If you’ve recently purchased a car, you may find that you are paying ridiculous amounts of money to finance your purchase. Thousands of car owners from around the country come to the realization that they were convinced to purchase a car on extremely unfavorable finance terms. There a variety of reasons that this happens, sometimes it’s because of your credit history, other times because of salesmen that convince you to finance your vehicle in house. Either way, you’re probably wondering – how do I get out of a car loan?
Fortunately, there is a way to get out of your current finance agreement – refinancing. Thousands of car owners refinance their car loans every year to help reduce their debt burdens – interest rates may seem like small numbers, but they build up overtime and have a serious impact on your financial viability as an individual.
This article is a comprehensive guide on what you should to if you want to get out of your current car loan. It will provide you with all the tools you need to figure out how to get out of a bad car loan. In addition, it provides short reviews of a number of refinancing companies that have great track records with helping individuals escape the grasps of their current financing agreements.
How to Get Out of a Car Loan Early: The First Step
The first step you should take when figuring out how to get out of a car loan contract is to determine if refinancing is worth your time. You may feel that you are paying too much for your current vehicle financing, but that doesn’t mean you are when you compare it to the market. Find your loan agreement and determine the interest rate you are paying on your current financing agreement – your loan should consist of three different components:
- The Term: This is the total time that the loan will take to pay off.
- Principal Amount: This is how much you borrowed from your lender when you purchased your vehicle – if you provided upfront capital it won’t be the total value of the vehicle.
- Interest – The rate you have to pay to the lender for lending you the money.
Have a look at your interest rate and determine how much you are paying. Once you understand your financial liability, head online and look at what other lenders are offering prospective clients for refinancing. If you see there is a significant difference, there is a high chance you have a loan that is costing you too much money. This may be because you have a poor credit score and therefore get offered money at a worse rate, but it could also be because you chose a lender that was
Once you have determined if you believe that you are paying too much money, you have two forms of refinancing you can choose from: interest reduction or term adjustment. Refinancing is effectively the process of receiving a separate, better loan to pay off your current financial agreement. Because you are receiving additional finance, your credit score will come into play when determining what you are eligible for. The two different forms of refinancing for car loans are provided below:
- Interest Reduction – This is the most popular form of refinance. You apply for a separate car loan that will cover your current debt, and then begin paying back your new loan at a much reduced rate. This means that your payments will be reduced and your overall debt will also be reduced in the long term – you will be paying back less money over the term of the loan.
- Term Adjustment – If you don’t think that you can get a lower interest rate, but you have a loan that has payments you can’t afford. Some lenders will change the term of your loan which will extend your liability in terms of time, but will reduce your monthly payments as they spread your debt over a longer period of time. This is a great choice for those who have a good interest rate, but still can’t afford their payments.
Keep in mind that some lenders will allow you to do a combination of these two offers if you are eligible for refinancing – it can be a good choice if your situation calls for it. This being said, you must remember that if you adjust the term of your car, you will be prolonging the amount of time that you are in debt, which may not be the route that you want to take.
Advantages of Refinancing
There are many advantages to refinancing your current car loan if you can’t afford your payments. The most popular ones are listed below:
- Save Money – The most obvious advantage is that you will save money over the long run, which will enhance you financial standing. This will also give you the peace-of-mind that you are not overpaying for something.
- Avoid Default – One of the last things you want is to default on a car loan. This will stay on your record for a minimum for seven years, which is a nightmare if you want to attain finance in the future. If you think that you are at risk for defaulting on your loan because of current payment terms, refinancing may be a necessity.
Disadvantages of Refinancing
Despite the obvious advantages of refinancing, there are a few disadvantages as well. It’s important to consider these disadvantages when you’re determining if refinancing is right for you.
- Credit Check – If you do decide to refinance your car, many lenders will put a credit check on your record to determine if you are eligible. This means that you may end up damaging your credit score without even being able to refinance.
- Additional Loan on Report – Refinancing will put an additional loan on your report which will have a negative impact on your credit score. Lenders may look unfavorable on people who have refinancing reports on your score, as it shows that you haven’t been able to manage your debt. It must be said that this is still much, much better than a default on your record.
Leading Refinance Providers for Car Loans
If you do decide that you want to escape your car loan, there are a wealth of different choices when it comes to refinancing. Depending on what you are looking for in a new financing deal, there will be different lenders that are best suited to your situation. We’ve compiled a list of some of the top refinancing companies that you have to choose from. Make sure to assess the different strengths and weaknesses of each provider. Consider this guide a starting point – you should always review the most recent consumer reviews of the various lenders mentioned in order to get a deep understanding of how they treat their customers.
Autopay is one of the best car refinancing companies in the United States. Unlike many refinancing companies, Autopay functions as an intermediary between you and car re-financiers. They provide quotes to individuals living in all 50 states of the country. You simply head to their website to fill in an online survey which will then present you with a range of different options to choose from. One of the top advantages of using Autopay is that they don’t do a hard credit check on your account, this means that your credit score won’t be impacted by asking for a quote. Given that there is no risk involved, Autopay is a good starting point for anyone that wants to get a bit more information about their options prior to deciding on whether refinancing is a good choice.
Innovative Funding Services
Innovative Funding Services (IFS) is another leading refinancing company that offers their clients a wealth of different options when it comes to getting a better deal on their financing situation. Unlike Autopay, IFS offer their clients direct financing – meaning they offer their own loans at their own interest rates. They also work with other lenders to help provide certain clients better deals. The downside of IFS is the fact that it requires a hard credit check, which will have a negative impact on your credit score in the short term. If you’re looking for a general quote, and haven’t made your mind up on whether refinancing is right for you, IFS might not be your best starting point. For those who have made their mind up, IFS offer very competitive interest rates – they’re a great option for those who want to save some money. They also let you extend the term of your loan if you feel like your current term is creating payments that are too difficult to maintain. They often help clients attain funding with five days of the initial point of contact.
MyAutoloan is another refinancing service that allows customers to be put in contact with a range of different lenders that will be able to provide them with competitive quotes. The group provides up to 20 different quotes from separate lenders, and offer their services in all but two states in the country (Alaska & Hawaii). There are no fees to submit an application, but they do a hard check on your credit which means the process isn’t entirely risk free. They have some of the quickest funding timeframes in the industry – many borrowers have access to funding within 24 hours of initial approval. They provide their clients with extremely competitive rates due to the nature of the service, you will be able to choose which loan has the best possible incentives. You can also get initial purchase car financing if you’d like to purchase a new car.
LightStream Auto Loans
LightStream Auto Loans is another one of the leading car refinancing giants on the market. They cater to a specific niche – individuals with good credit histories that want to get out of a bad car loan. If you have a solid credit score, but you were pushed into taking a car loan that has unfavorable terms, LightStream Auto Loans is one of the best options available on the market. They take a no-hassle approach that makes the process as painless as possible – their services are available in every state in the country. The lenders that use LightStream to connect with clients care very little about your car’s condition or mileage. Instead, they’re worried about your credit score and worthiness as a borrower. If you have a good credit score and don’t want to waste time, head to LightStream Auto Loans for all your refinancing needs.
RateGenius is another company that matches you with various lenders who can refinance your current car. Like LightStream Auto Loans, RateGenius works primarily with clients that have exceptional credit scores. If you’re looking to get a wide variety of quotes from lenders of all shapes and size, RateGenius is one of your best options – they work with over 140 different lenders in the United States. Like many of the other lending intermediaries that we’ve suggested, you will have to have a hard check on your credit which may be a bit of a turn off if you’re still undecided if you want to refinance. You can apply with a credit score of around 525, but most of their clients do have higher scores – the APRs available for you will depend on your specific credit history.
CarFinance.com is another large refinancing lender that provides both refinancing and traditional car loans. They provide finance directly to their clients, unlike some of the intermediaries previously mentioned in this article. They have a streamlined online process that can help clients get a quick answer when it comes to their car refinancing options. In addition, they have options for people with good, average, and bad credit – don’t let a poor credit score deter you from applying.
LendingClub is a lending intermediary that offers a wide variety of financing products. They’re famous for being one of the leading peer-to-peer private loan platforms, but they also have commercial lenders that operate on the site. In terms of refinancing for car loans, they only present offers from commercial lenders. You don’t have to pay any fees to begin getting a quote, you simply fill in an online survey which will instantly prompt an offer. They’ll give you a full breakdown on the amount of money they can help you save by refinancing your loan. There are a few requirements that you must meet in order to be eligible via LendingClub – such as your car must be no more than 10 years old. Make sure to check out their website for a full list of eligibility requirements.
OpenRoad Lending is another direct finance provider that doesn’t act as an intermediary for borrowers. They provide clients with capital to help reduce the overall payment burden throughout their loan terms. They’ve been open for around eight years and have an established presence on many consumer review sites – check out their reviews on various watchdog sites. This a great source of refinance if you have a less than average credit score, they tend to work with customers who have checkered credit histories. If you feel that you are drastically overpaying for your car finance, but many lenders won’t accept a refinance application from you, OpenRoad Lending is an awesome first stop. They’re fully accredited with the Better Business Bureau.
How to Pick the Right Lender
If you’ve had a read through all our lender reviews, you’re probably wondering how to choose the right lender for your particular situation. This can be a difficult decision, but it’s important to think critically before sending off any applications – you don’t want to have a check on your credit score negatively impact your record. That’s why it’s important to decide if car refinancing is the right decision for you prior to applying. If you want to get a better idea of quotes that you may be offered, use a service like Autopay that only does a soft check on your credit score, this way you don’t do any further damage which could prevent you from attaining finance in the future.
Next, you should read the customer reviews of each lender, especially if they’re providing direct finance. If you want a range of quotes you should opt to use an intermediary, as they will be able to provide you with competitive offers from a host of different lenders. Once you do find that you have an offer that is manageable, ask the lender for a full breakdown of costs and fees prior to agreeing to refinancing – you don’t want to get hit with charges and fees you can’t afford down the road. The online application process makes it seem as though you have to make a decision straight away, but you can call a customer service agent to get additional clarification on any refinance offer.
Alternatives to Refinancing
Now the you know how to get out of a car loan contract, you may realize that this isn’t a viable option for you. Perhaps no reduction in interest rate will be affordable, or your current credit score means that you won’t be eligible for refinancing. If you still think that you can’t afford your payments, there are a few alternatives available. Using one of these alternatives is always better than defaulting on your loan – you don’t want to put yourself in a situation where you destroy your credit score and lose your car at the same time.
- Trade In – Got to a dealership and explain your current situation, they may be able to switch your car out for you which will get you some money that you can put towards paying your loan. Tell them you’re looking for a car that will result in you receiving cash and a car for your trade in. In addition, approach the dealership that you originally purchased the car from because they may have a better understanding of your situation and want to promote your loyalty to their company.
- Sell Your Car – If you can’t afford to pay your car, you may want to sell it to a dealership or privately through the internet or classifieds in order to pay off your loan and find a much cheaper car. It may sound like a bad deal, but defaulting and damaging your credit score will result in your car being repossessed and your credit score being damaged for the foreseeable future.
- Speak to Your Lender – If you really don’t want to sell your car but you can’t seem to manage your payments, you can always attempt to speak to your lender and explain the situation you’ve been presented with. They may allow you to skip a payment which can result in you saving some money for a few months and getting you back on track. This will result in an extension on your loan term, but it may be able to help you get on your feet and make payments without risking default.
After reading this article, you should have all information you need to answer the question – how do I get out of my car loan? If you think this is a viable option for your situation, you need to sit down and research all the different car refinancing companies that are able to offer you a deal. You should also make sure not to submit applications with them unless you know they will not run a hard credit check on your report. If you can’t find this information online, call a customer representative on the phone and ask them if they run hard or soft checks during the initial application phase of the refinancing.
In addition, never pay for an application – there are too many good lenders in the market that don’t make you pay for quotes. If a company is making you pay for a quote, they are way behind the times in car refinancing – steer clear.
If you have friends or family who are wondering how to get out of a new car loan, direct them to this page so they can get a better understanding of the entire process.