It was only a year ago that you were driving off the lot in your brand new ride. But now, you have an extreme case of buyer’s remorse, and it has nothing to do with the car. The problem is the outrageous interest rate on the car loan. Or maybe the interest rate is low, but you couldn’t afford the car in the first place.
Either way, here’s how to get out of a bad car loan.
Refinance the Loan
Are you looking to keep the car? Consider refinancing the loan.
If your credit score has increased since you purchased the vehicle, you may qualify for a more competitive interest rate. Check out Credit Sesame to check your credit for free, and use SuperMoney’s online tool to explore the best auto loan refinancing companies.
A word of caution: refinancing the loan may extend the payment term, which could tack on more interest.
How Much Money Can You Save by Refinancing?
Depending on the terms of your original loan, refinancing could save you hundreds, if not thousands of dollars.
If you have a 48-month auto loan with an interest rate of 13%%for $15,000, the monthly payment will be around $402, and it will cost you $19,316 to pay off the loan.
Let’s say you decide to refinance at the end of year one. At that point, your remaining balance will be around $11,943.
Here’s what your new figures will look like:
|Auto Loan Amount||New Loan Term||New Interest Rate||New Monthly Payment||Total Amount Paid|
Quick note: keep in mind that auto loan origination fees may also apply.
As evidenced by this example, you may not save a ton over the life of the loan if you extend the term of the loan, which is why you should try to keep the loan term as short as possible.
Contact the Lender
Have you tried speaking to the lender? If not, reach out to inquire about options that may be available to you. They may be able to:
- Reduce your monthly payments for a brief period.
- Extend the due date.
- Allow you to skip a few payments so you can get back on track.
During the call, explain that you’re experiencing a financial hardship. If the lender allows you to skip a few payments or your reduce your monthly payments, use the funds you would otherwise spend on the monthly payment to get current.
Sell Your Car
Looking to sell your ride? You have three options:
Some dealerships will offer you cash for your ride. Keep in mind that you may only receive trade-in value and could still owe on the loan. If there’s a CarMax in your area, take your ride in to have a no-obligation appraisal done. This will give you an idea of what your car is worth should you decide to trade it in.
Auto brokers may also be interested in purchasing your car for one of their clients.
- Private party:
This may be the best route if you want to get top dollar for your car.
Trade-Down for a More Affordable Option
As a last ditch effort to get out of the loan, you can trade-down to a more affordable vehicle. When considering this option, make sure the savings are worth the time and effort.
If you’re upside-down in your current loan, you may end up losing money on the deal if the dealer rolls the negative equity into the new loan. (Source)
In fact, AutoTrader recommends trying to sell the car on your own before heading to the dealership. That way, you maximize your profit instead of settling for the first offer they place on the table.
You could also apply for a personal loan if you’re upside down on the loan. If approved for a lower interest rate, apply the funds to the outstanding balance to save money. To explore loan options from both brick and mortar and online lenders, use SuperMoney’s personal loan comparison tool.
Turn the Car Over to the Creditor
If you’re already behind on payments and at risk of having the car repossessed, consider turning it into the lender Request that they agree to waive the outstanding balance in exchange for the car. Also, ask that they refrain from reporting any information on the transaction to the credit bureaus. That way, you’ll get out of that bad car loan without tanking your credit. Turning in the car will also save you the cost of towing and storage fees. (Source)
A Final Thought
Still no luck? Revisit your spending plan to reduce or eliminate frivolous expenses. If your car loan doesn’t have a prepayment penalty, you could save a lot of money in interest by repaying the loan sooner.
Remember, you can always refinance the car loan or take out a personal loan. Check out SuperMoney’s auto loan and personal loan comparison tools to see what’s available. SuperMoney includes free expert reviews and consumer comments to help you compare lenders.
Allison Martin is an accomplished finance writer who has written for publications including The Wall Street Journal, MoneyTalksNews, The Simple Dollar, and Credit.com. Her work has been featured on Fox Business, Yahoo! Finance, MSN Money, and ABC News. She enjoys writing about personal development, entrepreneurship, personal finance and is a Certified Financial Education Instructor (CFEI).