A Minneapolis mother of two thought her family was making steady progress, until a single financial decision quietly blew a hole in her budget. Her husband refinanced his car to take out $3,000 in cash and the move left them stuck with a crushing 25% APR.
The caller, Cathy, shared her story on “The Ramsey Show” with the hosts. George Kamel and Ken Coleman. What started as an attempt to cover short-term expenses quickly turned into a long-term financial problem that now threatens to snowball.
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Originally, the couple’s car loan had a 14% APR. That was already high, but manageable. When Cathy’s husband tried to get a personal loan for $3,000 and was denied due to bad credit, a lender suggested refinancing the car.
“He was trying to get money to pay for some things and decided to ask for $3,000 on top of the car loan,” Cathy said.
That refinancing raised the interest rate to 25%. The new loan balance is between $17,000 and $18,000, while the car itself is worth around $7,200. That leaves the family approximately $10,000 underwater.
“If this guy can’t pay, we’ll buy him a car,” Kamel said, explaining why lenders were willing to approve the deal. “Oh, and by the way, your credit went through the roof, so the APR is 25%.”
However, the most important problem was not just the loan. Cathy said she wasn’t involved in the decision at all.
“I didn’t know until after it was done,” he said.
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The couple earns about $70,000 a year from the husband’s job as a garbage truck driver. Cathy stays home with her children, ages 13 and 1, and they homeschool. His total debt load, including credit cards, student loans, a personal loan and the car, is just under $70,000.
“When your debt equals your income, there’s a big problem here,” Kamel said.
Without savings and a vehicle, your options are limited. Refinancing through a credit union could help, but Cathy has no income and her husband’s credit makes approval unlikely.
That leaves one real path forward: aggressive action.
“It would be around $18,000 if I were her husband,” Coleman said. “How quickly can I make $18,000 outside of my $70,000 job?”
The hosts encouraged him to take on extra jobs, evenings, weekends, manual labor, warehouse shifts, whatever it took. With training in holistic wellness and personal coaching, Cathy was encouraged to pursue part-time income from home, but was warned not to wait indefinitely if clients didn’t materialize.
“If in a month, two or three months we don’t get any clients, you have to work for someone else,” Coleman said.
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Coleman summed up the emotional side of the situation with a phrase that stuck. “The dealer will always be happy to refinance at 25% APR,” he said, adding that these situations rarely arise from a reckless move. Instead, they build slowly.
“It all starts with, ‘I can make the payment,’” Kamel said. “Then it’s: ‘Student loans are an investment,’ or ‘The personal loan will eliminate this quickly.’ And then desperation leads us to refinance the car loan.”
He called it “death by a thousand cuts” and added that it is much easier to get into debt than to get out of it.
For higher-income households, situations like this can be a wake-up call to get a second opinion before desperation results in even worse decisions. WiserAdvisor can help connect people with a vetted financial advisor who meets their needs.
WiserAdvisor’s free comparison tool is designed for households earning $100,000 or more a year and offers no-obligation consultations.
For Cathy and her husband, the message of the program was that this is a crisis, but it has a solution. It will just require more income, stricter discipline, and, for the first time in a long time, working as a true financial team.
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This article Your husband refinanced his car and now they have a terrible APR. ‘Dealer will always be happy to refinance at 25% APR’ originally appeared on Benzinga.com
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