How to Get Out of a Car Loan You Can’t Afford
If the cost of owing your car is out of hand and no longer fits into your monthly budget, you may need to explore your options for getting out of the loan completely. If insurance, maintenance, repairs, gasoline, and your monthly car payment are more than you can handle right now, you have a few options.
Vehicles don’t appreciate in value in most cases, so you may even owe more money on your car than it’s worth. Find out the exact balance on your car loan, then consult online car valuation calculators like the ones at NADA and Kelley Blue Book to compare the amount you owe on your loan to the private party sale and trade-in value of your car.
Refinancing your car loan
The sooner you realize your car is causing financial problems, the sooner you can act. If your credit is in decent shape, you have more choices than if you’ve missed payments and fallen behind on your loan.
If your payments are up to date and you have a good history with the loan company, you may even be able to refinance with them for a longer term or at a lower interest rate. This will make your monthly payments smaller, but you’ll be paying off the loan for a longer amount of time.
You may also be able to simply move the balance of the loan to a line of credit or get an unsecured loan to cover the debt and make smaller payments. Then, you can continue to drive the car or sell it to someone for cash.
Make extra money to cover short-term costs
If your vehicle requires major repairs, you may need to gather some money to cover those costs. Working a side gig, making a bit of extra money online doing small tasks, or working a few hours each week at a part time job are all viable ways that people make extra cash to cover short-term expenses.
Some auto financing companies also have hardship programs or skip-a-payment plans to help their borrowers stay on track with the loan payments. Be sure to contact them to learn how they can help.
What happens if you default on your car loan
When you stop making payments, either because you can’t or because you choose not to, you’ll be charged late fees for each month you fail to meet the payment due date. These fees vary greatly from one lender to the next, but they are disclosed in the documents you signed to get the loan. After missing one payment, you’ll have to pay the late fees plus the payment before the next due date to become current on your loan.
If you miss two consecutive payments, you’ll be charged two late fees. After three consecutive missed payments, the loan company will begin the process of repossessing the vehicle.
At this point, you have three negative marks on your credit report, and you could see your FICO scores fall as much as 100+ points. This makes it difficult or impossible to get access to any type of credit in the near future.
If your car is repossessed, you’ll owe the balance of the loan plus late fees. The loan company will also charge you fees associated with repossessing the car, including storage fees. You could eventually be sued for the total amount.
Before the situation gets serious, move forward with a plan to get out of a car loan you can’t afford. The key to saving your credit and preventing late fees from accumulating is to move quickly.