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Will settling car loan kill credit score?

Tara Baukus MelloQuestionDear Driving for Dollars,
I've been having trouble making my payments on my car loan, and my bank has offered me a settlement plan. If I take that offer, will it damage my credit?
-- Cynthia

AnswerDear Cynthia,
Yes, settling car loan debt lowers your credit scores, though it will typically cause your score to drop fewer points than a car repossession would. Remember that your credit score already may have dropped due to late or missed payments, and it will continue to decline the longer you have financial trouble. So agreeing to the settlement and then taking measures to restore your credit may be your best choice.

One important thing to note is when all or part of a debt is forgiven, that amount is usually considered taxable income, so you may find that you'll pay higher taxes as a result.

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If you have a car question, email it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories. Follow her on Facebook here or on Twitter @SheDrives.
 

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

 

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