There are a few reasons why you might consider getting out of your car loan early. A few of them are when you’re going through life-changing circumstances, the car’s not suiting your needs, or the loan payments are hurting you financially too much. You shouldn’t be ashamed if purchasing a vehicle doesn’t end up working out always as you expected.
Are you under any of those situations? If so, there’s no point sulking. Instead, you should find ways of getting rid of your loan. Thankfully, here’s a guide on getting out of a car loan for good.
1. Sell Your Car
While your car is a handy means of transport, you should consider selling it if you’re struggling to stick with repayment. Selling your car gives you full control over your situation. Instead of having your car repossessed eventually by your lender, you can finish the loan with the sale and keep your pride intact. However, if the car’s value is less than your personal loan, get a personal loan to pay for the difference.
To get maximum value from this sale, consider selling your car by yourself to a private buyer. But this option is often harder as finding a potential buyer isn’t easy. But if you’re having trouble finding a buyer, sell your car to a dealership as this is also a viable option, albeit your car will have a lower valuation.
2. Refinance Your Car Loan
When selling your car has proven to be impossible, refinancing your car loan is also a great route to take. This method works best for both parties because of two reasons. One, you’ll get an improved rate to settle your car loan without ruining your credit score. Two, the lender doesn’t have to incur the cost of having your car repossessed.
Refinancing entails changing the terms of your car loan. When negotiating to refinance your loan, you should focus on getting favourable terms such as:
- Lower interest rates
- An extended loan repayment period
- Lump-sum payment options
A longer loan repayment period allows you to lower your monthly payments as spreading them on those extra months make it a lot more affordable. However, an extended repayment period leads to an increase in the total cost. Because of this, it would be ideal if you can settle your car loan as soon as possible and avoid paying more if you can afford it.
Having an improved credit score allows you to qualify for lower interest rates than your current rate, thereby lowering your monthly payment. This means your monthly instalments will be lower than the existing deal. It would be best if you took your time when refinancing your car loan to get the best possible interest rate. This helps you make significant financial savings and make this deal worthwhile.
3. Negotiate With Your Lender
You’ll be surprised at how understanding lenders can be only if you contact them and explain your situation. Taking this path is recommended if your financial challenges are only temporary.
By getting in touch with your lender, you can negotiate a forbearance. This postponement temporarily halts your monthly payments for the period you have agreed with your lender. The lender may also choose to provide you with more favourable terms as you try and better your financial standing. To decide which option best works for you, work closely with your lender.
4. Trading In Your Car
If your car loan isn’t upside down, that is, what you owe exceeds your car’s value, then trading in the vehicle for another car might be advisable. Vehicle trade-in involves swapping your car for another cheaper model.
Doing that reduces your total car debt, and using the excess proceeds to pay part of your loan. This means you’ll be saving more money, and you can use this to settle your outstanding auto loan.
However, you shouldn’t trade in your car only to buy a more expensive vehicle. Otherwise, you might end up straining your budget further, which can effectively prevent you from clearing your debt and attaining financial independence.
5. Voluntary Repossession
You should consider the voluntary surrender of your car to the lender instead of waiting for it to be repossessed if you have a hard time meeting the monthly payments. If you don’t, you risk ruining your credit score.
Your credit score is safe if you voluntarily return your car to the lender, as you’ll be doing this on your own terms. As a result, you don’t damage your credit score as badly as it would have had your car been repossessed by the lender.
When buying a car, there’s a high likelihood of getting tempted into buying one that doesn’t match your financial standing. Not to mention life is scary. One day you’re doing great, the other you’ll have something affecting your finances. And it can end up with you having a hard time keeping up with the payments.