Bad Auto Loans Can Be Gut Wrenching
So, you’ve got a car and you’re paying down an auto loan secured for you by the dealership, a bank or a lender — and now you’re realizing just how terrible that loan is. Such a realization can be heartbreaking, especially if you got a great deal on a car and put the effort in to get the vehicle you wanted.
Don’t worry, in most instances there are ways to get out of a bad auto loan and get yourself into something more financially feasible.
How To Get A Good Loan
If you can secure a good auto loan with a low interest rate and a reasonable term, as well as a final price that stays within your budget, you won’t need to worry about refinancing or getting out of a bad loan. The key to getting a good auto loan is knowing how much you can afford and sticking to it, but it’s also just as important to shop around and find the best lender for you.
The best places to shop for lenders are credit unions, banks and Internet lenders, as your car dealer generally won’t have the best deal possible for you. Once you’ve secured your loan, it’s vitally important not to skip over payments. Skipping payments can reflect on all aspects of your financial life, but do notably put a hindrance on getting loans in the future.
Refinancing Bad Loans
There are three parts of a car loan — principal, interest and term. These three factors go into your final auto loan, and two of them are crucial to getting your bad auto loan refinanced and your monthly payments ultimately lowered. The interest and term parts of your loan can be readjusted in a few easy steps.
First, you’ll want to look over your loan and check the current interest rate. Once you’ve done that, check your credit score to see the rates you qualify for. Try contacting lenders for interest rate quotes, and find the one with the lowest rate. Securing a lower interest rate can lower monthly payments significantly.
Funnily enough, many people don’t even think of refinancing as an option when it comes to their car loan.
“People think a lot about refinancing their mortgage, but they don’t think much about refinancing their vehicle,” Scott Sanborn, CEO of LendingClub, said. Sanborn’s company is one of a number of lenders who are beginning to create specific auto loan refinancing options similar to their credit card refinance loans. Sanborn said the idea behind the auto refinancing loans was simple:
“We know you’ve got a loan, and it’s not a very good loan. Let us show you what we can save you.”
If you don’t qualify for refinancing and need to get out of a bad loan, there are other options for getting rid of a bad car loan. Let’s say you’ve paid down more than the car is currently worth and want to get rid of it. A smart way to accomplish this is to sell it to a private seller. If you’ve paid off more than the car’s worth, the sale will pay down the rest of your existing loan and also put some money in your pocket — perhaps to go towards a down payment for a new vehicle.
Another interesting alternative to refinancing is selling the car to CarMax. The company appraises your car and makes you an offer on the spot to buy it — paying off your loan for you and also putting money back in your pocket.
Carefully Consider Your Decision
At the end of the day, it’s important to weigh all the options in terms of auto loans. Is the loan really worth high interest rates and too short a term? Is there something better out there that isn’t so financially taxing? These are questions that are best answered when you do a little digging and figure out what works for you.
Bad auto loans can be just as debilitating as bad credit cards or personal loans, so it’s always important to know what you’ve gotten yourself into and assess the situation before you try to get out of it.