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Sounds like a subprime lender.
Do you have a copy of your purchase and financing contract? Is there a provision in the contract that allows the lender to add the cost of insurance for months in which you had full coverage?
You said it was only a few months of less than full coverage - $2k seems very high for just a few months. I know that forced placed insurance is extremely expensive, but this does seem over the top. If it is in the contract - then check the allowable time period. I would also check your state's Dept of Insurance to see if they violated any regulations by charging you for months for which you were already covered (and can prove). Also, report them to the CFPB. That might make the dealership reverse the charge.
What is the value of your car?
What is the pay off?
Are you planning to trade in this vehicle or sell it (the one with the added $2k)?
Will you get a substantially better loan with the new vehicle?
I am asking the above because trading a high dollar/high interest rate car for another one doesn't make sense. But trading (if you can't sell it youself or to CarMax) to get out of a bad loan can make sense. But the numbers have to work.
NADA trade values are generally a bit high. Expect to get around $7,000-$7,500 for your trade.
well if you were able to get into a special financing tier with like toyota, nissan or something in the 0-3.9% then it might be worth to wrap the negative equity of this galant into the new loan because you will be getting a more reliable/ value holding car at a lower rate.
What car are you looking at buying? new or used?
Your Credit Union added an insurance policy to your loan after the fact of having the loan for a little while?
Before trading in and hiding the negative equity, I wouldn't give up on getting them to at least partially refund the force placed insurance premium. The worst they can say is no.
Try these avenues: Executive contact at CU, BBB, State's Financial Services department, State's attorney general, the NCUA, and the CFPB (CFPB is probably the best one to try first after executives).
Stress how the force placed is egregious in price and how it is not being pro rated in any manner after you got insurance. Also if the lapse was an accident or short in time frame, stress that. Note that this force placing puts excess financial strain on you. I say work on this before resorting to trading in. The worst case is you are where you are now. Best case is you get them to remove it and pro-rate it over the loan...also see if your state has any laws that madate pro rating/have restrictions on force placing (doubt it, but worth a try). Oh and if they didn't warn you first to get insurance, mention that it looks like they just wanted to profit instead of working with you.
Wait, what? They added it NOW? Yeah, definitely CFPB and other agencies time. I'm not an expert, but if it's covered now and before they added it, retroactively adding it seems predatory. Definitely seems like someone somewhere had a bad morning, is trying to make a fast buck, or something.