If your car loan is straining your budget every month, it might be wise to find ways out. Refinancing to another lender with more favorable terms or selling off the car might be necessary to alleviate its strains.
Consider voluntary repossession as another option, though this will have a severe negative impact on your credit score.
Refinance
At any point in time, there can be many reasons to break free from a car loan agreement. Perhaps your lifestyle has changed or you no longer can afford the payments; or simply can no longer afford them any longer. These circumstances often necessitate selling the vehicle itself or selling your loan agreement altogether to a different lender; negotiating terms, refinancing arrangements or consenting to voluntary repossession.
Refinancing your auto loan may be beneficial if you can find a lender offering lower interest rates. Before refinancing, however, it’s essential to first know exactly how much money is owed on your current loan by using an online calculator and any prepayment penalties charged by current lenders for early repayment. It is also a wise move to check your credit score first to make sure that competitive terms can be provided to you.
Trade in
If your loan payments become too much to bear and default is imminent, selling the vehicle could be the way out to reduce further negative equity and close out your debts.
Prior to visiting a dealer and making the sale, make sure your car has been valued. Online car valuation calculators can help determine its true worth against what it owes; additionally you could check online classifieds to see what similar cars are selling for nearby.
Finding a dealer that will buy your vehicle at the best possible price will be key. They should take into account your loan repayment schedule as well as maintenance and repair expenses incurred, in order to reduce debt as much as possible and offer you the most advantageous deal possible.
Sell
If you’re having difficulty selling your car and find yourself in financial difficulty, alternative solutions such as working with your lender or refinancing may help save money on interest or decrease monthly payments. First contact your lender and request their payoff balance which should include any remaining balance, plus prepayment fees and any possible additional interest charges.
This will also show if your car is “upside down,” meaning it has a higher debt-to-value ratio than its current market value. In such instances, savings or loans may need to be utilized in order to make up any discrepancies before selling it off.
Meet with your buyer, pay off any outstanding debt and transfer title. Depending on the lender, a temporary operating permit might be issued which makes this transaction less risky; however it can still take weeks until they send you a clear title from them.
Transfer
An unfavorable car loan can have devastating repercussions for both your finances and credit rating, yet there are ways out without incurring financial penalties. Renegotiating, refinancing and selling are among the many options you should explore before considering voluntary repossession as a solution to avoid defaulting.
Transferring a car loan requires that the new borrower apply with their bank and undergo an application and credit appraisal, along with verification of supporting documents such as income proof and residency proof.
Repossessing can be more of a hassle for the new borrower than trading in or refinancing, but may be worthwhile in certain instances. Unfortunately, the loan will show up on their credit report which could damage their score further. Ultimately, though, paying off your car loan would likely be most advantageous.