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    Want To Get Rid Of Your Car Payments? Here Are Your Options

    Damien Frost
    Damien Frost - 2020-07-25T21:00:00.000Z
    Little red car over a lot of money stacked coins.

    Selling 

    Even if you owe money to the lender, you can still try and sell the car. With the money you make from the sale, you can pay off the remaining debt.

    This is the most effective way to limit the risks and get rid of the payments in one shot. 

    In the case of a leased vehicle, one has to check on the terms of the lease. The lessor would consider repurchasing it if the car is in good condition.

    With that option, you can quickly sell the vehicle back and cover the outstanding balance while closing the loan without any loss.

    The third option is to transfer the vehicle, if the contract permits it.

    Assuming it does, this is the best option as the entire liability can be transferred to the new buyer provided the lessor approves the new customer's credit score, as per their normal underwriting criteria.

    Refinancing

    Refinancing your current loan is another great way to at least reduce car payments. However, this is only beneficial if you get better rates and terms. You can get a competitive offer if you have a good credit score, haven’t defaulted on payments, and meet all other eligibility criteria.

    When you refinance, remember that an extended repayment term will lower your monthly payments, but it’ll also increase the total interest you’ll be paying over the life of the loan. Refinancing means you’re requesting a reset of the current loan at new terms and rates. In case there is a balance outstanding, the amount you seek as a loan would be adjusted first, and then the principal amount would be arrived at. 

    Depending on the terms of your original loan, refinancing will save interest, reduce your monthly payments, or both.

    Trading In

    When you trade in the car at a dealership, the value will be deducted from the price of the new car. On the other hand, when you trade in a car that is still securing a loan, the car dealer will take over the outstanding loan and pay it off.

    In this case, the dealer is liable to handle the required paperwork, including title transfer.

    It’s important to bear in mind that both the value of the trade in and the price of the new car are highly negotiable.

    If you wish to trade in a car tied to an outstanding loan balance, contact the lender first and clarify the payoff amount. 

    Look up the current trade in value and estimate what needs to be paid to the lender. Alternatively, if you’re trading in a car with positive equity, the excess can be allocated to a down payment for the new vehicle, thus effectively bringing down interest payable. 

    Repossession

    Repossession of your vehicle is done by the financing entity if you’ve fallen behind in payments. Accordingly, you’re termed an overdue client, and the lender takes over your vehicle. 

    If you don’t pay even after such repossession, the vehicle will be sold after a legal order. The following are the repercussions you may face:

    • You lose your vehicle and still need to settle the difference if the sale proceeds are lower than the outstanding loan balance
    • The amount of default would appear in your credit records for seven years, hurting your future chances of borrowing for a long period
    • There will be a note attached to your credit record of up to seven years
    • A collection agency will take over and collect the dues after the vehicle is sold. Your credit record will still reflect your default for seven years, even if you have made the payment

    Conclusion

    You’re responsible for payments on a car loan and you can’t just get rid of it. If you miss payments, it’ll reflect poorly on your credit history and lower your credit rating.

    However, if you’re having difficulties repaying the loan, consider one of the options listed above to get rid of the payments without hurting your credit score.

    Irrespective of the option you choose, make sure to do the research and get an estimate before proceeding.