If a formerly affordable auto loan has now turned into something much harder to manage, what can you do? If your car payments are too expensive, what steps can you take to prevent it? How can you get out from under this situation?
Our auto loans team outlines some of the things you can do if your car payments are too expensive.
Talk to Your Lender
The first thing we would recommend is talking to your lender. This is especially true if you’re at genuine risk of defaulting. Talk to them before you miss a payment as there are things they can do to help.
They can offer a payment holiday for temporary situations, offer to lower the interest rate or other things. Each lender works differently, so ask yours what they can do to help.
It’s in their interest to keep you paying the loan so you would be surprised at how flexible they can be.
Take a Payment Holiday
Talking of payment holidays, you can take one with most standard auto loans. If your situation is temporary and all you need is a little time to get back on top, this could be all you need.
A payment holiday is typically between 3-6 months. You’ll still accrue interest during that time but won’t have to pay anything. Some lenders do require the interest payments during that time but defer the principal, lowering the amount.
The period of your payment holiday is added onto the end of the loan, so you don’t get away with anything, you just get some time.
Refinance The Auto Loan
Another option is to refinance the loan. If you have had your current loan for a while and have equity in the car, you could get a cheaper loan.
You could get a cheaper loan for less money and lower payments. Extend the term of the loan for lower monthly payments or a combination of the two.
As long as you refinance before you miss a payment, have a good credit score and could qualify for a loan, this is a viable way out.
Sell The Car
Not the ideal option we’ll admit. But selling the car could pay off the loan so you avoid defaulting and preserve your credit score.
This would work better for someone who has enough equity in their car to be able to buy a cheap runabout until things improve. It could also work for those with other cars.
Nobody wants to sell their car, we get that. But if the alternative is defaulting on your auto loan in, what choice would you have?
That’s it! We hope this article helped you come up with a plan for what to do next. If you have any more questions, please contact us here.
Thanks for reading!