Arizona Tribune - What Happens if You Can’t Afford Your Car Loan?

Ask your lender for a loan modification

A loan modification is a request to the lender to modify the original terms of your loan. This could mean increasing the number of months on your loan in order to lower your monthly payments or even creating a payment plan. ⁱ Lenders may be willing to do this if you've been a long-term account holder, you have good credit, or if there is a challenging economic climate. In that case, you likely won't be the only one asking for assistance.

Defer a payment to the end of the loan

Deferments can help you get your budget back on track. Many lenders allow borrowers to defer a payment to the end of the loan, essentially giving them a free month with no payment. ⁱⁱ You may only be able to do this once or your loan agreement may allow for it several times during the term of the loan. Check the fine print in your agreement or contact your lender to learn more. Don't forget to ask about any potential fees.

Refinance your original loan

While a loan modification is changing the terms of an existing loan, refinancing is taking out a new loan to pay off the old one. The new loan will ideally have better terms and a lower interest rate. Strategies for refinancing include getting a longer loan term with smaller monthly payments, although this means you'll be paying interest for longer, or getting a shorter loan term that allows you to pay the full balance off faster, although this may result in an early repayment fee. ⁱⁱⁱ

Trade in the car for something more affordable

Trading in your current car for one that's less expensive can reduce your monthly car payment and possibly lower your monthly insurance premiums. Focus on your needs rather than your wants. You can always upgrade later when your finances improve. Of course, this option may not be on the table or as desirable to your lender if you owe more on your loan than your car is worth, also known as being upside down.

Ask friends or family for help

There's nothing wrong with asking a friend or family member for financial assistance when you need it. Come in with a plan, ask with humility, and be ready to negotiate repayment terms in good faith. For the sake of your relationship, don't make any promises you won't be able to keep.

You can also see if anyone you know is interested in purchasing the car from you, although a private sale requires prior lender approval. You'll also have to pay off whatever you still owe on the loan. ^iv

Voluntarily surrender the vehicle

This option is your last resort. No one wants to give up their car. That said, it's an appealing option if the alternative is to struggle with debt you can't repay and eventually deal with repossession. Surrendering your vehicle may release you from your loan, freeing up additional funds to pay your other bills.

The downside of surrendering your car is that it will negatively impact your credit score, and you may still be responsible for paying back your lender if you owe more on your loan than what they can get for the car. ^v But surrendering your vehicle is more financially responsible than having it repossessed, and you won't incur the extra fees associated with repossession. ^vi

The bottom line

Dealing with a difficult financial situation can be overwhelming, but you're not "stuck" with a loan if you can't afford to pay it. You can ask your lender for a loan modification or deferment, refinance the original loan, trade in your car, ask friends or family for help, or voluntarily surrender the vehicle. Review your budget carefully, figure out which option is best for you, and don't be afraid to contact your lender to find out how they can help. Relief is available if you need it.

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Contact Information:

Name: Sonakshi Murze
Email: [email protected]
Job Title: Manager

SOURCE: OneMain Financial

View the original press release on ACCESS Newswire

R.Chavez--AT