What to Do When You Owe More Than the Car Is Worth
Reasons can vary as to why you owe more on your car than its worth. "You may be paying more interest charges than car payments," according to Credit Provider Financial Network. Maybe you paid too much for your car, and couldn't keep up the payments. By following some simple tips, and researching different options, you may be able to pay your car off, and make a fresh financial start.
Keep Making Payments
If you almost have the car paid off, continue making your payments until you pay off the balance. Any extra monthly income can be applied toward your car loan, to pay off the loan more quickly. Check your loan contract to make sure you won't be charged a pre-payment penalty if you pay the loan off early.
Trade-In
When you trade in your car, the auto lender takes care of all the paperwork and you may be able to take advantage of a rebate that may eliminate or help reduce your loan debt.
For example, if you owed $2,000 more than your car is worth, a rebate of $4,000 could eliminate your current debt, and you would have enough money left over to make a small down payment on another car.
Swap A Loan
You can swap a loan with the person who buys your car, and that person will be responsible for making payments. The buyer needs to take out a loan, and then pay the purchase price directly to you. You can pay off your loan, and the buyer will be making payments to their lender.
Don't sell your car, and let the buyer take over monthly payments to your lender, by paying you each month, or sending a payment to the lender on your behalf. Since the buyer is not responsible for making payments to the lender, if he doesn't have the money on time, your credit rating will be negatively affected.
Of course the buyer will need to meet the credit standards of the lender, and he'll be more likely to get the loan if he has good credit, can provide proof of employment and has been in the same residence for a few years.
Your buyer will also need to take over your insurance policy, so ask your insurance agent if insurance payments can be transferred to the buyer, or what other options exist for the buyer to pay for the insurance.
Home Equity Loan
Another option for paying off your car loan is to use some of the equity in your home. A home equity loan has a lower interest rate, and won't take you as long to pay off. You can take the money from your home equity loan, and pay off your auto loan, saving you from paying any more costly interest charges.
One downside to a home equity loan is that if you miss payments, you may be at risk of foreclosure on your home.
Tags: your loan, buyer will, home equity, home equity loan, your home, equity loan