There’s no question that cars can be expensive, but for many Americans access to one is essential, so the thought of not being able to pay off a car loan can be quite stressful. If this is the case for you, don’t worry, there are already some options that can help you avoid giving up your keys forever.
If you are going through a bad economic situation that prevents you from paying your car, here we will show you all the options you have to face it and not have to leave your car.
- 1 Option 1: Negotiate with the lender
- 2 Option 2: Refinance the loan
- 3 Option 3: Sell or change the car
Option 1: Negotiate with the lender
call your lender to talk about your financial problems can seem like an awkward conversation, and let’s be honest, it doesn’t sound like the best idea. But nevertheless, Being in financial trouble is not an unusual situation, and lenders are ultimately interested in finding a way to help you pay.
With this in mind, there are a few things you should find out before making any hasty decisions. Here is a list of things to be clear about before making the call, in order to have all your bases covered and a solid negotiation case.
How much do I owe you?
It is extremely important that you know the exact amount you owe, as this will allow you to make a proper assessment of whether or not you can repay the loan in full.
Do I have positive equity in my car?
Positive equity means, simply put, that the car is worth more than the amount you owe. Suppose your debt is $7,000 and a dealer offers you $10,000 for the car; This means that if you decide to sell, you will have enough money to pay off the debt and even get a new car loan.. The additional advantage of having positive equity is that your credit score will not be affected in any way.
Can the lender repossess my vehicle?
Another thing you should consider if you find yourself in a delicate financial situation is whether or not the car is the guarantee of the loan; that is, you have to find out if the loan is secured or not. For secured loans, you must provide an asset (the car) as collateral, which means that the lender can repossess the car if you do not make the agreed payments.
But don’t worry, if you have a personal loan, you should be given 30 days to repay what you owe before your car is repossessed. On the other hand, if the loan is unsecured, the lender cannot repossess the car without a court order. You also have the option to voluntarily surrender the car, but this, like the lien, will affect your credit.
Do I have the option to negotiate a new payment agreement?
When contacting your lender, ask to be connected to the financial hardship department, and try to negotiate a payment plan. Under the law, the lender must give your request reasonable consideration; if he agrees, make sure he confirms it in writing so you have evidence of the new agreement, and if he refuses, you can request external dispute resolution, and even file a complaint if you feel it’s necessary.
Keep reading: Late car payment: What you should know about the law in the USA
Option 2: Refinance the loan
This is the best option if your goal is to reduce the amount of your monthly payments. Although you may have the option of refinance With your current lender, it may actually be more profitable to go to another lender for a lower interest rate.
And how does refinancing work?
As an example, let’s say a year ago you bought a car for $20,000. A lender granted him this amount at 6% interest (APR) to be repaid in 48 months. Now, 12 months later, you decide to refinance because you’d like to lower your monthly payments. So, you connect with a new lender who will pay off your old lender and give you a new loan.
This new lender offers to give you this loan at an interest rate of 3% (APR) with a term of 48 months. Effectively, by refinancing with this new loan term, you will be paying for this car for a total of 60 months (adding the new loan term of 48 months to the year (12 months) you were paying with the old lender).
Then, What financial impact would refinancing have? For the sake of simplicity in this example, Let’s assume you’re not going to pay any refinancing fees and you’re not going to buy any utility protection products with your new loan. (Note, refinancing almost always comes with fees, and many refinancing customers choose to purchase utility protection products.)
After making the twelfth payment on your old car loan, you still owe the original lender $15,440. The new lender lends you this amount by paying the old lender the $15,440 you still owe. Now, your first payment on the new refinanced loan occurs in what would have been the 13th month of your old loan.
Monthly payments on your new loan would be $341.75, compared to $469.70 per month you paid on the original loan, and at the end of the loan, you would pay $22,040 with refinancing after the first 12 months [22.040 dólares = 469,70 dólares *12 + 341,75 dólares *48]. Without refinancing after 12 months, you would pay $505 more for your loan, which would ultimately cost you $22,546 for your loan. [22.545 dólares = 469,70 dólares * 48].
Option 3: Sell or change the car
While you may love your car, it may actually be time to face the fact that selling your car might be your only option. especially if it becomes more and more difficult for you to assume the payments of the loan. In this order of ideas, selling the car could be the best option if:
- You are sure that you can no longer make the loan payments;
- You don’t use the car every day;
- You have access to public transportation;
- You have the possibility of getting a cheaper car.
If you decide to sell the car, you have to meet a number of disclosure obligations for both the buyer and the lender. First, you must receive the lender’s permission to sell the car, and second, you must inform the buyer that the car has a loan attached to it. Once the parties have negotiated and agreed on a price, it is necessary to organize how you will repay the money to the lender, especially in the event that the sale price is less than what you owe.
Keep reading: How to sell a used car fast in 7 simple steps
Another option to consider is returning the car to the lender for sale. In this case, you should take photos of the car to prove its condition at the time of delivery and research the value of the car to ensure you get the best price. As in the previous case, once the lender has sold the car, they may require you to pay any outstanding balance, depending, of course, on the car’s sale price.