Ah, military. Being in the military brings lots of special challenges, and I was reminded today of yet another reason why military members should usually not purchase new cars, or be sure to put a large down payment on their purchase. I'm sure you're thinking to yourself, "Oh, my gosh, has she not talked about this enough?"
Let me tell you the (only partially fictionalized) story of Sailor Shelly and her family. Sailor Shelly and her husband are a pretty typical young couple, and they have two vehicles. One is an older car that is paid for, the other is less than two years old and was financed with a fairly small down payment and a five-year term. Sailor Shelly receives accompanied orders to Japan, and she is not authorized to take vehicles with her. The Navy will store one vehicle for Sailor Shelly during her time in Japan.
At this point, Sailor Shelly and her husband have to make some decisions about her vehicles. The car that is paid for isn't the problem, it is the car with the loan.
If Sailor Shelly sells the newer car, she will only receive about $12,000 for it, and the loan balance is still over $17,000. That leaves her with a $5,000 deficit. Some auto loan financers will allow a borrower to roll that over into a higher interest personal loan, but then they're paying for a car they don't even have any more. That's not good. If the company that currently holds the loan won't allow it to roll it over, then the borrower will either have to find the cash to make up the difference or find a personal loan through their bank or credit union. Either way, that's a significant financial hit to take while you're already managing the financial madness of an international move.
The other choice is to put the car into storage and continue making payments on it. On the upside, the Shelly family would have a low mileage, nearly paid car after their three years in Japan. On the downside, they'd still be making those big car payments every month. It is also possible that the vehicle may not be suitable for their family by the time they return (hello, twins!) or that Sailor Shelly will receive follow-on orders to another overseas location.
How can you prevent this situation from happening to your family? There are two ways to be sure that if you have to sell the car tomorrow, the sales price will be enough to cover the remaining loan balance: buying used, or putting a large down payment. In an ideal world, you'd buy a gently used car and put down a large down payment. If possible, delay vehicle purchases until after moves, so you'll (hopefully) have a chance to pay down the loan even further before those pesky PCS orders pop up again.
Military life is always exciting, and you never get to stop planning for "what if?" In the case of car purchases, thinking through the possibilities can save you a lot of drama and a lot of money.