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Making your payment?month after month has got to become this type of drag that it eventually occurs to you: “Is there any way I can get out of this loan?”
First of all, exactly what is a bad car loan? The easiest answer is it’s one you cannot afford a treadmill where you’re paying more than you need to.
You may be wondering should there be in whatever way you can keep your car but pay less each month. The answer is, it depends. To explain further, let us take a fast review your loan.
Your car payment consists of three main parts:
- Principal:?The amount of?money you borrowed, excluding interest, to buy your car.
- Interest:?What the bank or lender charges for loaning you the money.
- Term:?How long you have to repay the loan.
Of these three parts, the eye and the term could be adjusted to reduce your monthly payment. To do that, you have to create a new auto loan, a procedure called auto refinancing.
Review your vehicle loan
To find out if refinancing is useful for you, start by finding your sales contract or payment stub. Now, find the interest rate you’re charged and the term, or even the number of months remaining around the loan.
If you prefer, you can just call your lender, give them your loan number and ask for this information. They’ll also tell?the remaining balance of the current loan, which you’ll need soon.
Once you’ve found the current interest rate you’re paying, you can check your credit score to see what rate you could now qualify for. To obtain the current interest rate you qualify for, contact several lenders for any quote. If you can obtain a lower interest rate,?you’ll be able to lower your monthly car payment.
Run the numbers
To?see how much money it can save you by refinancing, use NerdWallet’s auto loan refinance tool.?At first, input a desired loan term that’s the same as your remaining loan term. Remember, this is the quantity of months you have remaining on your loan, not the size of the borrowed funds right from the start.?The refinance tool will estimate the eye rate you can get?and show you just how much that rate could decrease your payment.
If you’d like to decrease your payment further, see what goes on whenever you extend the amount of months in your new loan. However, it is best not to spread the borrowed funds over a lot of time because?you’ll then pay more total interest. Also, if you take too much time to repay your loan, you take the risk of being “upside-down” in your loan, meaning you owe more for that car than it’s worth.
When not to refinance
If your credit hasn’t improved, you won’t qualify for a much better interest rate. Also, if you’re close to the end of the loan, the potential savings might not be well worth the time to go through the process. True, you can still alter the length of the loan if required. But that’s a last-resort option.
It’s also important to make sure there are no prepayment penalty fees inside your current loan contract. Most auto loans have no such charges, which means you should be good to go.
Other options
There are also ways for you to definitely cope with a poor car loan, although these options might not be as attractive as refinancing.
Sell your vehicle to a private party: Advertise the vehicle on the market and tell prospective buyers there’s still a loan onto it. Once you discover a purchaser, call your lender and ask how to arrange the transfer. The new buyer will pay from the loan, and any remaining money will be cash in your pocket -?or a deposit for your forthcoming car.
Sell your car to CarMax: A quick exit route would be to bring your vehicle to CarMax. They’ll appraise your car and give you a good, no-haggle offer to buy it at that moment. Hopefully, the offer will be more than your debt around the car. Should you accept the sale, CarMax will pay from the loan and provide you with a check for the difference.
Skip payments: Call your lender and explain that you are having a difficult time making ends meet. Sometimes, the lender will allow you to skip one or more payments that will help you avoid?defaulting around the loan. Save the cash from all of these missed payments and employ it to meet your future payments.
Downsize at the dealership: You can trade your car in for a more affordable used car. But beware: Dealers can feel to work financial magic but usually are rolling your balance right into a longer loan. Before you attempt this, know the trade-in value of your present car and the value of the vehicle you want to buy. Evaluate the contract carefully prior to signing, and run the numbers through a car loan calculator to make sure they accumulate.
Moving forward
If you’re prepared to obtain a new loan and also you think you are able to qualify for a lesser rate of interest, you’re ready to affect refinance your vehicle loan. Put aside an hour or so to complete applications and another hour to examine any offers you get. Remember that lowering your monthly payment by even $25 a month could save you $300 annually. Not only that, but you’ll have the peace of mind of knowing you got the best offer possible.
Philip Reed is really a staff writer at NerdWallet, a personal finance website. Email:[email protected].
Updated Sept. 11, 2017.
