How many people have found themselves feeling the squeeze of a high interest rate car loan? Maybe you’re having trouble paying both your credit cards and your car loan. Something’s got to give, right?
Even if you know you made a mistake buying the vehicle, and want to sell it off for something cheaper, the amount you owe might actually be more than the resale value. You might not even have a way out of the situation. It’s starting to feel more like this vehicle owns you, than the other way around.
What’s Considered a High Interest Rate Car Loan?
Over the last several years, quite a few car dealerships were offering 0% interest over three or five years. Outside of those deals, a reasonable interest rate often fell somewhere between 3% and 6%. But for many vehicle owners, they found themselves locked into rates as high as 10, 15 or even 20%. And if the debt was from one of those “title loan” shops, the rate could be up near 30 or 35%. And at those rates, this goes beyond just a high interest rate car loan – it’s down right predatory.
Consider this example:
On a $15,000 vehicle loan, at 18% interest, over a repayment period of seven years, the vehicle owner would pay $11,482 in just interest. That exact same loan, at 5% interest, would only require $2,809 in total interest. That is a huge difference! In addition, the 18% loan would require a monthly payment of $315/mo., whereas the 5% loan would require only $212/mo.
If You’re Already Considering Bankruptcy…
If you’re already struggling under your debt payments, and you’re also stuck with a lousy rate on your car loan, bankruptcy (specifically, chapter 13) may present a unique opportunity. Not only could you deal with your other debts (often reducing or eliminating those debts), but you may be able to reduce the interest rate on your car loan. It is not uncommon for car loan interest rates to be reduced to 5% or less through chapter 13. An additional benefit: the vehicle owner can stretch out the repayment period to as much as five years from the date of the filing.
If you are starting to consider the benefits bankruptcy may offer, we recommend consulting with a local bankruptcy attorney.