Mark asks: “I picked up a lovely car a couple of years back at a reasonable monthly rate. Everything was fine until I decided to change my job and it has become apparent that it’s just too much of a drain on the family finances.”

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Q&A 47 – How Can I Get Out Of My Car Lease? – Shownotes

Today’s question comes from Mark:

Hi, I picked up a lovely car a couple of years back at a reasonable monthly rate. Everything was fine until I decided to change my job.

This new position came with a big pay-cut but more time for me to spend with my family. I’ve tried to keep the car payments going but it has become apparent that it’s just too much of a drain on the family finances.

Does anyone have any advice for me about getting out of the finance and rid of the car? I can’t sell a car with outstanding finance and I can’t afford to pay off the outstanding money even if I sell the car straight away and put the cash back into the bank.

Thanks.

Thanks for your question Mark.

 

This Is Why You Shouldn’t Finance A Car…

A few weeks ago we had a question on what the best way to buy a car was. This was Q&A 38 and in the comments a couple of people were strong in their support of buying new cars on finance, either through hire purchase or PCP.
This situation is exactly why I disagree with them.

Mark, when you bought the car (and even today) you only ever viewed it as it was a “reasonable” and you thought “affordable” monthly rate. You didn’t actually consider the risks of signing up to financing and whether this car purchase was a financially optimal move overall.

Unfortunately, you are now learning this the hard way.

The good news is that whilst you’ll probably ending paying a little bit of that “infamous stupid tax”, you’re able to get out of this without too many problems.

 

 

A Plan To Fix The Mistake

Let’s just make up some numbers to help with an example. I’m going to assume that you owe £12,000 on your car, and it’s currently worth £10,000.

The easiest way will be to sell your car for £10,000 and buy another vehicle for £2-3000. However, as you say, you cannot sell the vehicle and maintain this debt as it is secured against a vehicle.

So, assuming that you have no savings today, you’ll need to get a loan for £15k that isn’t attached to the vehicle at the best terms available (try looking at 0% money transfer cards). You can then use this money to pay down the car loan and buy your replacement vehicle.

Then, you’ll can pay down £10k of the loan when you sell your current vehicle and you’ll need to devise a plan whereby you fully pay down the £5k loan before the favourable interest terms end. This should be manageable because you’ll no longer be paying a monthly lease payment and you only need about 40% of that to repay against your new loan.

The lesson is that you should buy cars with cash. This is because they are horribly depreciating assets and by paying cash you know exactly what you can and can’t afford.

 

 

Ask Your Question

This show runs three times a week and answers all of your personal finance questions. If you have any questions, please don’t be shy to ask. You can ask in three ways:

1. Leave a comment on any of the Q&A podcast shownotes (including this one)
2. Email me at moneystepper@gmail.com
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