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.
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 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
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.