Delay New Car If You Have Negative Equity
It is especially important to try delaying the purchase of your next car if youre upside-down on the loan for your current car, multiple experts say. Sometimes you just need another car. Perhaps you got into an accident and totaled your old car, or maybe a major life event like loss of a job, health problems, or the birth of a child means you need a smaller or larger vehicle.
But if you can wait until you have positive equity on your existing loan, youre much less likely to be upside-down on the new one, which experts say is a bad place to be.
Gillis points out that if you need to unload the car quickly, or if it gets totaled in an accident, youll still have to pay off the balance of the loan, even though you no longer have the car. Salzberg says that taking on more debt when you buy a new car can affect your ability to qualify for credit cards, home loans, and other financial products.
If you must replace the car, dont feel pressured to buy a new car. A used car, even one that has some years on it, is a smarter move that can help you turn around your personal finances. Remember, cars are depreciating assets, and you dont get out of a hole by digging deeper.
What To Do If You Can’t Afford Your Car Loan Payments
During the financing process, it’s important to consider your budget to make sure you can afford the vehicle you’re buying. But financial situations can change and you may now be finding it difficult to stay on track.
If you’re having a hard time making your monthly payments, here are some potential ways out.
Tips To Help You Get Out Of A Car Loan Contract Illegally
When financing a car, your creditor retains essential rights until you fulfill your loan obligations. Your contract stipulates these rights as granted by your state laws. For example, your creditor has the right to repossess your vehicle without prior warning or going to court if youre late with car payments. The reason is that youll be in breach of your agreement.
Moreover, your creditor can also sell your automobile agreement to a third party. In that case, the law grants the new creditor similar rights to seize the vehicle as the original creditor.
But did you know that your debtholders rights may be limited? Some state enactments dictate how your financing company may repossess the car and resell it to lessen on clear your debt. If your creditor violates any of these rules, they stand to lose other rights over you. Also, they may have to compensate you for damages.
It means that you can still terminate your auto loan agreement illegally, provided its your lender committing that illegality. So, here are vital considerations if you want to learn how to get out of a car loan by cheating the process.
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Canceling A New Car Purchase Agreement With A Dealership
Car buying contracts are pretty tight and per the Consumer Law Group, canceling one once you sign on the dotted line is pretty difficult. There are a few conditions that could lead to a car buying contract being canceled. One such event is called a yo-yo sale. This is when the dealership gives you the keys and has you sign the paperwork prior to having final approval on the loan terms from a lender. If the lender doesn’t want to accept the deal, the contract is canceled.
You may be able to return your vehicle if the dealership misled you or didn’t disclose the full history of the vehicle. Other things that would be in your favor would be if the vehicle failed a safety inspection or if there was an undisclosed mechanical issue with the vehicle.
Do You Owe More On Your Auto Loan Than Your Car Is Worth
Going upside down or underwater on your auto loan happens when the market value of your vehicle is less than the amount you owe.
For example, say you still owe $30,000 on a car that youd like to sell or trade in, but the most youve been offered is $20,000. Thats $10,000 in negative equity youll have to deal with. But how?
Unfortunately, this stressful financial situation doesnt have a one-size-fits-all solution.
Car owners who are underwater may be torn between two undesirable options: making regular payments while potentially losing equity, or selling the car and eating the loss.
But those arent necessarily the only options. While repaying the full balance on your car loan may be inevitable, some ways of dealing with an upside-down car loan are better than others.
The wisest course of action may ultimately depend on your budget, your credit and the time frame in which youd ideally like to pay off the loan.
On that note, lets look at four steps that can help you determine the best option for dealing with your underwater loan.
Theres no single authoritative source when it comes to car valuation. We recommend checking more than one of the above resources to get a better idea of your cars actual value.
To determine the;loan balance, you need to subtract the amount youve already paid toward the loan from the original total;loan amount.
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Reasons For Returning A Vehicle
There are a number of reasons why you may need to return a financed vehicle. Returning a car could make sense in any of the following scenarios:
- You can no longer afford the monthly payments and want to avoid repossession.
- You purchase a new or used car only to realize shortly after that it’s a lemon.
- You believe you overpaid for the vehicle and would like to look elsewhere for a car.
- You move to a new city and no longer need the vehicle.
- You simply changed your mind about the purchase.
Trading the vehicle in for a less expensive car is something to consider if you still need a car but can’t afford the one you have. You’d still have a car loan payment. But if the vehicle is less expensive, the new payment may be more affordable for your budget than the previous one.
Consider Getting Rid Of Your Car
According to Edmunds, the best strategy for getting above water is to scrap plans for a new car and stay with the one you have. But if youve explored all other options and dont see a way to catch up with your cars depreciation, it may be time to say farewell.
If youre set on selling your car, focus on getting the highest price. This will help you cover more of your loan balance.
Detailing the car and making any necessary mechanical improvements can help bring in better offers, but if your budget is restrictive, consider at least giving it a good wash and wax.
Trading your car in for a new set of wheels may be tempting since it saves you time and hassle, but trade-ins typically bring in less than private listings.
Also, remember that youll still have to cover the balance on your current loan. Most likely that balance will be rolled into your new car loan, heightening the risk of going underwater again.
Private sellers should consider using online resources to save money and reach the widest audience of potential buyers. Consider reaching out to your personal network and posting classified ads to free online sites like Craigslist.
If a private sale isnt the right option for you, consider trading in your car that has an outstanding loan balance for a leased vehicle. That balance can be factored into the lease.
Bear in mind that, either way, youll still be responsible for covering the negative equity youve accrued.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
What Is Pcp Finance
PCP is an incredibly popular option for car finance agreements, thanks to its flexibility. You get to choose the car and decide how long you want the term to be. Under a PCP agreement, you must pay an initial deposit, then a series of monthly repayments. After these repayments end, you can choose whether you want to own the vehicle or not. If you do, then youll have to pay a balloon payment to buy the car. Once this is paid, the car is all yours. But if you dont want the car, you can hand it back. Once youve done this, you can choose to start another PCP agreement. Another option is to part exchange the car, so that you can use the equity as a deposit on a new car.
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Using A Car With Negative Equity As Trade
You can fill in the rest of that ad with the name of just about any car and just about any dealership in the U.S. and the promise will be as empty as your bank account because it promises negative equity.
The ad plays on every station in every market in America and you have to admit its enticing enough to make you stop and think about doing it. Someone else bails you out of a bad loan situation and puts you into a new car with no out-of-pocket expense. Whats not to like about that?
Heres a word of advice from car-buying experts: DONT EVEN CONSIDER IT!
Trading in a car with negative equity to take on another car loan with even more negative equity is like throwing gas on a fire because its the only liquid you had handy. You just increased the chances for a serious financial meltdown and here is an example of why.
Lets say you owe still owe $10,000 on a car that is only worth $5,000. The dealer will pay off the $5,000 difference, but then roll that amount into the loan on your next car. So, if you needed to borrow $20,000 for the new car, the dealer rolls another $5,000 into the loan to cover the cost of paying off your previous loan and now youre borrowing $25,000.
Not only will your monthly payments be higher , but you likely will be paying higher interest on the loan.
And, dont forget, youre going to add more negative equity to your situation when you calculate the 20% depreciation in value the new car will lose when you drive it off the lot.
Can I Return A Car That I Just Financed
Once you sign the contract on your car loan, its yours return policies on vehicle sales are extremely rare. In fact, theyre practically nonexistent. If buyers remorse has you racing back to the dealership less than 24 hours after striking a financing deal, youll find very little can be done to help this.
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Voluntarily Surrender The Vehicle
If you’ve defaulted on your auto loan, the lender may choose to repossess the car. The process isn’t pleasant, and it can wreck your credit score. If you want to avoid repossession, but you have no other options, you can voluntarily surrender the vehicle to your lender.
A voluntary surrender allows you to return the vehicle to your lender on your terms, and while it can damage your credit, it won’t have as big an impact as a repossession. You’ll also be able to avoid certain repossession-related costs, which lenders may choose to add to what you owe. If you feel as though this is your only option to avoid a repo, contact your lender to set up a time and a place for the vehicle to be turned in.
The Fair Credit Reporting Act
If your lender gave you higher interest rates than others or denied your application on the basis of your credit score, you have the right to a complimentary copy of your credit report from the national credit bureaus, Equifax, Experian, and TransUnion. You must check your credit history and validate its accuracies.
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How To Transfer A Car Loan
Nearly every person who owns a car has had to take out a loan to finance their purchase at one point or another. After all, most people dont have the finances to buy their vehicles outright. But what if you find yourself in the position where you are financing a car and can no longer afford to keep paying the loan? What if you want to refinance your current loan for a new agreement with better monthly payments?;
These are just some of the many situations where you may want to consider transferring a car loan. But how do you go about doing so? Lets discuss the proper steps to legally transfer your car loan and detail the process, so you know exactly what it entails.;
Remember To Retitle The Car
Getting your ex off the loan is one thing, but if youre a co-borrower, youll also need to consider whos on the title. Generally, both borrowers are listed on the car title, which might be something you want to avoid if youve split with your ex for good. If the other person is also listed on the title, they can take the car away from you and there may be little you can do about it.
Luckily, there might be an easy out for you in this case. Check the owners listed on your cars title. Specifically, look for and/or in between your names. If its an or, as in, John Doe or Jane Doe, it should only take one of you to retitle the car in your own name. But if its an and, as in John Doe and Jane Doe, both of you will need to go to your states motor vehicle department and consent to retitling the car in just one persons name.
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Loan Terms Are Getting Ridiculous
Not so long ago, a five years was the longest term available on vehicle loans. Nowadays you can get 6, 7 and even 8-year auto loans.
The reason loan terms keep getting longer;is that car buyers are focusing more on the monthly payment than the total price of the vehicle.;Auto dealerships know this and thats why they keep stretching out loan terms. People dont care too much what the vehicle costs overall so long as they can afford the payments.
Dealerships are selling loans;as much as theyre selling vehicles. Just listen to any dealership radio or television ad; they sell low payments, and low-interest.
Dont fall for it.
Thats how they get people into car loans, theyre professionals. Now keep reading, Im going to show you how to get out.
Upside down car loans
An upside down car loan is when you owe more on your vehicle than it is worth. You do not want to get yourself into this situation. Some ways that people find themselves in upside down situations include:
- Purchasing a new vehicle
- Trading in a car that you still owe money on This is a slimy tactic that dealers use to get you into a new car. Still owe money on the trade-in? No problem, they will just roll that into your new loan.
- Purchasing expensive insurance, protection or customization packages. These will not raise the value of the vehicle much and will often result in an upside-down situation.
Negotiate With Your Lender
Depending on your situation, getting out of your car loan may be overkill. Call and speak with your lender about your situation and see if you can make a deal.
For example, if your financial challenges are temporary, you may be able to negotiate a forbearance, which pauses your payments for a short period. Your lender may also offer to modify your monthly payment amount to make them more affordable until you can get back on your feet financially.
Each lender has its own policies for people experiencing financial hardship, so contact your lender to see which options are available.
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When You May Have A Case For Return
If a dealership intentionally misled you into purchasing a car, either through false advertising, failing to disclose the full price or terms of financing, or misrepresenting the accident history or condition of the vehicle, or any other form of fraud, you may have a case for returning the car for a full refund. If you believe your new car has a mechanical defect and qualifies for Virginias Lemon Law, you may also be able to return it. These situations can often be worked out directly with the dealership but, if a dealer is making it difficult for you, you may need the help of a consumer attorney.