Buying a car can be one of the best investments you ever make. It will help you commute to work, take the kids to school, do grocery shopping, and travel with the family.
Getting a car can take some time, given the paperwork involved in the process. Applying for a bank loan to finance your next means of transportation is feasible, especially if the price is out of your budget.
When you can’t afford the financing, you get into serious trouble with the bank. If this is your case and you are wondering how to get rid of a car loan illegally, pay attention to this article.
What to do if I can’t pay my car loan?
Before you venture to apply for a loan, the first thing you should evaluate is your ability to pay. If you have it, then take the big leap. But if your financial situation changes over time and you cannot pay your commitments, there are ways to solve the problem.
- You can sell the vehicle
Selling your car after buying it with effort can be traumatic. But if you are still going to lose it because you can’t pay the loan, it is a feasible solution.
By obtaining the money from the sale of the vehicle, you will be able to buy a much more economical model.
Another option is to trade in with a dealer for a cheaper car. This procedure will make it easier for the client to cover part of his debt. But be careful, as trade-ins bring less money.
- Negotiate with a lender
If you are financially trapped at a specific moment, the best thing to do is to call a lender. He will point out some possible solutions so that you don’t have to exit the loan abruptly and abusively.
You can ask for some leniency if you consider that the problem is temporary. This professional can change the monthly loan amount. The intention is to make it much more affordable to continue to meet your responsibilities.
- Request a refinance of the loan.
If you choose this option, you can obtain up to three benefits:
- By improving your credit history, acquiring a lower rate is enormous. This will greatly reduce the figure.
- Refinancing the debt with longer repayment terms will let you make payments much more comfortably. The downside is that you will be paying your debt for a longer period.
- Refinancing your debt will let you shop for an interest rate in line with your current needs. This way, you will obtain better financial savings.
- Voluntary surrender of the car
Although drastic, it is a possibility. If you default on your payments, the lender may opt to repossess the car. Of course, this alternative can leave a bad taste in your mouth, as it will also ruin your credit score.
If there is no other solution, you may decide to surrender the car voluntarily. That way, you avoid the painful procedure of repossession.
Voluntary surrender has a much smaller impact on your credit history. It is done on the lender’s terms and interferes negatively with your credit history.
How can avoiding a vehicle loan affect your credit?
This is how your credit could be affected if you have decided to get out of your car loan.
1. Selling the car
Selling the car for full payment of the loan will not negatively impact your credit score. But if you exchange the loan for another one to purchase a more economical model, you will see that the credit inquiry will decrease for a short time.
2. Negotiating with the lender
The impact on your credit score will depend on the agreements you reach with your lender. If they agree to change payment terms for a longer period, it could severely affect your credit score. Other lenders will take this information as a basis and think twice about granting future credit.
3. Refinancing the debt
This measure is just as counterproductive as it could severely affect your credit score. It will also affect how other lenders will view you in the future.
4. Voluntary Surrender
Voluntary surrender has only one explanation: You have not been able to repay your loan as planned. In this case, your credit history will be tarnished. However, voluntary surrender may be a better option than repossession of the asset by your lender.
Getting out of an upside down car loan
The loan amount is often higher than the actual value of the car you want to buy. This is what is known as an upside-down loan or being underwater. When a person finds themselves in this circumstance, the best option is to sell the vehicle to try to pay the difference.
If you cannot acquire the total amount of money to pay the remaining amount, it is best to access an unsecured loan for just that amount.
This means that you will get a car loan. But the difference is that it will be much easier to pay. The best thing is that the vehicle will not be a reason to stay in debt to finance companies.
How to avoid going upside down?
Being upside-down could generate a lot more debt than you probably have. And while it may seem like there is nothing else you can do, some solutions could avoid going upside down or being underwater. These are:
- Pay a large sum of money as a down payment: This technique will help you reduce negative equity risks. Take into account that cars depreciate easily, especially after the first year of purchase. Making a down payment that includes a large sum of money is necessary.
- Ask for much longer amortization terms: This type of measure will make the payments per month last longer. For the same reason, the amounts will be within your reach. The disadvantage is that you will be paying the loan more slowly. Thus, depreciation will be on top of the payments.