QuestionQUESTION: My sister in law is in financial difficulty. She want to return the car she can not afford to pay anymore. It is under purchase financing. What are the possible consequences ? Will there be penalty?
Please advise!
ANSWER: The penalty- the consequences- are this: returning the car will destroy her credit. There is no difference between a voluntary and an involuntary repossession. Both reflect just as poorly on her credit report. Is there any chance she can sell the car and pay off the loan? That's her best way out of this situation.
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QUESTION: Other than badly affecting her credit, does she need to pay any amount regarding breaking car purchase financing contract? Don't know if she can sell the car. Is it possible for her to sell if the lien holder is the financer?
AnswerIf there's a penalty for breaking the contract, then it should be spelled out within the contract (read all the fine print on the back). I've never seen a conventional finance contract with such a penalty, but I'm not saying that it can't exist. If she stops making payments, then they repossess the vehicle and sell it at auction, using the proceeds from the sale to pay off the loan. If the auction proceeds don't cover the loan balance, then they have the right to take your sister to court and sue her for the remaining balance.
If the title is in her name, then she may sell the vehicle at any time, but she would then immediately pay off the loan balance. If that amount is more than what she sells the car for, then she has to come up with the difference out of her own pocket. If the title is in the financiers' name (or it's co-owned with the financier), then she has to get their permission before she can sell it.
