Tuesday, December 6, 2022

How To Return A Car You Can’t Afford

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Trade In Or Sell Your Vehicle

If you have to finance a car, you cant afford it!

If you’re struggling to make your car payment, ask yourself if this is a one-time occurrencethe result of an unexpected medical bill, for exampleor if this is something that could happen again.

If it’s the latter, your safest bet might be to get rid of the vehicle. You could either trade it in for something more affordable, or sell it and buy a used vehicle so you can avoid having a car payment altogether.

Before going this route, however, you’ll need to ask yourself two questions: How much is your car worth? And how much do you still owe on it?

If your car is worth more than you owe, you have “equity”and could sell it to get yourself out of debt. Since private buyers generally pay the most, you could give yourself time to find one by asking your lender for a deferral, as outlined above.

Or, if you’re in a rush and looking for an easy way out, consider working with a dealership or a site like Carvana or Carmax. When you don’t have the title in hand, this is often the most painless route.

When you have equity, selling your car is one of the best solutions because 1) you could walk away with a few thousand dollars that allows you to purchase another, more affordable vehicle, and 2) you’ll pay off the loan on time, meaning you won’t incur any damage to your credit scores.

How To Give A Vehicle Back To The Bank

Youre free to drive your car as you please, customize it to your specifications, and its you who pays for the vehicles gasoline, but until you make the final payment to your auto lender, you dont own your car free and clear. The lenders lien against the vehicle gives it the right to repossess your car if you start missing payments. The lender then sells the car in an effort to minimize its losses.

Losing your car to repossession, however, doesnt mean your dealings with the lender are over for good. If your lender has to repossess your car, it will charge you both repossession and towing charges. When a repossession becomes imminent, returning your vehicle to the bank yourself via a process known as voluntary repossession lowers the fees youll face after the transaction is complete.

Choosing The Type Of Vehicle To Buy

These days, nearly half of auto shoppers choose crossovers tall vehicles based on passenger cars that have an open back area rather than an enclosed trunk. Crossovers blend most of the efficiency and driving characteristics of a traditional car with a bit of the off-road and foul-weather capabilities of a four-wheel drive SUV.

If you don’t need a tall driving position and rarely travel in deep snow, a traditional car might be a better choice, however. Whether in the form of a sedan, coupe, convertible or station wagon, cars tend to be lighter and have a lower center of gravity than crossovers, which aids efficiency and handling.

Conversely, someone who regularly tows or travels on poorly-kept dirt roads might lean towards a traditional SUV or pickup, which are generally built on heavy-duty truck frames to take such abuse. Though most SUVs and pickups are gas hogs, there are a handful of efficient options, such as the hybrid version of the new Ford Maverick and diesel versions of the Ram 1500 and Chevrolet Tahoe. On top of this, a range of electric options including the Ford F-150 Lightning pickup are entering the market over the next year.

Anyone who doesn’t go off-road or tow much but does carry a lot or people or stuff should remember that minivans still exist. This oft-overlooked segment of the market is ideal for larger families and there’s a range of front- and all-wheel-drive minivan options that can seat up to eight people in car-like comfort.

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What Happens When I Miss A Payment

A lot of bad things can happen when you stop paying your car loan. Each month you miss a payment lowers your credit score. If you cant resume payments and get caught up, your car can be repossessed. Worse, you could still owe money on your former car after you no longer have it. The repercussions can stick with your credit rating for years, making it hard to borrow money again, and increasing the interest on any loan you do get.

Get A Private History Check

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Its a good idea to get a private history check on the car – this will give you valuable information about serious problems the car might have. It will cost up to £20.

It will tell you if:

  • the car has been reported stolen
  • the seller still owes money on the car
  • the car has previously been in a serious accident
  • the car is showing the correct mileage

You can get a car history check by searching online for websites that check vehicle details.

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Voluntary Repossession: Lower Cost Less Chaos

Falling behind on car payments can happen to anybody. Perhaps you lose your job or substantial expenses catch you by surprise. As soon as you realize you cannot afford your payments, it’s time to do something. If you don’t, the lender may repossess the vehicle.

When you get an auto loan, the vehicle that you purchase secures the loan and your lender can repossess the vehicle and sell it if you stop making payments. The sales proceeds go toward paying down your loan.

Taking the initiative and returning your car to your lenderalso known as a voluntary repossessionmight be a good option, but it’s important to understand how the process works before you drop off the keys.

Transferring The Car Loan To Another Person

One option that you can choose, should the cost of the loan payments become more than you can handle, is to attempt to transfer the loan to another buyer. If you manage to find a friend or family member that is able to take on the loan payments, its possible for you to get a new contract and sign it over to that person.

However, this is not always an option with some lenders, banks and financial institutions included, because their protocols for borrowers can be strict. Since the lender is already taking a financial risk when letting someone borrow from them, they might not want to take on another, in case the new signer also fails to keep up with payments.

In fact, if you dont make sure that this new borrower signs all documents over to themselves, making them legally bound to the contract in your place, you will still be held responsible should they default on the loan.

How To Transfer The Car Loan To Another Person

  • Speak To Your Lender Contact your lender and ask them if they allow car loan transfers. If they do, theyll provide you with the necessary steps and documents to fill out to complete the process.
  • Find A Suitable Buyer Finder A buyer who meets your lenders requirements. This typically means a person with good credit and overall healthy finances.
  • Transfer Ownership Of Car While transferring the car loan, you should also change the title of the car to the new buyer. This can be done by visiting your local insurance agency.
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    Pros Of Hire Purchase

    • Flexible repayment terms to help fit in with your monthly budget but the longer the term the more youll pay in interest.
    • Relatively low deposit required .
    • Fixed interest rates so you know exactly what youre paying every month for the length of the term.
    • Once youve paid half the cost of the car, you might be able to return it and not have to make any more payments.
    • If you dont have a high credit score, it might be easier to get a hire purchase than an unsecured loan, as the car is used as collateral for the loan.
    • It doesn’t usually come with milage restrictions.
    • You dont need to find a large sum to purchase the car like with PCP.

    Getting Out Of A Lease

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    If you leased a car, falling behind on payments creates an entirely different challenge, but the goal remains the same: to get out of debt without damaging your credit. A lease swap might be an option, but depending on how quickly you need to make a deal, you might have to accept that you’ll lose some of the money you paid up front.

    Websites like Swapalease.com are similar to other online classifieds, but consisting entirely of people looking to swap leaseswhether to take over a lease or get out from under one. Searchable forums include details like monthly payments, down payments, mileage, and damages, for a fully informed lease swap.

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    How Hire Purchase Works

    Usually, youll first need to put down a deposit on the car you want to buy. For most hire purchase agreements this will be 10% or more of the vehicles value.

    The rest of the value of the car will then be paid off in instalments over a period of 12 to 60 months .

    Hire purchase is arranged by the car dealer, but brokers also offer this service. The rates are often very competitive for new cars, but less so for used cars. For second-hand cars the annual percentage rate can vary from 4%8%. The lower the number the better.

    The rate could be higher for example because you dont have a good credit score. You can check your credit score for free with:

    The loan is secured against the car, which is why you cant own it until youve made your last payment, including paying the Option to Purchase fee.

    Make sure you understand the terms and conditions of your loan before signing the contract. For example, once all repayments have been made you pay a final fee, known as the Option to Purchase once youve paid this youll own the car. This is typically £100£200, but it does vary so ask how much it will be.

    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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    Don’t Get Into Financial Difficulties: Several Options Are Available If Your Circumstances Change And You Can No Longer Afford Your Payments

    Its impossible to predict whats going to happen tomorrow, let alone over the three to four years of a typical car finance agreement.

    People’s circumstances often change – especially when significant events occur, be it a marriage, a divorce, a new child arriving, or even a loss of employment. You may find that you’re no longer in a position to afford your car payments.

    In this case, its vital to take action quickly and speak to the finance company, as it may be possible to work out an affordable arrangement. Dont leave it to the last minute or start to miss your payments, or you could find it difficult and expensive to borrow money in the future.

    Its especially important to speak with your lender if you are leasing your car on a Personal Contract Hire plan. As this is a long-term rental contract that you’ll have committed to, you are in their hands and it may be difficult – and costly – to adjust your payments or end the contract early.

    Youll have more options with Personal Contract Purchase or Hire Purchase . These are finance agreements, which are more flexible, potentially enabling you to cut your monthly payments, swap your current car for a cheaper one, or give up your vehicle altogether – although you will having nothing to show for this regardless of how many monthly payments you have made.

    The options open to you will depend on your current car, the outstanding amount of finance and your financial situation. Weve listed some of the common choices below.

    What Is A Deficiency

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    If you return the car to the lender, the lender will likely sell it. It will apply the proceeds of the sale to your car loan balance, after reimbursing itself for the costs of sale and certain fees. However, often the sale proceeds aren’t enough to cover your loan balance the remainder of the loan amount is called the “deficiency.”

    The car loan lender can then demand payment of the deficiency. If you don’t pay up, it can sue you, get a judgment, and then use various collection methods, such as wage garnishment or bank levies, to get paid.

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    What If I Got Ripped Off And The Car Sale Wasnt Fair

    If you genuinely believe that youve been ripped off by the dealership with an unfair deal or find out that you paid way too much for your car, you can always try speaking with the general manager or owner of the dealership.

    Whatever you do, dont storm into the dealership screaming at the staff. Remember that dealers have no legal obligation to offer guarantees to buyers, and the promises they offer are entirely voluntary.

    They do so primarily to ensure that their customers are satisfied with their purchase. Dealers use this tactic to project trust at the point of sale, not provide a remedy once the car has left the dealership. The more respectful and reasonable you are when making your case, the more likely you will be to walk away with a happy solution.

    When you sign a sales contract, its tough to put all of the blame for a bad deal on the dealership or the salesman. Its best for you, the consumer, to do your homework before buying a car so you can be confident youre making a fair deal.

    Can I Refinance My Car Loan

    In most cases, this should be an option for anybody who owns a car loan policy. You simply need to find another lender who is willing to take over payment on the car, and who will then offer you a better deal than the one you currently have. It may not be as easy as it sounds, but it should be possible.

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    Be Up Front With The Lender

    Communication with your lender is vital and can be the difference between keeping your car and having it repossessed.

    “If a consumer isn’t able to make their loan payment, they should call their lender right away,” says Natalie M. Brown, vice president of consumer lending communications for Wells Fargo. “Customer service teams are prepared to work with customers to understand their situation and try to find options that can help.”

    The bank will want to know about the circumstances that are preventing you from making payments. If you’ve had death in the family, a layoff at work, a serious illness or other major life event that’s disrupted your finances, tell your lender.

    Some lenders will allow forbearance, or a time during which you can miss or make reduced payments until your situation is better. Some banks may even be willing to rearrange the loan terms to a payment that’s easier to manage. Keep in mind that lenders don’t want your car back and will usually only repossess it when they have exhausted other options.

    But after three months of missed payments and if you do not communicate with your lender, chances are good that a repo truck will be out looking for your car.

    Inspect The Car And Take A Test Drive

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    You should arrange to view the car in daylight, preferably when its dry – its harder to spot damage to the car if its wet. Its a good idea to meet at a private sellers house so that if something goes wrong after youve bought the car youll have a record of their address.

    The AA has a useful checklist for what to look out for when inspecting a used car and its paperwork. Make sure you ask about the cars service history.

    You should definitely take the car for a test drive. Youll need to make sure youre insured to do this.

    If you have your own car insurance, check with your insurance company to see if you can drive someone elses car. If you dont have insurance, a trader or private sellers insurance might cover you – youll need to ask them.

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    How To Return A Leased Vehicle

    If you’ve leased the car, you’re in a somewhat different situation. Obviously, you can’t sell it.You can return the vehicle to the dealer, but if it’s before the lease expires, you’ll likely face some stiff early termination fees. Plus, you will still owe the balance remaining on the lease andâto add insult to injuryâalso lose the upfront money originally paid.

    However, drivers who want out of their contract ahead of schedule can take heart: There are a few options that allow you to circumvent the usually harsh termination penalties. One frequently overlooked pathâand often the least expensive choiceâis to transfer the lease to someone else.

    It works like this. Suppose you have two years left on a three-year lease. Whoever buys your lease agrees to make the remaining monthly payments. While some finance companies donât allow such transfers, the vast majority do. The trick is finding someone interested in taking the reins from you.

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