Getting a loan, when you have bad credit, has become quite easy. However, these lenders tend to be predatory. They seek out those with bad credit who are desperate for wheels. Sure, they will offer you that car or truck that you need, but they give you high-interest rates and payments that stretch your budget. In the end, you will end up paying way more for the car than it is worth. Many wonder if they can get out from under these loans without having their credit scathed even further.
Taking An In-depth Look At Your Car Loan
A car payment has three parts: principal, interest, and term. The principal is not adjusted; however, many auto refinancing companies can adjust the term or interest to reduce the payment. Look at the interest rate you are currently paying and how many months are left on the loan. If you cannot find an old statement lying around, a quick call to the lender can answer your questions. The next step is to check your credit score. Depending on where your FICO score ranks, you may qualify for a refinancing. If you lower the interest rate, you can lower your monthly car payment.
Looking At The Numbers
There are online calculators that can help you see how much you will save by refinancing. If you are curious how much you can lower your monthly payment and interest rate, then this is a good place to start. It is important to note that you must plug in the number of months remaining on the loan and not the full length of the loan from the start.
Sometimes, lowering the interest rate is not going to reduce the payment to the range it needs to be. So, you can also extend the number of months you pay for your loan. Be careful in spreading the loan out too much as you will pay more interest on the vehicle. You don’t want to be “upside down” on your loan, which is where you owe more on your car than it is worth.
When Refinancing Isn’t The Best Answer
Refinancing isn’t always the answer to a high-interest car loan. If your credit score has not improved at all, then you won’t qualify for any reduction in your interest rate. Also, those who are close to the end of their loan term won’t find much savings either. You do have the option to change the length of the loan, but that would be a last-resort. Make sure that your loan doesn’t have any prepayment penalty fees that can cost you, even more, money.
Other Options To Consider
If refinancing is not the way to go, there are some other choices you can consider. First, you can sell your car to a private party. You can advertise the car for sale as a loan payoff. If you get more than the loan amount on the vehicle, then you will have some extra cash to put in your pocket. Another choice that many people look to is selling their car on Car Max. They appraise the car, give you an offer, and they will buy it on the spot. In many cases, the offer is more than what is owed on the car. When you accept the deal, they pay off the loan and give you the difference.
Those who are having a hard time making their payments should skip a payment or two. Many lenders allow customers to pass a payment to keep them from defaulting on the loan. Use the money you save on these payments to help get back on track. Remember, they extend the loan period each time you use this process.
Remember, you can always downsize your car at the dealership and get one that is less expensive. Be careful when a dealer is trying to work financial magic on your behalf. They are just rolling the balance into a longer loan term. You must know the trade in value of your car and the retail of the car you want to buy. Read through all the fine print before signing any contracts.
Making Better Decisions
Applying to refinance your car can help you qualify for a lower interest rate. It takes about an hour to complete all the necessary paperwork. You will get numerous officers, which you will need to go through carefully. Read the consumer reviews from others who use the lender. Even if you save only $25 a month on your loan, this still equals a savings of $300 per year. Could you use some extra money to put toward other things? Refinancing is often a great choice for those who are in a bad credit auto loan and need out.