automotive finance

5 Steps to Take If You Can’t Pay Off Your Car Loan

You may find yourself in a situation where you can’t afford your car loan repayments due to rising living expenses or a big life change such as divorce or loss of jobs. 

What will be your options? First of all, walk in your chin up. Finding ways or solutions should be your first move to improve your financial positions.

Furthermore, if you fail to pay off your loan and other credit repayments on time, you will not only end up in a greater problems due to late fees, but your credit score will suffer as well which makes your credit more expensive and difficult to obtain in the future if you wanted to do some loans.

1. Check your financial situation

If you are having trouble making your car loan repayments. What you should do? First and foremost, you should examine your financial situation. Create a budget that takes into account all of your savings and repayments to determine where you stand financially. 

TIP: Use a budgeting tool to help you with this procedure to save time and energy. Many connect to your bank accounts and credit cards, making it easier to track where your money is coming from and going. Next, verify your credit report or score (all three of Australia’s major credit reporting agencies offer free credit checks). Understanding your credit will put you in a easier position if you need to renegotiate or refinance your loan.

Lastly, compare your car loans to find out how your current car loan stand within the market. Contact us today if you’d like us to help you with this.

2. Speak with your Lender

This may be surprising to all of us, most lenders wish to assist borrowers who are having difficulty meeting their loan commitments. Even if it is difficult to make the call, you should contact your lender as soon as possible if you believe you are about to fall behind on your repayments. You can discuss your options or alternatives with your lender after gathering information about your current financial condition. This could include your lender giving you more time to repay the loan or lowering your repayments based on what you can afford. Your lender may even grant you a repayment break to allow you to get back on track before your payments resume.

3. Renegotiate your Car Loan

If you feel that those short-term solutions will not help you in the long run, you should talk to your lender about renegotiating your car loan. You may be able to negotiate a lower interest rate on your loan depending on your situation. This is normally only applicable if your credit score is lower than it was when you applied for your auto loan. 

Alternatively, your lender may allow you to extend the duration of your loan. Either option will result in cheaper repayments throughout the life of your loan, providing you more economic flexibility. However, keep in mind that extending your loan term may result in you paying more interest overall on your loan.

4. Refinance your car loan

By comparing the market to what your lender is giving, you may discover that you may receive a better deal on your auto loan by refinancing with another lender. With that said, there are two critical aspects to consider before refinancing. 

• Your ability to obtain a loan: If your recent financial difficulties have resulted in you skipping auto loan or other credit repayments, your credit score may now be lower than it once was. Similarly, if your financial situation has changed – say, you lost your job or your income has decreased – this will influence how potential lenders perceive your application. You may find it more difficult to obtain financing if you have a lower credit score or a less appealing financial status.

TIP: When you compare car loans, know that the advertised rate is not the rate you will pay. On application, the lender will determine the interest rate you pay, depending on factors such as your credit score, financial situation and employment status. 

• The potential cost of exiting your current loan: Another factor to consider before refinancing is the potential cost of exiting your current loan early. As most car loans are secured, they typically come with early exit fees. Check how much you will have to pay out, and factor that into your decision to refinance.

5. If necessary, sell your car.

If you just cannot afford to keep your car, you may decide to sell it to pay off your car loan. If you decide to go this route, notify your lender and advise the buyer that the vehicle is financed.

Depending on how much you owe on your loan – and how much your car sells for – you may find yourself with extra funds after you have paid off your loan and any applicable fees. This is yours to do with as you wish. If the sale of your car doesn’t cover the remaining amount owing on your loan, you will have to find a way to cover the shortfall.

If you are in a difficult financial situation and need help managing your debts, you can access free financial counselling by getting in touch with us here at Automotive Finance Austral

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