Repaying A Hire Purchase Agreement Early
Top tip
If you decide to return the car, tell the finance company by letter or email and keep a copy. Make very clear youre returning the car and ending the agreement. If you dont do this you could be seen to be defaulting on your payments, which could affect your credit rating.
With hire purchase , you can return the car early if youve already paid for at least half of its cost or make up the difference between what youve already paid and half of its cost.
If youve already paid more than half the cars cost, you wont receive a refund of the difference.
The credit agreement you signed before taking the car should show its total price and what youll have to pay if you return the car.
Returning the car early can make sense if you no longer need it or could buy a comparable car elsewhere for less than your remaining payments would cost you.
Round Your Payments Up
This is the method we started using when we had our car loan. It may be tempting to only pay your monthly payment, but add a little extra to each payment. For example, if your payment is $292.54, round it up to an even $300. This will help you pay off your car loan quicker without putting too much of a strain on your finances. The extra money will general go toward your premium.
If you make payments online you will see you amount due each month go down but keep paying that $300, it’s a great feeling to see that payment keep going down and a great motivator!
Trade In Your Car For A Lower
If you have positive equity in your vehicle, meaning your loan balance is less than the car is worth, you may be able to lower your monthly payment by trading it in for a less-expensive car.
Say you owe $5,000 on your auto loan and your vehicle is currently worth $8,000. Youd have $3,000 of equity that you could use as a down payment toward another car. A down payment reduces how much you need to borrow, and if you choose a more budget-friendly vehicle, you may be able to lower your monthly payments even more.
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Why Pay More Than Your Car Is Worth When You Can Pay Off Your Car Loan Early
About seven out of 10 people borrow money to buy their cars, and a car loan is one of the largest financial obligations you can have.
If youre one of them, you may have a loan that will take you 60 or 72 months to pay off. Thats five to six years! Thats too much interest to have to pay. So we want to help you get out from under that loan faster and save money on interest by giving you 6 ways to pay off your car loan early.
Should I Refinance My Car
Whether you should get out new car finance depends entirely on your individual financial circumstances. You could either end up saving yourself a lot of money or paying a large amount of extra interest.
If you need to cancel your existing agreement in order to take out a new one, consider exactly how much you have left to pay. If paying it off early and taking out a different car finance agreement means that you gain financially, then go for it. If you will be worse off, then you may want to reconsider. When comparing costs, make sure you look at the total amount you owe, including interest.
There are some circumstances under which you may want to refinance your car at the end of the term. For instance, if you have taken out a Personal Contract Purchase agreement and cant afford the balloon payment at the end. Refinancing here would enable you to keep the car, otherwise, you will have to give it back. This may mean that you have to switch to a new PCP agreement, or even a Hire Purchase agreement. It will depend on your providers company policy and probably also your credit rating.
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With Average Monthly Payments On A New
In the second quarter of 2020, new-car payments averaged $568 per month and used-car payments werent far behind at an average of $397 per month, according to the Experian State of the Automotive Finance Market report.
Its no wonder that data from the Federal Reserve Bank of New York shows that nearly 5% of auto loans were more than 90 days delinquent in the third quarter of 2020.
If youre struggling to make payments on your current auto loan or if youre shopping for a car loan and want a lower payment than what youre being offered there are several possible ways you might be able to lower your car payment.
Sell Or Trade In Your Car
If you love your car, replacing it might seem like an extreme measure. But buying a cheaper car with lower payments is better than falling behind on bills, damaging your credit or having no breathing room in your budget.
To sell your car, call your current lender to get the payoff amount on your loan. Your goal is to get enough from selling your car to cover what you owe. Selling the car on your own will typically get you more money than selling it to a dealership. Either way, you should research the value of your car through online guides like Kelley Blue Book or Edmunds, which will aid in determining the price you should ask for.
If you owe more than your car is worth, you might be tempted to roll the negative equity into a new loan with a longer term, but this is a costly way to lower your car payment. That debt will be rolled into your new car payments, plus interest. If you take a long loan to keep payments affordable, youre likely to find yourself upside-down on your car loan again.
If you plan to buy a less expensive car from a dealer and dont want the hassle of selling yours on your own, trading in your current vehicle is also an option. Be prepared and research your cars trade-in value through online guides so you know if the dealers offer is fair.
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What Happens If You Stop Paying Your Car Loan
If you stop paying your car loan your lender will get in contact with you to discuss any issues youre having. If you still refuse to pay the loan, the lender will be forced to take drastic measures. If you have a secured car loan with the car as security, the lender may repossess your car to cover the cost of your loan. If you have an unsecured loan, the lender may take you to court to get their money back. In both cases, your credit score would likely drop significantly.
When Its Better To Refinance
Refinancing your auto loan could be a better option to lower your monthly payment if you have good or excellent credit and qualify for a lower interest rate. But heres the catch: You should request a loan term that is close to or equivalent to the amount of time left on your current loan. Otherwise, you will get a lower payment but could spend several hundred or thousands of dollars more in interest over the loan term.
If you cannot reach an agreement with your lender or swap your current car for a ride that meets your needs, refinancing can also help you avoid repossession. Furthermore, you will get the lower payment you need and preserve your credit score, even if that means paying the lender more in interest.
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How To Lower Your Car Payment
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You can lower your car payment, but the strategy you choose depends on your personal financial situation.
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Maybe you financed your car at the dealership and now realize you could have qualified for a loan with a lower rate and payment.
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Perhaps you bought a more expensive car than you could realistically afford.
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Your credit and finances may have improved since you bought your car.
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Maybe youre having difficulty making your car payment because of a temporary financial setback.
Your options may include refinancing your current vehicle, replacing it with a less expensive one or asking your lender for payment relief.
Does A Late Payment Affect My Credit
If your payment is 30 or more days late, it may show up on your credit report as a late payment. The degree to which a late payment affects your credit score can depend on things like how many days past due the payment is, how recently you’ve been past due, and how frequently youve made late payments.
Review your credit report regularly to help you know where you stand. Request a free copy of your credit report from annualcreditreport.com or from each of the nationwide consumer reporting agencies: Equifax, Experian, TransUnion, and Innovis.
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Early Auto Loan Payoff Calculator
Have an auto loan that you want to pay off sooner? Wondering how much faster you could pay it off by paying a bit more each month? And how much interest you could save in the process?
This Early Auto Loan Payoff Calculator has the answers.
Enter how much extra you want to pay each month, and the calculator will immediately tell you how many months you’ll shave off your loan and your total savings in interest. It can also show how quickly you’re paying down the loan, with the balance remaining for each month until the vehicle is paid off.
This is good information to have if you’re thinking of trading in the vehicle before it’s paid off and wondering how much to knock off the anticipated trade-in value.
Its Never Too Late To Try Lowering Your Car Payment
Other than your rent or mortgage , your car payment is likely your most expensive bill. Depending on your loan term, you may be paying it off for years to come.
Before you buy a new or used vehicle, try to set yourself up for the lowest monthly payment possible by putting down a significant down payment, shopping around, and choosing the right loan term for you.
If youve already been forking over a hefty sum each month to a lender, look into refinancing your car loan. You may also want to give your current lender a call to discuss options available to you, including the possibility of extending your loan term.
Whatever your course of action, dont remain idle: a lower car payment may equate to hundreds of dollars more in your pocket.
Ready to refinance your car loan?
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Refinance Your Loan To Get A Lower Interest Rate
Continuing to pay high monthly installments can take a big chunk out of your finances. Its also possible that you were offered a bad deal and were charged a higher interest rate than normal which happens more often than you can imagine! In that case, its always best to use auto loan refinancing to replace your current loan with more favorable terms. For starters, use an online auto loan refinance calculator to find out how much you can save by switching to a lower rate. Refinancing can slash loan rates by as much as 2.4% and save you more than $2000 annually!
What Is The Difference Of A Car Loan Compared To Leasing
In an auto lease, the lessee gains the privileges of the car for a fixed time period or a pre-defined number of miles driven before the car is returned to the lessor. At no point during the leasing period does the ownership transfer over to the lessee. Some dealerships do, however, have an ownership option at the end of the leasing period for lessees to take advantage of if they so wish. Due to the lack of ownership benefits, all things equal, the payments on auto leases usually are less than payments on auto loans.
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Make Bigger Car Loan Payments
Once you have an idea regarding what you can afford, you need to consider payments. Car loan payments will be determined based on the interest rate you get for the loan and for the duration of the loan. A typical car can be purchased over three to five years, for instance. Car loan rates will vary depending on the institution and your credit record.
If you can afford it each month, the best way to pay off your car loan early is to double your monthly car loan payments. It does not have to be double, but anything more will help. Loans are structured so that you pay off the interest over the first part of the loan and only then start to make a dent in the principal. If you pay double each month, you cut down on the interest twice as fast and start paying on the principal much sooner. Doing this, a five-year loan could very well turn into a two to three year loan. By paying more each month you will be spending more in the short term but saving more in the long term. Lowering the amount of principal to be paid back reduces the amount of interest you will pay.
It is possible to pay back your car loan before the loan period expires. Doing so will save you a lot of money that you would otherwise pay in interest charges. Check with the terms of your loan to see if you will be penalized for paying it back early. If not, consider paying one-in-a-half to twice the payment each month.
How To Calculate Car Finance Payments
You may be eager to refinance your car for any number of reasons, but you should make sure that doing so is the best financial decision for you before committing to anything.
It can be helpful tohave an understanding of how much is left to pay off your car before deciding on the next step.
Anyone can calculate how much of their loan is left to pay. You can request a statement from the company whom you have car finance with showing how much you owe. If you ask them for the total amount then they have to include all the interest you owe on there too. It will be easier to figure out whether or not you can afford to pay off your car finance in one lump sum, if refinancing is the best way to go, or whether you should just stick with your current provider.
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Applying For Car Loan Modification
Consider Refinancing Your Current Car Loan
If your car loan came with a high interest rate or other monthly fees, refinancing your auto loan could provide you with better terms and a lower payment if your credit score has increased since you applied for the loan .
As you look at options for refinancing, keep in mind that your goal is to pay off the loan quickly. Refinancing with a new 72-month loan is still a relatively long time 72 months is six years, more than half a decade. Instead, youll want to look at a shorter term say 60 or fewer months and a lower interest rate, if possible. If you do refinance for a long-term loan, consider paying extra toward the principal every month to pay off the loan more quickly.
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