Car Payments 101: What to do when the car you bought costs too much

Ever since James Bond first roared around the curves of Europe in his Aston Martin DB5, luxury sports cars have been stuck in the imaginations of men.  But these days, you're just as likely to find women having love affairs with their cars.
Take China, for example. China is producing more female millionaires than anywhere else in the world right now. And what are these ladies doing with their newfound riches? Buying cars! According to Maserati, 30 per cent of its Chinese sales are to women, versus 10 per cent in Europe. Women account for 20 per cent of Ferrari sales in China, which is twice the average elsewhere.
Sadly, we are not all millionaires (yet!). And whether you drive a Maserati or a Toyota, the price of that little purse-extender can take a massive toll on your monthly finances. Between the price of gas, maintenance and financing, all too often the car you thought you could afford turns out to be way more expensive than planned.
According to Stephanie Holmes-Winton, president and CEO of The Money Finder in Halifax, vehicle debt is one of the hardest to alter once you've signed on the dotted line. For one thing, new cars depreciate in value rapidly, so trying to get the seller to change the terms later on will not likely work in your favour. Second, most people choose a car based on the monthly payment, rather than the total purchase price.
"Car dealers are skilled at finding creative ways to make almost any car work into your budget. The reason for this is that's what we as buyers are fixated on," says Ms. Holmes-Winton. "However, just because the purchase looks doable on paper, this does not mean it's truly affordable!"
The golden rule of car buying, according to Ms. Holmes-Winton, is this: Buy your vehicle over a 36-month term and no more. If you can't afford the monthly cost to pay it off within 36 months, then you can't afford the car!
Ms. Holmes-Winton says that leasing is ideal for business owners only when you have a legitimate ability to write off at least 50 per cent of the cost of the car. When choosing a car to lease, you should still select a car that you could afford to purchase outright over 36 months. Take the difference between the lease payment and the would-be loan payment and bank this (cottage money!) or apply it to your family's second vehicle if that is a necessity.
But what if the deed is done? What do you do if you find yourself driving around in the car of your dreams while stressing about the financial pickle you find yourself in?
"Depending on the size of your payment, the condition of the vehicle and its present value, you may be able to trade down," says Ms. Holmes-Winton. She suggests these options:
Option 1 — Return to the dealer from whom you purchased the car and find out if you can downsize. More than likely, the value of your car has dropped to less than what you owe. If that is the case, you will have to transfer the difference between what you owe and what the car is worth onto a much less expensive car, which might be tricky or darn near impossible. But take heart - it has been done.
Here's an example: You bought that sweet little SUV at $35,000 and now it's worth $19,000. You still owe $28,000. That is a $9,000 difference that the car dealer still expects you to pay. Even if you can trade down to a cheaper car, this $9,000 will get tacked onto the price.
Option 2 - Sell the car for its current value and then pay back your outstanding loan. However, because the loan is attached to the car value, you may not always be allowed to do this.
Option 3 — Try another dealer. Sometimes you can get a better trade and reduce your payments by going to a competitor.
Option 4 — Find someone willing to take over the contract and take the car off your hands. LeaseBusters, Craigslist and eBay Motors are just a few places that provide a marketplace for people in the same position as you, along with people hoping to pick up a car without paying the new car premium. Just be aware of the fees involved and make sure you understand what this option will actually cost you!

Remember the day you took the keys to your first car? Freedom! Keep that in mind as you consider a new car today. No matter what you drive, a car should feel like a luxury - don't let it own you!