Hagerstown, MD asked in Consumer Law for Maryland

Q: If a loan company used my 2013 Toyota as collateral and take it, would I be able to get another car at lower payments??

My loan balance is around $11500 and my car according to Kelley' blue book valued at $8900 at the most

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1 Lawyer Answer
Cedulie Renee Laumann
Cedulie Renee Laumann
  • Crownsville, MD
  • Licensed in Maryland

A: A repossession does not wipe out debt, and would surely make it more difficult to qualify for a new car loan. The lender will credit for whatever a repossessed car sold for, but the borrower is still on the hook to pay off the balance of the loan. Although it is hard to imagine a scenario where a repossession puts one in a better spot to qualify for a new loan, it is totally up to each individual lender to set their own rules about credit qualifications.

While frustrating to owe more than a vehicle is worth, defaulting on the loan would probably not help financially. It would probably raise the cost of future purchases. This is because someone who has a repossession is a greater credit risk, so most lenders will charge a lot higher interest, meaning the individual winds up paying far more for the next car (and most likely the one after that). Some unscrupulous dealers may claim to sell to anyone with any credit and might look on paper to have decent interest but may jack up the car price to come out higher.

It might be worth reaching out to organizations that help individuals budget and map out a plan to address debt.

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