Borrow to pay off car loan balance
Dear Terry,
We are thinking about returning our car to the credit union. My husband had a big salary cut 10 months ago and over this period we have struggled to make the payments but managed to make them on time.
However, we are digging ourselves into credit card debt trying to keep our credit in good standing. How much will this affect our credit and is there a better option for us, like selling the car and making payments for the gap with the bank?
— Alma
Dear Alma,
It’s always better to sell a car and then pay off the remaining balance than to simply give back the vehicle, which still counts as a repossession on your credit report.
As I see it, the problem is negotiating paying off the remaining balance. The auto lender isn’t likely to agree, because the balance is essentially an unsecured loan.
If you can borrow the amount necessary to pay off the balance, such as with a home equity loan, that would be the best course.
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