My husband and I bought a 2007 Kia in 2008. We financed for 6 years and we've made 61 payments. We have 11 payments left as our maturity date is September 2014. We owe them approximately $6,300 but they say pay off is $13,900 due to it being a simple interest loan and us deferring some payments and being late. Is this legal? Can they make you extend out you loan after you've paid all 72 (6 years) of payments? They're telling me were going to have to extend our loan out 12 to 14 months to get this paid in order to get our title. They sent me our payment history the other day and for 13 months in a row, from November 2008 to December 2009 the 13 payments we made of 538.30 every bit went to interest and not one penny went to the principle. The balance stayed at $19,300 for a year and 1 month. Does that sound right to you? That right there is about $7,000 that went only to interest. We are stuck and don't know what to do. We do owe the 11 payments, but nothing more. What can we do? Anything or is this legal?
4 Answers from Attorneys
You are asking if the numbers are correct and if something sounds right, and say that the lender says something about the interest, but you say not a word about the most important detail - your contract. That either answers your questions, or tells you how the lender is wrong. We don't have it.
No one here has read your contract. To answer your question we'd have to see it. No one should ever do a car loan over 48 months (or maybe 60) as you stay upside down forever and pay way too much interest. You problem is that you did a 72 month loan, which means you overpaid, by your choice, for a car you actually could not afford. If you think the interest calculation is wrong, write them and ask for an accounting.
Everything will depend on the details of the contract, and or any modifications done to it when they deferred your payments. If you deferred, the balance owed did not change which, in turn, increased the balance on which the interest was calculated. If the interest rate is high enough, this can extend the amount of time it would take to pay off significantly. Your options are to pay them what they are asking, sell the car to pay it off, or file bankruptcy and pay it off at book value.
I agree that any attorney would have to see your documents, but from my experience with other clients, there is a dirty little secret that occurs when you defer a payment which the lender does not tell you about. Instead, they happily defer the payment.
This has nothing to do with simple or compound interest. You should NEVER skip a payment and here is why. When you defer a payment, you think you can miss a payment and the lender will tack it onto the loan. Wrong! They will do that but you will still owe interest on that payment. The interest will run from the time of the skipped payment until you get around to paying the deferred payments. I think Attorney Gardner hinted at this.
I have clients do this foolishly thinking the lender was helping them only to learn, after the fact, that they had another whole year of payments amounting to thousands of dollars which is the situation you are in.
I am sorry but you probably owe the money. I would suggest that you look around at a credit union to see if you can refinance the balance, assuming that the car is valued at what is owed. Otherwise, try doubling up on a few payments or pay an extra payment as you can.
And of court the payments at the beginning of the loan go towards interest. That is how it works. If your payments were this high it means that either (a) you have bad credit and qualified only for a high interest rate loan; or (b) you bought too much car if you had to stretch it out to 6 years; or (c) you rolled over the amount owed on a car that you traded in such that you began the deal upside down; or (d) some combination of any or all of these.
You are probably still upside down, but I would look at your interest rate and see if you can refinance at a credit union. If not, you have to make the best of a bad situation. I would pay the car off and then drive this car until the wheels fall off and I would never ever roll over amounts owed into a new vehicle. That is a recipe for a disaster and designed to keep you a debt slave for life. You need to think smarter and break this cycle.