‘Felt I needed it,’ admits driver trapped into making $692 monthly payments on car – mistakes began with letter in mail
A DRIVER took out expensive loans to cover rent and refinanced her car after being laid off - she was drained by the high interest rates.
It only took a few poor decisions before the 26-year-old realized she would've been better off adjusting her spending habits after losing her job instead of opting for expensive loan borrowing.
Alex sat down with Caleb Hammer (@CalebHammer) to discuss what she learned from her financial situation in an episode of his YouTube series named Financial Audit.
When she was laid off from her remote call center job, Alex took out two loans with 29 percent interest rates.
She might've chosen another way if she hadn't fallen for a letter she saw in the mail.
But, she stressed: "I know I needed it."
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In their conversation, Caleb told Alex: "That’s one of the most insane interest rates I’ve ever seen."
Despite her unemployment, she didn't choose to make any financial sacrifices to save money.
This led to reckless borrowing that has buried her in debt.
When she was working, Alex said she earned roughly $2,000 a month as a remote call center representative.
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At the time, she had an auto loan at 13 percent interest.
Alex said the monthly payments were $430.
Though she was given $6,000 in severance, that wasn’t enough to cover all her expenses.
Alex took out a $6,100 personal loan at 29 percent interest to cover rent.
She also refinanced her car to borrow more to cover that expense and it was at a 29 percent interest rate as well.
As of this month, she had an outstanding car loan balance of $21,560.
What Happened with Alex's Car Payment
The driver named Alex talked to a YouTuber named Caleb Hammer about what she learned after she was laid off from her job and took out loans to compensate.
- Despite her unemployment, she didn't choose to make any financial sacrifices to save money.
- Alex earned roughly $2,000 a month as a remote call center representative before she lost her job.
- When she was working, she had an auto loan at 13 percent interest.
- The monthly payments were said to be $430.
- Alex was given $6,000 in severance after she was laid off.
- The driver took out a $6,100 personal loan at 29 percent interest to cover rent.
- She also refinanced her car at a 29 percent interest rate.
- Her monthly auto payments are $692 now.
- She shared that had an outstanding car loan balance of $21,560 just this month.
Her monthly auto payments are $692 now, she shared.
Additionally, the car is worth less than half her loan balance.
The YouTuber estimated that her 2017 Ford Fusion isn't worth any more than $8,734.
She was in a situation Caleb described as being "dramatically upside down in this car."
While it's a tough spot to be in, it's not specific to Alex as the value of used cars have dipped while interest rates have climbed in recent years.
This has pushed numerous borrowers into negative equity.
Drivers owed an average of $6,064 in upside-down vehicle loans, according to Edmunds.
The average interest rate on used cars for deep subprime borrowers with credit scores between 300 and 500 was 21.55 percent at the end of 2023, according to Experian.
So, Alex's interest rate is actually higher than what's normally offered to borrowers with bad credit scores.
It's likely because she signed up with a random loan offer she received in the mail instead of speaking with someone to work out a regulated bank.
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“Loan offers that come in the mail? Those are the most predatory loans ever," Caleb told her.
"Other than walking into a payday loan place."