You can’t afford your monthly payment and you’ve already applied for refinancing, but it’s still too expensive. You still have options that can keep you behind the wheel, or at least lower your payments. Changing your loan, selling your car, or returning your vehicle are all ways to reduce the amount you owe.
Alternatives to car loan refinancing
Refinancing a car loan doesn’t always make your monthly payments more affordable. These five strategies can help you save money when refinancing just isn’t enough.
Talk to your lender about modifying your loan
Lenders don’t want you to fall behind on your payments. Yours may be willing to adjust the terms of your loan to meet your needs. If your monthly payment is too high, contact us. Your lender may adjust your interest rate or change your due date to better match your payment dates.
Recovery is a long and expensive process. And while some lenders aren’t willing to budge, you can get payment assistance if you ask.
Almost all dealerships offer trade-in offers. And like every step of the car buying process, you are able to bargain and shop around. It may seem like you should trade in your car and buy from the same dealership, but that’s not the case. You can – and should – get quotes from multiple dealerships when looking to sell.
So if you need to get something cheaper, trade in your current ride first. You may be able to cover a significant portion of your loan while reducing your monthly payment if you are not upside down on your loan.
Sell the car privately
While you are looking for trading options, focus on private sales as well as. Depending on the age and condition of your car, you may be able to find a good buyer. Just like trade-in at a dealership, a private sale can help you borrow less on your next vehicle. This way you can focus on keeping your monthly payment as low as possible.
But private sales are more complex when you have an existing loan. You will have to transfer the loan to the new buyer, sell the car for the value of the loan, or be forced to pay money for a car you no longer own.
Transfer the loan to someone else
To transfer your car loan, the other person will need a stable income and a strong credit rating. Otherwise, they have little chance of qualifying. Once the loan is transferred, you will no longer be responsible for the payments. You will also not be the sole owner of the vehicle once the loan is paid off.
It also assumes that the transfer is possible under your loan agreement. Even if someone is willing to take over your debt, your lender may not allow you to transfer your loan.
Instead, consider reapplying for a refinance with a co-signer. Both of you will be responsible for the loan and listed on the title of the vehicle. With a co-signer, you may benefit from a lower interest rate or better repayment terms. This could be the benefit you need to make your payments more affordable.
Voluntarily return the car
If you have exhausted other options, consider voluntary assignment. Tell your lender that you can’t make payments and want to return your car. You will no longer be responsible for your loan, but you may still owe money.
As with repossession, your lender will sell the vehicle to cover any remaining balance on your loan. If the sale doesn’t cover what you owe, you’ll have to pay the difference plus any accrued late fees.
Voluntary surrender is better than repossession. The loan will not be reported as a default and you will not incur any towing charges and other repossession charges. But it’s still considered a derogatory mark, according to Experian, one of the major credit bureaus. This means that voluntary redemption will lower your credit score.
How to reduce the cost of refinancing
In addition to applying with a co-signer, there are two ways to get a better loan when you refinance: improve your credit score or apply for a longer loan term.
If you can cut other expenses, refinance when your credit rating has improved is your best bet. You will likely qualify for a lower interest rate. This means lower monthly payments and better terms.
If you can’t reduce your expenses, consider applying for a longer loan term. You’ll end up paying more interest over the life of your loan, but it’s a quick way to cut monthly costs.
The bottom line
In an ideal world, you should spend no more than 25% of your household income on car expenses. This is not always possible. So if refinancing isn’t enough, choose a less expensive vehicle or modify your loan to keep your budget intact.