Defaulting on a car loan can hurt your credit. You can expect a really bad credit score that disqualifies you from financial assistance. If you miss two or three consecutive payments, that can lead to repossession. The lender will sell the vehicle at an auction. If the auction price doesn’t pay off the loan, you’re still on the hook for the remaining balance. If your situation is critical and you can’t afford to make a payment, here are some suggestions to consider. It’s not an insurmountable problem.
Talk To Your Lender About Your Options
Your first stop should be your auto lender. Get on the phone as quickly as possible and discuss your situation. Many things are beyond your power during these tough times, but you do have control over your communication with the auto lender. If you want help from the bank, explain why it’s in the lender’s best interest to support you through this difficult situation. The sooner you get in touch, the better. Talk with your lender about how you’re going to deal with the situation. You can ask for a change in the due date. Set the due date for when you know you’ll have money in your bank account. It can be your payday. The lender will do their best to comply with your request.
Maybe you can restructure the terms of the loan. Ask the lender if it’s possible to create a payment plan that suits your needs better. They could extend your loan term so that your monthly payments become more affordable. You have more time to adjust your financial situation, recover from this temporary issue, and avoid default. Loan rescheduling is more expensive in the long run, but it may be the only solution. Understand the full implication of the loan reschedules to make an informed decision. The details of the plan will vary on your situation and how much the lender is willing to assist.
Find Another Source of Income
If you want to reach financial freedom, identify other sources of income. All you need is time, some ideas, and a lot of patience. Selling your stuff is a way to make money fast. Some of the best things to sell are your childhood toys, gift cards, old mobile phones, and your knowledge. Maybe it’s not enough to pay down your debt. If you need some extra cash in your pocket, check out these ideas:
- Start a blog. It takes time to make money blogging, but the payoff can be huge. The easiest ways to make money are affiliate marketing, adding banner ads to your site, and writing sponsored content.
- Become a virtual assistant. If you have high-level skills, you can make a decent income. Skills employers look for when hiring are communication and writing skills, IT skills, and social media management skills.
- Drive for Uber. The money you make driving for Uber depends on when, where, and how often you drive. You can work whatever hours you want. Uber offers earnings estimates, so you can figure out your likely profits. What To Do If You Can’t Afford Your Car Loan Anymore
If you’re experiencing financial difficulties, see what additional sources of income might be available.
Refinance Your Car Loan
Refinancing your car loan can lower your payments and keep money in your pocket. Auto refinancing means replacing your auto loan with a new one. You use the money to pay off your old loan. To get a lower interest rate, your credit score should be better than when you contracted the existing loan. Paying on time matters. With a lower interest rate, you’re able to pay more toward the principal each month. Your lender will gladly accept to lend a helping hand when it comes to refinancing your loan. After all, you’ve been a good customer, and you’ve never missed payments before. You can resort to auto refinancing whenever you want.
Consider the amount you owe against the value of the vehicle. It’s highly unlikely that the lender will put up the money to buy out your original loan if the car isn’t worth at least as much as they’re paying for it. You can get preapproved before you submit a full application. It’s a good idea to look into more lenders. Take some time to compare quotes with rate offers from other lenders. Keep in mind that multiple inquiries will show up on your credit report and will be used to calculate your credit rating.
Use Home Equity to Pay the Car Loan
Tapping into your home equity can be a convenient, low-cost way to borrow large sums of money. Home equity is the current market value of your home, minus what you owe. You can unlock much-needed cash. How much you can borrow depends on your age and how much equity you have in the home. You don’t have to pay back the loan unless you sell the place or move out for more than six months. Nevertheless, if you take out a home equity loan or HELOC and the value of your property declines, you’ll end up owing more than your home is worth. What To Do If You Can’t Afford Your Car Loan Anymore
Voluntarily Surrender the Car
It’s better than having it repossessed. Arrange to drop off the vehicle with the lender, and you’ll be spared the costs the bank incurs for sending over the tow truck and storing the vehicle until it’s sent to auction. Voluntarily surrendering the car will have a negative impact on your credit score, but it’s less embarrassing as compared to repossession. Nobody wants to be humiliated by having their car repossessed in front of others. The repo team often comes without warning. If you voluntarily surrender the car, the lender might agree not to report your missed payments. Even so, the credit bureau can demand that information from the lender.
If you have your mind set on turning in your car, call the lender and set up a time and place where you can bring the vehicle to them. You’ll receive a statement from the bank after the vehicle is sold. As mentioned earlier, the debt doesn’t automatically go away just because you don’t have the car anymore. The amount of money you owe is called the deficiency balance. If the deficiency balance is too much to pay back, filing for bankruptcy might be a good option.
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What To Do If You Can’t Afford Your Car Loan Anymore