Smart Auto Financing: How to Get Out of a Bad Car Loan
Feeling trapped by your auto financing contract is a terrible feeling. Many people believe nothing can be done once the contract is signed. Thankfully, there are several things you can use to help alleviate your problem and get back on track after struggling with a bad car loan.
What Is a Bad Car Loan?
A bad car loan can refer to a variety of circumstances. In some cases, it’s a situation where the car’s monthly payments are too high for you to comfortably maintain your current budget. Or, it can refer to a situation where you have gone “underwater” on the car loan. This means you currently owe more on the vehicle than the car is actually worth.
In these situations, the goal is to reduce the monthly payments so you can start making progress once again. There are several ways you may be able to accomplish this, depending on the details of your situation.
How to Get Better Auto Financing on an Existing Car Loan
Refinance the Loan
Refinancing your car loan is a good way to lower your monthly payments and reduce the overall cost of your loan. Although you will still be financing the same balance, you may be able to qualify for a lower interest rate. This can significantly lower your monthly car payments. Before you commit to refinancing, make sure your current loan does not penalize you for paying it off early, as this could negate any benefits of the refinance.
You also want to be aware of the length of the loan when refinancing. Sometimes they will offer you a longer loan term. While this can significantly reduce the monthly payments, it will take you much longer to pay off the loan and increases the risk you will end up underwater over time as the car depreciates with use.
Pay Extra on the Principal
Paying extra toward the principal on your auto loan each month can help you restore the balance if you’ve gone underwater on your car.. By lowering the principal balance at a faster rate, you will eventually be able to outpace the devaluation of the car. While it may be hard making bigger payments now, you’ll enjoy having equity in your loan and it will benefit you when you’re ready to buy a new car later.
Remove the “Extras”
If you purchased any extras for your car, you may be able to cancel these services and receive a partial refund on your outstanding balance. This could include extended warranties, gap insurance or prepaid maintenance plans.
At Clark County Credit Union, we offer auto financing with low rates and flexible terms. We can even help you sell your car through Members Auto, our Nevada-licensed dealership. Contact us today and speak to one of our auto loan specialists at 702-228-2228, option 3.