I Can’t Afford My Payment! What Should I Do?
You may come to the realization that you cannot afford your car payment. This may be the result of a job loss or that you have determined that you want to buy a home. You may have written out your budget for the first time, and realized that you are spending too much on your car every month. You may have rolled your old car loan into a new one and driven up the cost of your car payment. If your finances change, you may be looking for a way to lower your car payment, but you need to be careful so you do not hurt your credit.
It is possible to lower the payment, but you will likely need to sell your current car and purchase a less expensive one.
Don t Turn the Car Over to the Bank
Once you have determined that you cannot afford your car you may be tempted to stop paying on it, and simply turn it back over to the bank. While this is an option, it is not a wise one. This will affect your credit negatively. Additionally this does not release you from all of the obligation on the loan. Once the bank sells the car you will end up owing the difference to the bank. The bank will come after you to make sure that they do not lose any money.
Don t Trade the Car Into the Dealer
You may decide to trade the car in for a less expensive one at the dealer. While this may lower you monthly payment, you will still have to pay back all of the money. The dealer will roll any excess that you owe on the loan into your next car loan.
This means that you will be upside down on your new car. Your payments may last a lot longer. However, it may be worth it if you can afford your car payment and pay your other bills.
Sell the Car Yourself
Your best option is to try to sell the car yourself and take out a personal loan to cover the difference in the amount you owe.
When you complete a private sell, you are able to get more for the car, than you would if you were going to sell it to a dealer. This is because you are cutting out the middleman. You may be wondering about taking out a loan in order to sell your car, but this will help you to reduce your overall debt. The interest rate on this loan will depend on your current credit score. A small bank or credit union will be more likely to issue you a personal unsecured loan at a good interest rate.
Buy a Cheap Car with Cash
When you decide to sell your current car, you will need to have enough money to pay off the remaining balance, and to be able to purchase a less expensive new car. If you are in a tight financial situation you may want to buy a car for around $1,000, because you can generally pay in cash and it frees up extra money to put towards paying the remaining balance of your car loan. Then you can save up cash to purchase a nicer used car, once you have cleaned up the financial mess you are currently in. when you buy an older car, you need to plan for extra car repairs with your emergency fund or a sinking fund. This will help you cover the costs without throwing of your attempt at clearing up the debt.
When you are looking for a car like this you will want to research the most reliable cars, and have a mechanic look over the car for you before you purchase it. You can find reliable cars at a $1,000, and most repairs are less than a car payment each month. Be sure to do your research, so you find a car that will fit your needs. You are looking more that the engine rather than the cosmetic appearance of the car. Also if you are going to be commuting look for a smaller car versus a larger SUV, which will allow you to save on fuel costs. This will give you more money to put on getting out of debt.