Tuesday, May 21, 2024

How To Get Rid Of Your Car Loan

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Trade In Your Car For A Cheaper One

Auto Loan Advice : How to Get Rid of Car Payments

If it is the high purchase cost of the vehicle that is causing unmanageable payments, you can trade in your car for a cheaper one. The advantage of this is that you can reduce your monthly payments quickly through the exchange. It is likely that you wont be able to pay off the entire loan, but it can at least get you out of deep waters and into the shallows.

Ways To Pay Off A Financed Car In A Private Sale

Thinking of selling your financed car privately? Here are 3 options for paying off your current loan:

  • Use savings, another loan or a credit card
  • 1. Sell your car and use the money to pay off the loan

    This is the easiest option for selling a financed car when moneys tight, but you need to earn the trust of your buyer for them to give you their money so that you can pay off the loan.

    • Be direct and honest. Let the buyer know you owe money on the car and that youll pay off the loan in full immediately after the transaction. For peace of mind, offer to bring the buyer to the bank or lender and clear the debt in front of them. Get a copy of the vehicles history report from a company like CARFAX and show the buyer that there is no outstanding lien on the car. If youre selling a car in Ontario, the Provincial Government actually sells used vehicle information reports for a nominal fee of about $20.
    • Profit or loss? Look at how much you can sell the car for and how much itll cost to repay the loan fully including any early repayment fees and other costs. This will give you an idea if youre going to gain or lose money from the sale.

    How much should I sell my car for?

    2. Refinance your car loan before selling

    Need extra cash? Refinance instead of selling.

    How Do Car Loans Work

    A car loan is a secured installment loan you can use to purchase a vehicle. The car itself is used as collateral to secure the loan, which means the lender can repossess the vehicle to recoup the loan amount if you stop making your payments.

    Because car loans are installment loans, the borrower makes equal monthly installment payments until the loan is paid in full. Car loan repayment terms can range anywhere from 12 to 84 months, though the average length is roughly 72 months for new cars and 65 months for used ones.

    A car loan’s interest rate, which is based on your credit score, income and other factors, applies for the entire life of the loan. When you borrow to buy a car, the lender calculates how much you have to pay in principal and interest each month to reach a zero balance at the end of your repayment schedule. A lower interest rate can help reduce how much you’ll have to pay.

    You can get a car loan from a number of places. Banks, credit unions and vehicle manufacturers are the most common sources of car loans. You may even be able to secure financing directly from the dealership , but that’s not usually a great option. In some cases, you can apply for a loan directly from a lender, and in others, your lender may arrange financing on your behalf.

    Also Check: How Long Does Sba Loan Take To Process

    How To Get Out Of An Upside

    If your car loan is worth more than the value of your car, youve got an upside-down car loan on your hands. In this case, your best option is to sell the car and cover the difference.

    If you dont have the cash to pay off the remaining amount and get the title from the lender, youll need to get an unsecured loan for that amount. Yeah, youll still have a car loan, but itll be way easier to pay offand you wont have an underwater car pulling you even deeper in debt. Then you can attack that loan with everything you have until its going . . . going . . . gone!

    Have Somebody Take Over Payments

    Can You Get Rid Of Your Car On Finance

    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.

    Read Also: Which Of These Loan Options Is Strongly Recommended For First-time Buyers

    Undoing Insurance And Warranties

    If you purchased additional items that were installed on your vehicle, such as a theft deterrent system or paint sealant, you probably won’t be able to return, cancel or get a refund for those products.

    If you regret buying an extended warranty or other coverage, such as gap insurance, a prepaid maintenance plan, or tire and wheel protection for your vehicle, it is possible to cancel the coverage and get a partial refund of your purchase price.

    You can cancel optional coverage and insurance by contacting your dealership or the company that provides the service. You should be able to find the name of the company that administers your coverage or insurance on your sales contract.

    Depending on the product you’re canceling, you may need to provide documentation that has to be filled out in person at the dealership, such as an odometer mileage disclosure that would have to be verified by a dealership employee. You’ll need to work with a sales manager or a person from the finance department to complete the cancellation. After the paperwork is completed, it can take a few weeks or months for the money to be refunded to you.

    The refunded amount will be reduced from the balance of your car loan, and although the balance reduction won’t lower your monthly payment, it will shorten the length of your loan. If, for example, canceling products nets you a refund of $1,000 and you have a monthly payment of $500, the term of your loan would be reduced by two months.

    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.

    Read Also: Usaa Classic Car Loan

    Tips For Avoiding An Upside

    Its best to avoid an upside-down car loan altogether whenever possible. Be diligent with research before you buy a car and understand all the costs of options, financing and taxes so you arent already upside down when you drive out the door.

    For most people, that means accepting that you cant afford to purchase a new car. Instead, look for a late-model used car with low mileage. The original owner will have paid the price for depreciation in the first year, so the purchase price should be at least 20% off the original cost.

    If you are still tempted to buy new, try using the 20-4-10 rule, which means 20% down payment no more than 4-year loan and the monthly car payment plus insurance cant be more than 10% of your gross income. If you cant make those numbers work, its time to go back to the used-car lot.

    The following tips can help you avoid an upside-down auto loan:

    Choose the shortest repayment plan you can afford. Shorter repayment plans mean lower interest rates and faster payoff. For example, borrowing $25,000 for three years at 6.93 interest would result in $2,764 in interest paid. The same deal over four years would cost $3,716 in interest and a five-year loan would be $4,715 in interest. Thats about $1,000 more each year for the same loan. The difference would be magnified even more if your credit score was under 650.

    Make a down payment of at least 20% of the cars total cost. This equals the 20% depreciation on the car that happens when you leave the lot.

    Sell Your Car And Pay Cash For Something Cheaper

    Should I Get Rid Of My Car Lease Or Credit Card Debt First?

    This might seem a little obvious , but if you really want to pay off your car loan early, you could always sell your car. This is one of the fastest ways to get rid of a car loan, and thus, a great option if youre looking to get out of car debt quickly.

    If you do choose to go this route, we recommend paying cash for a pre-owned vehicle. That way, you wont end up trading one monthly car payment for another.

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    Best Ways To Get Out Of A Car Loan

    Now that you know what a total waste car payments are, lets talk about how to get you out of that car loan. Basically, youve got two options: Pay off the loan or sell the car. Which one should you do? Well, that comes down to how you answer two questions:

    1. Can you be debt-free within two years and keep the car?

    If yes, pay off the loan. If not, sell it.

    2. Is the total value of all your vehicles more than half of your annual income?

    If yes, sell it. If not, pay off the loan.

    Thats the quick answer, but lets break down how each option plays out.

    Don’t Forget About Your Credit Score

    If your budget is tight and you can’t afford your car payments, your primary concern may understandably be about your current situation and needs. But it’s also important to think about the potential long-term ramifications of surrendering the car or having it repossessed.

    As you consider your options for getting relief from your auto loan, make sure you understand how they can affect your credit and how you can minimize that impact. You can get a free copy of your credit report from all three major credit bureaus through AnnualCreditReport.com. You can also get your free credit report and score directly from Experian. Or consider using your Experian account to monitor your credit score, so you always know where you stand, and keep track of fluctuations, so you can address potential issues as they arise.

    Also Check: Upstart Prequalify

    Can You Return A Financed Car Back To The Dealer

    When you can’t afford the payments, returning the vehicle may be a necessity. But before returning it, you may want to talk to the dealer to see what help they might offer. For example, if your financial troubles are only temporary, the dealer may allow you to skip a payment or two and have it added on to the end of your loan term.

    If you financed a vehicle purchase through a dealership, it’s possible that you may be able to return it. But this will depend on the dealership’s return policy and rules. Similar to lemon laws, there may be a time limit on how long you have to return a financed car back to the dealer.

    In some instances, a dealer may accept the return of a financed vehicle if it’s necessary to avoid repossession. What’s important to keep in mind here is that a vehicle’s value depreciates quickly. Even after just a few months of ownership, you may owe more on the car than it’s currently worth. This could mean handing over cash to get out of the vehicle and the loan.

    If your car has depreciated to $20,000 and you still owe $25,000 on it, for example, you will have to pay the difference of $5,000âeven if your dealer agrees to the return. So that’s something to consider when weighing whether returning a car is the best option.

    Now Start Budgeting For Your Next Carwithout A Payment

    How To Get Rid Of A Car Payment (Even If You

    If you dont have a car payment you can begin working on your car-replacement fund. But remember: The main thing you are not going to do is go out and buy a new car with a new car loan. Why should you sign up for monthly payments plus thousands in interest when you dont have to? Save up and pay cash and youll never have a car payment again!

    Using our example above, once your car is paid for, your monthly budget for transportation is just $365. With no debt hanging over your head and a good handle on your money, you can choose to save a monthly amount that works for your budget. Doesnt that sound great? You get to choose!

    Lets say you allocate $350 per month to your car-replacement fund. In just two years, youll have $8,400 plus your trade-in to buy a new-to-you car.

    That may not sound like much, but youre not done yet. Lets say that new-to-you car is worth $10,000. Continue saving $350 a month in your car-replacement fund for an additional two years and youll have another $8,400 plus your trade-in to upgrade your car again. Since were dealing with such a short time frame, your car will have retained most of its value, so this time you aim for a $15,000 car.

    See where this is going? By saving up cash, spotting great deals, and staying conservative in your purchases, you can upgrade your car every couple of years without ever taking out another car loan!

    For example: $19,400/48 months = $404 per month

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    Options To Get Rid Of Your Car

    If you still canât make your car payments using the above-mentioned strategies, youâre probably better off getting rid of your car. If you decide to take that approach, you can get rid of your monthly car payment. But understand that you may still be liable for any difference that exists between how much you owe on the loan and how much your car is worth.

    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 Get A Better Car Loan Or Refinance An Existing Auto Loan

    The steps toward getting a better, renegotiated car loan or a refinanced loan are the same. The first step is to reduce the cost of the current loan. This can be done by canceling unnecessary added services like maintenance contracts and insurance services. Removing these lowers the total amount owed and makes getting a new loan easier.

    The next step is to find out the prepayment penalty on your current loan, which may be nothing or may be a percentage of the overall interest that would have been paid for the life of the loan. Youll be responsible for that prepayment penalty if you cannot negotiate it away. That penalty is often how lenders ensure their profit on the loan should your circumstances improve after the loan was made.

    Its best to avoid these kinds of stipulations from the get-go, but not everyone who takes out a car loan has that choice when the loan is being negotiated at the start. The prepayment penalty can be a few hundred or even thousands of dollars.

    The next step is to see what the cars current value is. Using vehicle appraisal tools online, you can get an estimate as to what the vehicle is worth both in an owner-to-buyer sale and as a trade-in . Most lenders will base their valuation of your car on something in between those two numbers. The closer your outstanding loan balance is to the NADA wholesale value of your car, the more likely you are to find a good refinance or negotiation deal for your current loan.

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