How Can I Pay Off My Car Loan Faster
There are several ways you can work to pay off your car loan more quickly. You can start making payments every two weeks instead of once a month, for example, or increase the amount of principal you’re paying each month. If you get a large tax refund, you can make a one-time payment to lower your balance. Any of these methods will shorten the life of your loan and lower your total interest paid.
Refinance Your Car Loan
If you arent able to sell your car and are struggling to make your monthly payments you can talk to your lender about refinancing or renegotiating your loan. This is usually the easiest solution for both parties because your lender will avoid having to pay to repossess your car if you default, and youll be able to get a better rate on your loan without ruining your credit. Refinancing means getting a new loan to pay off an existing one, while refinancing means changing the terms on your current loan. Depending on your priorities, you can ask for a loan with lower monthly payments, lump sum payment options, lower interest rates or a different loan term. If you had less than stellar credit when you purchased your car but it has since improved, you will probably be able to get a more competitive interest rate.Bear in mind that its not a good idea to refinance if your current loan has a repayment penalty, which means youll be charged a fee for paying off your loan early.
Voluntarily Give Your Car To Your Lender
Voluntary repossession should be a last resort because it can significantly damage your credit rating. If you cant pay off your loan by selling your vehicle or dont qualify for refinancing, you can voluntarily give your car to your lender if youre worried about to defaulting on your loan. The lender will sell it at auction and if they cant get enough to pay off loan you will have to cover the difference.By having your car voluntarily repossessed, you avoid having your vehicle seized by a collection agency but will get a mark on your credit rating and will have a hard time getting a loan in the future.
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Is 10 Percent Apr Bad
A 10% APR is good for credit cards and personal loans, as it’s cheaper than average. On the other hand, a 10% APR is not good for mortgages, student loans, or auto loans, as it’s far higher than what most borrowers should expect to pay. A 10% APR is good for a credit card. The average APR on a credit card is 18.04%.
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.
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A Few Auto Financing Tips On Car Loan Saving
Unless you buy a rare Ferrari, your car is not an investment, its a depreciating asset. In fact, most cars will lose half their value in five years. Most luxury and sports cars depreciate even faster.
Thats why you generally want to pay off your car as soon as possible.
Dealers will try to talk you into some combination of a low down payment, low monthly payments, and long Car Loan terms .
Why?
Because they and their lenders will make tons of money off of you in interest that way.
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The longer you take to pay off your auto loan, the higher the likelihood that your car will go underwater or upside down, meaning you owe more on the loan than the car is worth .
Thats an awful place to be, because even if you sell the car tomorrow, youll still owe thousands on a car you dont even have anymore.
Thats not to say that all auto loans are bad. Most of us use cars to get to our jobs and dont have the cash lying around to buy a reliable ride, so we need a car loan. Thats totally cool!
But the key difference is this: an auto loan should help you get a car that you can afford, not one that you cant afford.
I have the credit and income to go out and get a loan for a BMW M3. And I would love that car.
But that doesnt mean I should get it. What the dealer will tell you you can afford for dealership financing and what you should spend are two very different things.
Tighten Up Your Credit
The terms of your car loan are based on your credit score.
If you have perfect credit, you receive the lowest possible interest rate. And if you dont, you have to pay more because of your questionable repayment history.
If you have problems with your credit and you dont need to purchase a car right now, consider waiting until your score increases. Just a small increase in your interest rate can save you a lot of money over the life of your loan.
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Voluntarily Surrender The Vehicle
If you’ve defaulted on your auto loan, the lender may choose to repossess the car. The process isn’t pleasant, and it can wreck your credit score. If you want to avoid repossession, but you have no other options, you can voluntarily surrender the vehicle to your lender.
A voluntary surrender allows you to return the vehicle to your lender on your terms, and while it can damage your credit, it won’t have as big an impact as a repossession. You’ll also be able to avoid certain repossession-related costs, which lenders may choose to add to what you owe. If you feel as though this is your only option to avoid a repo, contact your lender to set up a time and a place for the vehicle to be turned in.
A Few Auto Financing Tips
Source: Giphy.com
Unless you buy a rare Ferrari, your car is not an investment, its a depreciating asset. In fact, most cars will lose half their value in five years. Most luxury and sports cars depreciate even faster.
Thats why you generally want to pay off your car as soon as possible. Dealers will try to talk you into some combination of a low down payment, low monthly payments, and long loan terms . Why? Because they and their lenders will make tons of money off of you in interest that way.
Read more: How To Pay Your Car Loan Off Fast
The longer you take to pay off your auto loan, the higher the likelihood that your car will go underwater or upside down, meaning you owe more on the loan than the car is worth . Thats an awful place to be, because even if you sell the car tomorrow, youll still owe thousands on a car you dont even have anymore.
Thats not to say that all auto loans are bad. Most of us use cars to get to our jobs and dont have the cash lying around to buy a reliable ride, so we need a car loan. Thats totally cool!
But the key difference is this: an auto loan should help you get a car that you can afford, not one that you cant afford.
I have the credit and income to go out and get a loan for a BMW M3. And I would love that car. But that doesnt mean I should get it. What the dealer will tell you you can afford for dealership financing and what you should spend are two very different things.
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How To Get Out Of A Car Loan Contract
Despite your best laid plans, it’s possible that an unexpected situations will make it difficult for you to afford your car payment. Rather than stop making payments and have the finance company repossess the automobile, you might think about getting out of the car loan contract. Canceling a car loan contract can lower your credit rating and make it difficult for you to qualify for a future loan, but there are some things you can do to minimize the impact.
Hire Purchase To Finance A New Car
Hire purchase is a way of buying a car on finance, where the loan is secured against the car. Youll need to pay a deposit of around 10%, then make fixed monthly payments over an agreed time period.
This means you dont own it until the last payment has been made. So if you miss payments, you could lose the car.
Hire purchase agreements are usually arranged by the car dealer. This means theyre convenient to arrange and can be very competitive for new cars, but less so for used ones.
Rates are best for new cars, so check what youll be paying if youre buying a used car.
When youve paid half the cost of the car, you might be able to return it and not have to make any more payments check your contract to see if this applies to you. The car will need to be in good condition too, or you might be charged for repair costs.
When youve paid a third of the total amount you owe, your lender cant repossess your vehicle without a court order.
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Cancel Extras First Then Refinance
If you’ve got both a high interest rate and some after-sales coverages to cancel, the smart move is to cancel the products first. Once your loan balance has been reduced, then work on the refinance. Doing both will reduce your monthly payment now and can potentially net you some significant savings in interest charges down the line, too.
How Do You Get Out Of An Upside
Start by figuring out how much you owe on your car. To calculate this figure, subtract your car’s value from your outstanding loan balance. The Federal Trade commission recommends looking at National Automobile Dealers Association Guides, Edmunds, and Kelley Blue Book to estimate what your car is currently worth.
Then, you may consider refinancing your car loan. You could be eligible for a lower rate and a shorter repayment term length when you refinance, which would shorten the amount of time it takes to get you out of negative equity on your loan.
If you have enough money, you might want to pay off your negative equity in a singular lump sum payment though check with your lender to make sure you won’t incur any early payment penalties. You probably don’t want to completely drain your bank account to do this, though, as you’ll want to have money on hand in case of emergencies.
You could also contribute more per month by rounding up your payments to the nearest $50, for example. You’ll pay off your loan and get rid of your negative equity more quickly.
Read more of our tips to pay off your car loan faster.
Selling your car privately via marketplaces like Craigslist or Ebay is another option to consider. You should try to get enough for the car to clear your negative equity, otherwise you’ll have to pay that money back yourself.
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After You Get The Car
If you financed the car, understand
- The creditor has a lien on the cars title until youve paid the contract in full.
- Late or missed payments can have serious consequences. Late fees, repossession, and negative entries on your credit report can make it harder to get credit in the future. Some dealers may put tracking devices on a car, which helps them find the car if they have to repossess it. Ask the dealer if it plans to put a device on your car as part of the sale, what the device will be used for, and what to do if the device sets off an alarm.
Tips For Buying A Car The Smart Way
New cars these days have better safety features and more tech gizmos than models from a decade ago. And let’s face it: Trading in a beat-up clunker with grimy seats is an enticing idea.
But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They’re paying for a car they don’t drive anymore. Ouch! That is not a winning personal finance strategy.
But don’t worry NPR’s Life Kit is here to help. Here’s how to buy a car without getting over your head in debt or paying more than you have to.
1. Get preapproved for a loan before you set foot in a dealer’s lot.
“The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,” says Philip Reed. He’s the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question. “How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. “
2. Keep it simple at the dealership.
3. Don’t buy any add-ons at the dealership.
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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.
How To Get Out Of An Upside Down Car Loan With Negative Equity
In the housing industry, its called negative equity. In the automotive industry its called being upside down. In both cases, it means the same thing: You owe more money on an asset than the asset itself is worth.
When youre upside down on a car loan, you can end up in big trouble because a car doesnt grow in value like a house often does. You can list a car as an asset on your balance sheet if you want, but in reality, its not an asset or an investment. Its an expense.
If youre in this unfortunate position, you cant lower your payment by refinancing, and selling your property wont cover the whole loan. How did you get here, and what can you do?
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Should I Roll My Current Car Loan Into My New One
Maybe you need a newer, more reliable car, or perhaps you need a bigger car. For whatever reason, youre considering trading in your current car for a newer onebut you still owe money on your current car. As a result, you may be wondering how to deal with your existing car loan.
It’s common for people to trade in their current car when purchasing a new car, and, if the current car is not yet paid off, the dealer offers to roll the current car loan into the new one.
While many people do this, you should carefully consider your options before taking this route. Consider several factors before rolling your current car loan into a new one because this could significantly increase your payments and the amount you are actually paying for the vehicle.
How Trading In A Car Works
When you trade in your car to a dealership, its value is subtracted from the price of the new car.
When you trade in a car with a loan, the dealer takes over the loan and pays it off. The dealer is also supposed to handle the paperwork, such as the transfer of the title, which establishes legal ownership of the vehicle.
To trade in a car thats not paid off, bring the following items to the dealership:
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Loan information, including payoff amount and account number.
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Drivers license.
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Your vehicle keys and any remotes.
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Proof of insurance.
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A printout of your trade-in value.
Its important to keep in mind that both the price of the new car and the value of the trade-in are highly negotiable. To get an overall good deal, youll need to get a good interest rate on your new loan and a fair price for both the trade-in and the new car. Before you go to the dealership, use a car loan calculator to estimate these numbers and see what your new monthly car payment will be.
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