaint with the Better Business Bureau, because if they want to keep their reputation intact then they'll have to respond to your complaint.   I would also contact the state consumer protection bureau (and/or the attorney general's office) in your state and ask them to look into the matter, and I would see if there are any local consumer watchdogs (local television stations are a good source for this) who can contact the lender on your behalf.  Knowing they have so many people looking into this could bring enough pressure for them to give you what you're asking for and be more cooperative with you. As has been pointed out, keep a good, detailed written record of all your contacts with the lender and, as also pointed out, start limiting your contacts to written letters (certified, return receipt requested) so that you have documentation of your efforts. Companies like this succeed only because they prey on the fact many people either don't know their rights or are too intimidated to assert them.  Don't let these guys bully you, and don't take ""no"" for an answer until you get what you're after. Another option might be to talk to a credit union or a bank (if you have decent credit) about taking out a loan with them to pay off the car so you can get this finance company out of your life." If you intend to flip this property, you might consider either a construction loan or private money. A construction loan allows you to borrow from a bank against the value of the finished house a little at a time. As each stage of the construction/repairs are completed, the bank releases more funds to you. Interest accrues during the construction, but no payments need to be made until the construction/repairs are complete.  Private money works in a similar manner, but the full amount can be released to you at once so you can get the repairs done more quickly. The interest rate will be higher. If you are flipping, then this higher interest rate is simply a cost of doing business. Since it's a private loan, you ca structure the deal any way you want. Perhaps accruing interest until the property is sold and then paying it back as a single balloon payment on sale of the property. To find private money, contact a mortgage broker and tell them what you have in mind.  If you're intending to keep the property for yourself, private money is still an option. Once the repairs are complete, have the bank reassess the property value and refinance based on the new amount. Pay back the private loan with equity pulled from the house and all the shiny new repairs. Your first step is to talk to the current lender and ask about refinancing in the other person's name. The lender is free to say no, and if they think the other person is unlikely to pay it back, they won't refinance. If you're in this situation because the other person didn't qualify for a loan in the first place, the lender probably won't change their mind, but it's still worth asking. From the lender's point of view, you'll be selling the other person the car.  If they qualify for a loan, it's as simple as getting the loan from a bank, then doing whatever is required by your state to sell a car between either private parties or between relatives (depending on who the other person is). The bank might help you with this, or your state's DMV website.  Here are a few options that don't involve changing who is on the loan: Taking out a loan for another person is always a big risk. Banks have entire departments devoted to determining who is a good credit risk, and who isn't, so if a person can't get a loan from a bank, it's usually for a good reason.  One good thing about your situation: you actually bought the car, and are the listed owner. Had you co-signed on a loan in the other person's name, you'd owe the money, but wouldn't even have the car's value to fall back on when they stopped paying. "I'm sorry to hear you've made a mistake. Having read the contract of sale we signed, I do not see any remedy to your current situation.  However, I'm interested in making sure I do not take advantage of you.  As such, I'll return the vehicle, you can return my money plus the bank fees I paid for the cashiers check, tax, title, and registration, and I will look at buying a vehicle from another dealership.   This seems to be the most fair resolution.  If I were to pay for your mistake at a price I did not agree to, it would not be fair to me.  If you were to allow this vehicle to go to me at the price we agreed to, it wouldn't be fair to you.  If I were to return the car and begin negotiations again, or find a different car in your lot, it would be difficult for us to know that you were not going to make a similar mistake again. At this point I consider the sale final, but if you'd prefer to have the vehicle back as-is, returning to us the money we gave you as well as the additional costs incurred by the sale, then we will do so in order to set things right. Chances are good you will see them back down.  Perhaps they will just cut the additional payment in half, and say, ""Well, it's our mistake, so we will eat half the cost,"" or similar, but this is merely another way to get you to pay more money.   Stand firm.  ""I appreciate the thought, but I cannot accept that offer. When will you have payment ready so we can return the car?"" If you are firm that the only two solutions is to keep the car, or return it for a full refund plus associated costs, I'd guess they'd rather you keep the car - trust me, they still made a profit - but if they decide to have it returned, do so and make sure they pay you in full plus other costs.  Bring all your receipts, etc and don't hand over the keys until you have the check in hand. Then go, gladly, to another dealership that doesn't abuse its customers so badly. If you do end up keeping the car, don't plan on going back to that dealership.  Use another dealership for warranty work, and find a good mechanic for non-warranty work. Note that this solution isn't legally required in most jurisdictions. Read your contract and all documentation they provided at the time of sale to be sure, but it's unlikely that you are legally required to make another payment for a vehicle after the sale is finalized.  Even if they haven't cashed the check, the sale has already been finalized. What this solution does, though, is put you back in the driver's seat in negotiating.  Right now they are treating it as though you owe them something, and thus you might feel an obligation toward them.  Re-asserting your relationship with them as a customer rather than a debtor is very important regardless of how you proceed. You aren't legally culpable, and so making sure they understand you aren't will ultimately help you. Further, dealerships operate on negotiation. The primary power the customer has in the dealership is the power to walk away from a deal. They've set the situation up as though you no longer have the power to walk away.  They didn't threaten with re-possession because they can't - the sale is final. They presented as a one-path situation - you pay.  Period. You do have many options, though, and they are very familiar with the ""walk away"" option.  Present that as your chosen option - either they stick with the original deal, or you walk away - and they will have to look at getting another car off the lot (which is often more important than making a profit for a dealership) or selling a slightly used car. If they've correctly pushed the title transfer through (or you, if that's your task in your state) then your brief ownership will show up on carfax and similar reports, and instantly reduces the car's worth.  Having the title transfer immediately back to the dealership doesn't look good to future buyers. So the dealership doesn't want the car back.  They are just trying to extract more money, and probably illegally, depending on the laws in your jurisdiction. Reassert your position as customer, and decide now that you'll be fine if you have to return it and walk away. Then when you communicate that to them, chances are good they'll simply cave and let the sale stand as-is." You should have her sell it to you for the amount of the outstanding loan. You take out a loan in your name for the amount (or at least, the amount you have to come up with). You then transfer the title from her to you, just as you would if you were buying the car from someone else. While the title is in her name, she has ownership. This isn't a technicality, this is the explicit legal situation you two have agreed to. So many answers here are missing the mark.  I have a $100k mortgage--because that isn't paid off, I can't buy a car?  That's really misguided logic. You have a reasonably large amount of college debt and didn't mention any other debt-- It's a really big deal what kind of debt this is.  Is it unsecured debt through a private lender? Is it a federal loan from the Department of Education? Let's assume the worst possible (reasonable) situation.  You lose your job and spend the next year plus looking for work.  This is the boat numerous people out of college are in (far far far FAR more than the unemployment rates indicate).  Federal loans have somewhat reasonable (indentured servitude, but I digress) repayment strategies; you can base the payment on your current income through income-based and income-continent repayment plans.  If you're through a private lender, they still expect payment.  In both cases--because the US hit students with ridiculous lending practices, your interest rates are likely 5-10% or even higher. Given your take-home income is quite large and I don't know exactly the cost of living where you live--you have to make some reasonable decisions.  You can afford a car note for basically any car you want.  What's the worst that happens if you can't afford the car?  They take it back. If you can afford to feed yourself, house yourself, pay your other monthly bills...you make so much more than the median income in the US that I really don't see any issues. What you should do is write out all your monthly costs and figure out how much unallocated money you have, but I'd imagine you have enough money coming in to finance any reasonable new or used car.  Keep in mind new will have much higher insurance and costs, but if you pick a good car your headaches besides that will be minimal. Just call your credit union and ask if they will let you refinance at the lower rate. If they won't, then just increase your payment every month so that your car is paid off early (in 36 months instead of 60). You won't get the lower rate, but since your loan will be paid early, you'll be saving interest anyway. Update: here is a message the seller just sent me. Does this make sense?  I spoke with my bank again and they explained it a little better for me. I guess how it works is they will print out something for you that is called an affidavit in lieu of title that states they are no longer the lein holder and to release it to you. You then take that to the dol and they get it put in your name. He says that's how they do it all the time. When we get to the bank, the teller just verifies the check and I deposit it and they release the funds to pay off the account and that's when you would get the paperwork. You would be there for the whole process so nothing is sketchy. Sorry it's such a pain, I didn't understand how that worked. We've never sold a car with a loan on it before. You're driving a car worth about $6000 which has a $12,000 loan against it. You're driving around in a nett debt of $6000. The best thing your grandfather could do for you, if possible, is to take your name off both the title and the loan, refinancing the car in his name only. If possible while still letting you drive the car. When he dies, you will be out of a car, but also out of a $12,000 debt which I'm sure you could do without. Okay, the best thing your grandfather could do, from your wallet's point of view, is paying off the loan for you and then taking his name off the title. The article made it seem like a lot of these were frivolous purchases, but I doubt there's any clear data on the percent that were someone's primary vehicle, etc. Usually if you default on a new-car loan you can still get a high-interest loan for a used car that will still be a lot less than your old payment. "The lead story here is you owe $12,000 on a car worth $6000!!  That is an appalling situation and worth a lot to get out of it.  ($6000, or a great deal more if the car is out of warranty and you are at risk of a major repair too.)  I'm sorry if it feels like the payments you've made so far are wasted; often the numbers do work out like this, and you did get use of the car for that time period. Now comes an ""adversary"", who is threatening to snatch the car away from you.  I have to imagine they are emotionally motivated.  How convenient :) Let them take it.  But it's important to fully understand their motivations here.  Because financially speaking, the smart play is to manage the situation so they take the car. Preferably unbeknownst that the car is upside down.  Whatever their motivation is, give them enough of a fight; keep them wrapped up in emotions while your eye is on the numbers.  Let them win the battle; you win the war: make sure the legal details put you in the clear of it.  Ideally, do this with consent with the grandfather ""in response to his direct family's wishes"", but keep up the theater of being really mad about it.  Don't tell anyone for 7 years, until the statute of limitations has passed and you can't be sued for it. Eventually they'll figure out they took a $6000 loss taking the car from  you, and want to talk with you about that.  Stay with blind rage at how they took my car.  If they try to explain what ""upside down"" is, feign ignorance and get even madder, say they're lying and they won, why don't they let it go?  If they ask for money, say they're swindling. ""You forced me, I didn't have a choice"".  (which happens to be a good defense.  They wanted it so bad; they shoulda done their homework.  Since they were coercive it's not your job to disclose, nor your job to even know.)  If they want you to take the car back, say ""can't, you forced me to buy another and I have to make payments on that one now.""" "I have been considering a similar situation for a while now, and the advice i have been given is to use a concept called ""dollar cost averaging"", which basically amounts to investing say 10% a month over 10 months, resulting in your investment getting the average price over that period. So basically, option 3."