Ask For A Voluntary Repossession
If you simply can’t afford your car payments any longer, you could ask the dealer to agree to voluntary repossession. In this scenario, you tell the lender you can no longer make payments ask them to take the car back. You hand over the keys and you may also have to hand over money to make up the value of the loan.
Voluntary repossession allows you to return a car you financed without being subject to the full repossession process. This could spare you some credit score damage, though a voluntary repo could still be reported to the credit bureaus.
Option #: Pay Off The Loan
Easier said than done, right? The average used car loan was $20,554 in 2019, according to a recent Experian study. If you had enough extra cash lying around to pay off the loan, chances are you would have already done it by now.
There is one way to raise enough money to pay off the loan, though: by selling the car. This might be tough if youre attached to the car, but consider the consequences if things go bad. If the other person decides to skip town and stop paying, then you could be on the hook for the payments.
Again, if you have a co-borrower, youll need to get their permission before you sell the car because legally, its their car too.
Ways To Legally Break Free Of Monthly Debt Against Your Car
Car title loans are like comfortable beds: Theyre easy to get into, but you eventually need to get out. Theyre typically expensive, and they tend to stick around a lot longer than you initially expected. As a result, you may continue to pay and roll the loan over, month after month. Title loans are also riskyyou can potentially lose your car, making it hard to get to work and travel safely .
Here are six options for legally getting out of an auto title loan, plus a few tips to protect your finances.
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How Do These 3 Factors Affect Your Monthly Payment
A lower monthly payment always sounds good, but its important to look at the bigger financial picture: That lower payment could also mean youre paying more for your car over the life of the loan. Let’s see how adjusting each of the 3 factors can affect your monthly payment:
- A lower loan amount. Let’s say youre considering a $25,000 car loan, but you make a $2,000 down payment or negotiate the price of the car down by $2,000. Your loan amount becomes $23,000, which saves you $44.27 per month .
- A lower APR. Consider that same $25,000 car loan and lets assume a 4-year term. One financial institution offers a 3.00% APR and another offers a 2.00% APR. Taking the lower APR will save you $10.98 per month.
- A longer loan term. Extending a $25,000 loan from 4 years to 5 years lowers your monthly payment by $104.14, but, youll end up paying $391.85 more in interest charges over the life of the loan.
Use the Bank of America auto loan calculator to adjust the numbers and see how differences in loan amount, APR and loan term can affect your monthly payment.
How To Get Out Of An Upside Down Car Loan
The only real way to fix the problem of being upside down is by paying down the excess debt. Youll have to go through a few steps and make some sacrifices to manage the loan or raise the cash, but the process is worth your time. You can get out from under a payment you can no longer afford.
1. Refinance if PossibleOften times you will be unable to refinance a car loan when you are underwater but it will depend on the lender. Occasionally a lender will allow you to refinance depending on your loan-to-value ratio. Refinancing isnt going to reduce the amount you owe on the car but it will lower your rate, helping you pay more toward the principal balance.
Before looking into other options, check and see if refinancing would be an option for you. Before you get started, make sure you understand your credit score. You can check it for free through . The higher your credit score, the better your loan rates will be. Next, look into myAutoloan.com. They will give you up to four auto loan refinance quotes in just minutes.
2. Move the Excess Car Debt to a Credit LineAlthough many people would rail against using credit cards, moving the debt to a credit line might be the best option. If youre having trouble with a $600 monthly payment, moving to a more manageable rate on a $5,000 line can save you cash and buy you some time.
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Option #: Refinance The Loan
Whether youre a cosigner or a co-borrower , you can always try to refinance in your own name. This option has the added benefit of potentially allowing you to get better interest rates, different loan term lengths, and/or smaller monthly payments as well.
But again, it depends on whether youre a cosigner or a co-borrower.
Youre going to have difficulty refinancing it without the consent of the other party in the case of a co-borrower, says Tayne. Again, that can be tricky if your co-borrower isnt cooperating with you.
It can also be tricky if you needed the co-borrower or cosigner to get that loan in the first place. Youll need to be able to qualify for a new loan based on your own good credit and income. Luckily there are many lenders out there willing to refinance your auto loan if your credit isnt top-notch there is no minimum credit score requirement to refinance.
Make sure you consider the pros and cons of refinancing before you sign on the dotted line.
Ready to refinance your car loan?
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.
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Have Somebody Take Over Payments
With any loan, whether you own a house or youre making payments on a truck, it seems like a great idea: Find somebody whos willing and able to make the required payments, and walk away from the deal. The buyer benefits from low up-front costs and predictable payment. The lender gets to keep collecting payments as if nothing happened. Most importantly, you get the freedom to move on, so it seems like everybody wins.
Unfortunately, its more complicated than that.
You are still responsible for payments until you completely satisfy the debt with your lender. If you applied for a loan, your credit is on the line, and youre responsible for paying off the debt. That risk does not transfer to somebody who takes ownership or possession of your car and starts making payments.
Ways To Get Out Of A Bad Car Loan
The best way to get out of a bad car loan will depend on your situation and goals. Are you trying to get a lower interest rate, get a lower monthly payment or not have car payments at all? If you dont set clear goals, you could get out of one bad loan only to make your financial situation worse.
Once you know what you want to achieve, you can decide which of these options is best for you:
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Surrender The Car To The Lender
If youre in financial trouble and you cant keep up your car payments, one option is to give up your car. You can drive your car to the lender, or wait for them to come and get it. Either of these options should only be a last resort.
The problem with turning in your car is that it is a voluntary repossession. If you owe more on the car than the car is worth and you cant pay the excess amount , it may harm your credit history and score. You should also be prepared to keep making your car payments until the lender sells the car. Even then, you may be on the hook for the creditors expense of selling the car.
Whether you turn in your car voluntarily, or you miss payments and they tow it out of your driveway, the repossession will be reported on your credit report. This means any car loan you get in the near future will likely carry a high-interest rate.
Can I Get Out Of An Upside
You can get out of an upside-down car loan, though your options are typically limited. If your cars value is worth less than your loan, assess how much your car loan is upside down before reaching out to your lender. They might be willing to renegotiate your loan to get you above water.
Otherwise, you can consider one of the options mentioned above. If you dont think any of these are the right choice for you, consider making extra repayments. This will help you get you out of debt faster and save on interest though youll still be stuck paying more than your cars worth.
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The Basics Of Voluntary Repossession
Giving your car back to the finance company is called voluntary repossession. Sometimes its also called a voluntary surrender.
In many cases it can save you some money. For example, it lets you bring the car to a specified time and place so you can meet with the companys agent, instead of forcing them to hire a tow truck. They also dont have to pay the repossession agent. All of those fees typically get passed on to you in a normal repossession.
This still doesnt make it your best option, but its admittedly a better option than an involuntary repossession.
From here, the process works exactly the same way a repossession does. The bank will sell the car and deduct the difference in the sale price from the balance you owe. Youll then owe whatever the difference is.
If the difference is high, you could find yourself saddled with a large debt you still cant pay. To add insult to injury, you dont have a car anymore.
Selling A Car With A Loan On It
Another option involves selling your financed car to a private individual or by trading it in at a car dealership. Depending on your financial situation and needs, one option may be more suitable than the other.
How To Sell A Car With A Loan On It?
Sell It Privately When money is tight and you just want to get rid of your car loan, selling it may be the best option. By selling your car, you can use the money from the sale to pay off the car loan.
However, since the lender will have a lien on your car even after you sell it , buyers may be hesitant to purchase the car from you. To alleviate some of the apprehension they may be feeling, you can tell the buyer they can come with you to the bank, so they may witness you paying off the car loan.
Trade It In If money is tight, but you still need a car, you can opt to trade-in your car for a cheaper option. The money you get from your trade-in can be used to pay off your old car loan and as a down payment for your new car loan.
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How To Calculate Car Loan Interest Rates
When you need to take out an auto loan to buy a car in Nigeria, you will get charged interest. But how much does your interest rate impact your monthly payments and the total amount owed?
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Have Someone Else Take Over Payments
Finally, you can try to find someone to assume your loan payments along with the car. You can advertise in market places such as Craigslist and eBay Motors to find potential buyers.
The person who buys the vehicle would assume ownership of the vehicle and they’d assume responsibility for the loan as well. But the dealership may require them to apply for financing, complete with a credit check, before they can take over the loan. If they don’t have solid credit, this option might not be doable.
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Is Your Car Loan Upside
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Without even knowing it, you may have put yourself in a financially precarious position: being upside-down on your car loan.
Maybe you bought a new car without making a down payment. Or perhaps you opted for low, easy monthly payments by stretching your loan to 72 or even 84 months.
However you got there, its time to get right-side up again and avoid serious problems in the future.
Find Out Where You Stand
Fixing your situation begins with figuring out the status of your loan.
Check your loan balance. Contact your lender or check a recent loan statement to find out how much you still owe.
Estimate your cars value. Look up the trade-in value of your car on pricing guides like Edmunds.com, Kelley Blue Book or the National Automobile Dealers Association . This gives you a conservative estimate, since trade-in prices are lower than private party prices.
Do the math. Subtract the loan balance from the value of the car. If the result is positive, you have equity. If its negative, youre upside-down.
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Transferring The Car Loan To Another Person
One option that you can choose, should the cost of the loan payments become more than you can handle, is to attempt to transfer the loan to another buyer. If you manage to find a friend or family member that is able to take on the loan payments, its possible for you to get a new contract and sign it over to that person.
However, this is not always an option with some lenders, banks and financial institutions included, because their protocols for borrowers can be strict. Since the lender is already taking a financial risk when letting someone borrow from them, they might not want to take on another, in case the new signer also fails to keep up with payments.
In fact, if you dont make sure that this new borrower signs all documents over to themselves, making them legally bound to the contract in your place, you will still be held responsible should they default on the loan.
How To Transfer The Car Loan To Another Person