Effective Ways to Get Out Of a Bad Auto Loan

Car loans are the easiest and fastest way for people to buy cars. However, some people realize they got a bad auto loan deal, especially if they applied with a bad credit score or did not research appropriately before applying.

Bad car loans have high-interest rates and terms, making people fall behind on payments. Whatever situation led to getting a bad car loan, some ways people can get out of them include:

Refinancing

This is one of the most popular methods people can get out of bad auto loans, especially when dealing with high-interest rates and bad terms.

This mostly happens to people who applied for auto loans with bad credit. Borrowers can compare different lenders’ interest loans to get the best interest rates.

Can you refinance an auto loan with the current lender? It is often possible for borrowers to refinance their car loan with the same lender, but that doesn’t mean it’s always the right decision. The most common reason people do this is to get extended payment periods.

Shorter payment periods have higher monthly payments, which might be hard to make. Extended payment periods, however, means paying more interest.

Therefore, borrowers should calculate how much they will save with longer payment periods and decide if it is worth it. It could also work if the borrower improved their credit score and qualified for a lower interest rate.

Pay Off the Loan

Borrowers who don’t want to refinance can pay off the loan until they own the car. They can use the money they have set aside to pay off the loan faster. However, they need to look if their lender has pre-payment penalties.

If they can’t pay off the loan at once, they can increase their monthly payments and pay as much as possible. That pays off the loan faster and saves them interest costs. It also helps build a better credit score for the borrower.

Trade-In the Car

Sometimes, borrowers might want another car but can’t get it because of the current loan. This is a perfect time to trade it, get out of the bad loan, and get a new one with better rates and terms.

There are high chances of dealers taking the old car because of additional sales. If the borrower is upside down (owes more than the car is worth), they will take the car and carry over the excess amount from the bad loan into the new loan.

This also works for people who don’t want to pay off the loan and try selling the car themselves. According to Lantern by SoFi, borrowers should take time to improve their credit score and get a car loan pre-approval to get a better loan.

Borrowers who trade in a car should take a car with a lower or similar value to their old one. Taking an expensive car will strain their budget and might not pay off the new loan.

Surrender the Car

Borrowers who have trouble paying their loans because of financial difficulty should give up the car to the dealer. This will most probably hurt their credit score, and if they owe more than the car’s worth, they might still have to keep making payments until the dealers sell the car.

Getting a bad car loan happens mostly for people with bad credit or who don’t research. There are several methods to get out of a bad loan. However, borrowers must research, compare the options, and determine the best according to their financial situation and what they want to achieve after getting out of the loan.