Loan Terms Are Getting Ridiculous
Not so long ago, a five years was the longest term available on vehicle loans. Nowadays you can get 6, 7 and even 8-year auto loans.
The reason loan terms keep getting longer is that car buyers are focusing more on the monthly payment than the total price of the vehicle. Auto dealerships know this and thats why they keep stretching out loan terms. People dont care too much what the vehicle costs overall so long as they can afford the payments.
Dealerships are selling loans as much as theyre selling vehicles. Just listen to any dealership radio or television ad they sell low payments, and low-interest.
Dont fall for it.
Thats how they get people into car loans, theyre professionals. Now keep reading, Im going to show you how to get out.
Upside down car loans
An upside down car loan is when you owe more on your vehicle than it is worth. You do not want to get yourself into this situation. Some ways that people find themselves in upside down situations include:
- Purchasing a new vehicle
- Trading in a car that you still owe money on This is a slimy tactic that dealers use to get you into a new car. Still owe money on the trade-in? No problem, they will just roll that into your new loan.
- Purchasing expensive insurance, protection or customization packages. These will not raise the value of the vehicle much and will often result in an upside-down situation.
How To Avoid An Upside
These are some ways you can avoid going underwater on your next auto loan.
Get a short-loan auto term: The shorter the loan term, the less youll pay in interest over time and the quicker youll pay it off.
Choose a car that holds its value: Some cars are far more dependable than others. Research vehicle reliability ratings or cars with high resale value. Toyota models typically rank well.
Dont get add-ons: Consider forgoing add-ons. If you really need or want an add-on, shop around to compare prices before buying. Local car shops or your auto insurance provider may have better deals.
Make a down payment: You dont have to put down a huge sum. Even a few hundred dollars can fend off negative equity and help you stay right-side up.
Buy used: A new car loses about 20% of its value during its first year of use. Buying a car thats only a year or two old can save you a lot of money due to depreciation.
Get preapproved: One of the best ways to make sure you get your lowest APR is to get preapproved for an auto loan. Apply to a few lenders so you can see some APRs for which youd qualify. If the dealership says it can only offer you a high APR, tell them you already have an auto loan preapproval with a lower APR.
It doesnt hurt your credit score if you apply to multiple lenders within at least a 14-day window any more than it would if you applied to one lender, so dont be afraid to shop around for your best loan.
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What Happens When I Miss A Payment
A lot of bad things can happen when you stop paying your car loan. Each month you miss a payment lowers your credit score. If you cant resume payments and get caught up, your car can be repossessed. Worse, you could still owe money on your former car after you no longer have it. The repercussions can stick with your credit rating for years, making it hard to borrow money again, and increasing the interest on any loan you do get.
Reasons For Returning A Vehicle
There are a number of reasons why you may need to return a financed vehicle. Returning a car could make sense in any of the following scenarios:
- You can no longer afford the monthly payments and want to avoid repossession.
- You purchase a new or used car only to realize shortly after that it’s a lemon.
- You believe you overpaid for the vehicle and would like to look elsewhere for a car.
- You move to a new city and no longer need the vehicle.
- You simply changed your mind about the purchase.
Trading the vehicle in for a less expensive car is something to consider if you still need a car but can’t afford the one you have. You’d still have a car loan payment. But if the vehicle is less expensive, the new payment may be more affordable for your budget than the previous one.
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Ways To Get Out Of An Upside Down Car Loan Mintlife Blog
Nov 1, 2019 1. Ride the loan out · 2. Pay ahead of schedule · 3. Take out another loan · 4. Sell your car.
Jan 6, 2021 4 Ways to Get Out of a Car Loan · Option 1: Refinance · Option 2: Trade-In the Car · Option 3: File Bankruptcy · Option 4: Surrender the Vehicle.
Oct 23, 2020 The only problem is you still owe money on the car loan. payments on a loan will affect the amount of money you get for your car and the
Sell Trade Or Try Transit
You might want to ask yourself an unexpected question: Do you really need a car? More narrowly, do you really need that specific car that youre driving?
If you live in a city with good local transit, you can save a lot of money not only on car payments, but gas, insurance and upkeep. Or, perhaps COVID has you working from home rather than commuting daily. If youre in a family with more than one car, maybe you dont need them all.
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Refinancing Or Negotiating A New Car Loan Payment Plan
This is likely going to the most reasonable and convenient path you can take if you feel that your car loan is costing you too much. The simplest solution, refinancing your car loan or renegotiating your payment plan with your lender, then paying off the balance of your car so that it will stress you no longer.
Remember, you defaulting on your payments will cause the lender a lot of issues and cost them money to deal with the process of repossession or any other legal actions. The easiest thing for both parties would be to figure out a solution where you can pay off your balance without the hassle that comes with the other alternatives.
Discuss refinancing options with your lender. If the monthly payments are too expensive, rest assured, youll be able to find a more reasonable rate of payment to suit your financial needs. The same goes for re-negotiating your payments in other ways.
Depending on your chosen lender, you can also increase your payments or pay in several lump sums. While this might not seem appealing at first, if you have the money necessary to do so, it might actually be better for you, because youll end up paying less in interest, helping you pay off the loan and get out of debt faster.
How Do I End My Pcp Agreement Early
Your PCP agreement can be voluntarily terminated as long as youve paid at least 50% of the total finance amount back to the finance company. The total finance amount includes any interest and fees that you need to pay as well.
Most importantly, this total also includes the balloon payment. This is crucial because it means that you likely wont have paid back 50% of your total finance agreement midway through your monthly repayment schedule.
As well as having repaid 50% of the total finance amount, you need to have taken good care of the car, meaning theres no damage other than general wear and tear. If you want to know exactly what is considered to be acceptable condition, you should refer to the fair wear and tear guide, issued by your finance company. To protect yourself against potential damage charges, you should take dated photographs of the car when you hand it back.
If you have these boxes ticked, then youre all clear to cancel the agreement. However, if you havent repaid 50% of the total finance amount, you can still end the agreement if you pay off the difference. So, if youve paid back £15,000 out of a total of £40,000, you would have to pay off £5,000 to terminate the agreement.
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How To Buy A Cheap Used Car
Now that youve gotten rid of your vehicle and the payment that came with it, youll still need something to drive. I recommend scrounging up what cash you have and looking at your options. You should be able to get a decent, roadworthy car for $2000-2500. I wouldnt recommend spending less than this unless you know how to properly inspect a used vehicle , or if youre buying from a trusted friend or family member.
Here are a few tips to help you find a good cheap used car to drive now that you dont have a payment.
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Work Something Out With The Lender
If you still want to surrender the car, you can try to work something out with the creditor, like negotiating a reduction or waiver of the loan balance as a condition of returning the car. After all, you’re saving the creditor the time and costs of a repossession and auction .
Potential Tax Consequences of Forgiven Debt
If the lender forgives $600 or more, you’ll get a Form 1099-C or 1099-A, and the IRS will expect you to report the forgiven balance as income on your tax return unless you qualify for an exception or exclusion.
Dont Forget About The Long
Its tempting to think about short-term fixes to financial problems. And getting through this month and the next is important. Try to choose a path that lowers your interest expense and total debt, if possible. Avoid decisions that can harm your credit history. Your long-term financial health depends on taking a longer-term view as you decide on the best way to get out of your car loan.
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Can I Cancel My Car Finance With More Than Half Of The Balance Outstanding
If you have currently paid back less than half of the total amount and you still want to cancel the contract early, there is a different option. You will have to pay off the remaining monthly instalments up to the value of half of the agreed cost.
This works the same for PCP and HP deals. However, the difference to pay on an HP deal is likely to be less as there is no balloon payment, so you will reach half of the agreed cost much sooner.
Depending on how much difference you will have to pay, this option can be difficult for some people who cannot afford to cover the total cost in one go. For example, if the total agreed deal is £50,000 and you have currently paid back £15,000 then you will have to cover the extra £10,000 yourself to reach the halfway mark.
What Happens When A Title Loan Company Goes Out Of Business
If a company you owe money to goes out of business, you may or may not be relieved of your debt. Debt collection agencies specialize in buying debt from companies that don’t want to collect it, including companies going out of business. Your debt may be sold to one of these debt collectors as the title loan company tries to recoup as many losses as possible. If that happens, nothing has changed as a borrower, and you still owe your full debt.
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I Want To Pay Online Why Can’t I Make A Payment
The status of your account may have an impact on your ability to pay online. For example, if your account is past due, you can make a same-day payment but may not be able to schedule a future payment. Also, if you have more than two payments with insufficient funds in the past 12 months, you won’t be able to make a payment online. Call us for more information or if you need assistance making a payment.
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Talk With Your Lender
If youre having trouble making your car loan payments, its important to loop in your lender right away. They may be able to work out a short-term plan to help you get back on track.
For example, if you hit a temporary setback, your lender might let you defer a payment or two. That means you dont have to pay the current month, and it gets tacked onto the end of your loan. Keep in mind that interest will accrue on that higher balance, but a deferral could give you the breathing room you need to catch up.
After all, your lender would prefer to have the loan repaid rather than letting you default, in which case they could repossess the vehicle.
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A Loan Deferment Could Help Too
If youre simply struggling to make payments right now due to financial hardship, then it may be time to talk to your lender before you start missing payments.
Many auto lenders are willing to assist borrowers in the event of job loss, medical emergency, or other circumstances where theyre struggling to make ends meet. If this is you, you may qualify for a deferment. It can pause your payments for a few months and could help you get back on your feet. Many lenders require a hardship letter outlining why you need a loan deferment and only allow deferment for around 30 to 90 days. Not every lender offers this assistance but the worst that can happen is they say no!
You may be surprised to learn that lenders typically want to avoid default and repossession, possibly as much as you do. Recovery efforts take up a lot of time and energy for lenders, and often, they lose money during the process.
At the first sign of hardship, contact your lender to keep them in the loop. If you contact them before a missed payment, it’s more likely they may be able to assist you. A deferment could help you protect your credit score since youd have the ability to stay current on the loan without having to make payments for a little while.