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Best Way To Get Out Of Negative Car Equity – Depending on your situation, you may consider negotiating with your lender, refinancing your loan, selling your car, or voluntarily surrendering to avoid repossession.
For many people, a car provides essential transportation to work, school, or other daily needs. But with an average auto loan balance of $22,612, owning a car can be expensive.
Best Way To Get Out Of Negative Car Equity
If you’re having trouble keeping up with your payments, you may consider selling the car, working with your current lender, refinancing your car loan, or voluntarily surrendering the car to your lender. Understand how each works and how it affects your finances and credit before deciding which option to choose.
What’s Negative Equity On A Car Loan?
A car loan is a secured installment loan that you can use to purchase a car, which acts as collateral for the loan. You’ll make the same monthly payment for the life of the loan, and the term of the loan can range from 12 to 84 months.
The interest rate on your loan depends on several factors, including your credit score, income, repayment period, and the type of car you purchase. If you do not repay your loan as agreed upon, the lender may repossess the vehicle to recover the remaining loan amount.
You can get a car loan from many places, including banks, credit unions and auto manufacturers. In some cases, you can apply for a loan directly from your lender, and in other cases, your lender can arrange financing on your behalf.
During the financing process, it’s important to make sure the new car payment fits your budget without sacrificing other financial goals or needs. But if your situation changes or you find yourself in a position to repay your loan, here are some steps you can take to avoid car payments.
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It’s not a good idea to give up transportation, but you could still lose your car if you can’t stick to your repayment plan. By selling it, you can take control of the process and make enough money from the sale to put a down payment on a cheaper car.
Alternatively, you can visit the dealer and see if you can trade in your car to cover some of the purchase price with a cheaper car. Keep in mind that when you sell your car to a private party, you will typically receive less money in trade-in.
If you don’t want to get rid of your car, call your lender and talk about your situation and see if you can work out a deal.
For example, if your financial difficulties are short-term, you can negotiate forbearance that will stop your payments for a short period of time. Your lender may offer to make your monthly payments more affordable until you get back on your financial feet.
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Paying off your car loan means replacing your existing loan with a new one. Depending on your situation, you may qualify for a lower interest rate or a longer repayment term for a new loan; this can help reduce your monthly payments.
But even if your primary goal is lower monthly payments, consider how much more interest you’ll pay over the life of your new loan compared to your existing loan. Also check your current loan’s prepayment penalty to understand any possible costs.
Before applying for refinancing, you’ll want to research the best interest rate to get the biggest savings on your financial payments.
If you default on your car loan, the lender may decide to take back the car. This process is unpleasant and can damage your credit score. If you want to avoid repossession and have no other options, you can voluntarily surrender the vehicle to your lender.
How Voluntary Repossession Works
Voluntary surrender allows you to return the vehicle to the lender on your terms, and while it may damage your credit, it won’t have as much impact as a repossession. You can also avoid some of the costs associated with repossession that lenders may choose to add to your debt.
How getting rid of a car loan can affect your credit depends on the method you choose.
Being underwater on a car loan, also called being underwater or having negative equity, occurs when you owe more on your loan than the car is worth.
If you are relying on your car loan, it may be more difficult to sell the vehicle, refinance the loan, or voluntarily surrender the vehicle. Specifically, you may pay the lender to cover the difference between the value of the car and the outstanding amount. If you’re already struggling with your payments, these extra expenses will make your situation worse.
Ways To Write Off Your Car Expenses
If you already are, there’s not much you can do about being underwater on a car loan. But here are some ways to avoid this:
If you’re on a tight budget and can’t afford your car, your main concern may be about your current situation and needs. But it’s also important to consider the long-term consequences of surrendering or repossessing the car.
As you consider your options for getting rid of your car loan, make sure you understand how they affect your credit and how you can minimize the impact. You can monitor your credit for free to understand how your transactions affect your credit and take action when necessary to prevent serious damage to your score.
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