Is Your Car Loan Costing You More Than Your Car’s Value? What Can You Do?
It is quite difficult to qualify for a car loan, but it is more challenging to keep up with repayments. You will have to pay down a fixed monthly instalment, but it likely costs you more than the worth of your car. Despite making a down payment, car loans can cost you more than the market value of your car.
You may not have calculated it at the time of applying for the loan. However, sometimes you have no other way around even if you know that it will prove expensive. However, it becomes worse when your financial condition takes a nosedive, for instance, you lose your job, your family member falls ill, or you have parted ways from your spouse. There are still some options to avoid the burden of the loan.
Look for refinancing
If you have ended up with the upside-down on your car loan, the other alternative is refinancing it. Note that you cannot easily pull it off. Since the car is a depreciating asset, it does not give a wiggle room for refinancing.
You can ask your lender to extend the repayment term with lower monthly instalments. Further, smaller monthly payments can help you keep afloat, but you will eventually end up paying more money in overall interest.
It means extending the repayment term is advantageous from one angle and disadvantageous from the other angle. It can be the devil in disguise because you are ultimately paying more money in overall interest.
Look for a better repayment plan
You should also talk to your lender to see if they can work out on the deal. Although they have the option of repossessing your car, they are not usually interested in doing so. Explain your actual financial condition to them and ask if they have any way to help you.
A reputed direct lender will always consider your financial condition, identify what is pulling you back, and then offer a repayment plan that fits your current budget. If you have been committed with your financial obligations so far, it will be great to talk to your lender, and they will likely offer you a better repayment plan.
Figure out the ways to stay ahead of repayments
Try to find out how you can keep up with repayments. First off, you need to slash your monthly expenses. Try to cut down on discretionary and non-essential expenses.
You should find out a new job with higher pay, or you should get a side gig or talk to your employer if they can allow for overtime and pay you money for that.
Cash out your car
Last resort is cashing out your car. No matter what you are going through, being fallen behind repayments will add up penalties, and as a result, the cost of the loan will continue to soar. Eventually, you will fall into an endless circle of debt. In this situation, you should cash out your car and put that money toward your car loan. Of course, it will cost you some early repayment fees, but it is not more expensive and worse than falling into debt.
However, it is always suggested that you sell it privately instead of selling it to the dealer to get a good value. Car is a depreciating asset. As you get the car on the road from the showroom, it immediately loses 30% value. You must try to get enough from the car so that you can repay the whole of your debt. However, that is all but impossible.
You will have to pay off the difference out of your own pocket. A car dealer may not offer you a fair amount of money because they put the burden of marketing expenses and the risk factor on you.
You might struggle with car repayments. Therefore it is advisable that you should do all calculations before signing the loan agreement. Use online loan calculators to get the estimation. The loan’s real cost will always be much more than that because that includes other fees and processing charges.
If you suspect that your loan will likely set you back much more than the car’s worth, you should put off buying a car and instead arrange a bigger deposit or look for a cheaper car.