You can’t afford your monthly payment and have already applied to refinance, but it’s still too pricey. You’re not alone.

In 2021, roughly 1.5 million consumers defaulted on their auto loans, according to Cox Automotive. But you don’t have to face the same fate. There are options available to reduce your monthly payments and help keep you behind the wheel.

Modifying your loan, selling your car or surrendering your vehicle are all ways to cut the amount you owe. Although some of these strategies may negatively affect your credit, they can help you save money when refinancing isn’t an option.

Talk to your lender about modifying your loan

If your monthly payment is too high, reach out to the provider your loan is with. Lenders don’t want you to fall behind on payments, and yours may be willing to adjust the terms of your loan to accommodate your needs. By changing your due date or adjusting your interest rate, you may find that your payments are more affordable.

You can also opt to defer your auto loan payments for a few months. Most lenders have this option if you lose your job or fall on other financial difficulties. It can make payments more manageable in the short term but be aware that you’ll still have to catch up eventually — with added interest.

Repossession is a lengthy and expensive process. And while some lenders may not be willing to budge, you may receive some payment assistance if you ask.

Trade in the car

Almost every dealership offers trade-in deals. Furthermore, you’re not required to trade in your car and buy a new one from the same dealership. You are able to — and should — get quotes from multiple dealerships when you’re looking to sell.

If you need to get a less expensive car, you can trade in your current ride first. You may be able to cover a sizable portion of your loan while also reducing your monthly payment. But before you begin the trade-in process, make sure you aren’t upside-down on your loan. This could leave you responsible for negative equity even if you switch to a more affordable vehicle.

Sell the car privately

While you are researching trade-in options, look into private sales as well. Depending on the age and condition of your car, you may be able to find a good buyer. And given the competitive nature of the current used car market, you’ll likely get top dollar for your ride. The average selling price for used cars was $28,219 in July — roughly 1 percent higher than a year ago — according to Kelley Blue Book.

Like trading in at a dealership, a private sale can help you borrow less on your next vehicle. A private seller may also be willing to pay more than a dealership, which could mean more money in your pocket. This way, you can focus on keeping your monthly payment as low as possible.

But private sales are more complex when you have an existing loan. You will need to transfer the loan to the new buyer, sell the car for the loan’s value or be stuck paying money for a car you no longer own.

Transfer the loan to someone else

To transfer your auto loan, the other person will need a stable income and a solid credit score. Otherwise, they are unlikely to qualify. Once the loan is transferred, you won’t be responsible for payments. You also won’t be the sole owner of the vehicle once the loan is paid off.

This is also assuming the transfer is possible under your loan contract. Even if you have someone willing to take on your debt, your lender may not allow you to transfer your loan.

Instead, consider reapplying for refinance with a cosigner. You will both be responsible for the loan and listed on the vehicle’s title. With a cosigner, you may qualify for a lower interest rate or better repayment terms. It could be the advantage you need to make your payments more affordable.

Voluntarily surrender the car

If you have exhausted other options, consider voluntary surrender. Tell your lender that you can’t make payments and want to give back your car.

Like with repossession, your lender will sell the vehicle to cover any remaining balance on your
loan. If you’re upside-down on the loan at the time or surrender or the sale doesn’t cover what you owe, you will need to pay the difference along with any late fees you have accumulated.

Voluntary surrender is better for your credit than repossession. The loan won’t be reported as a default, and you won’t owe fees for towing and other repossession costs. Still, it results in a derogatory mark that will lower your credit score, according to Experian, one of the major credit bureaus.

How to lower the cost of refinancing

Aside from applying with a cosigner, there are two ways to get a better loan when you refinance:

  • Improve your credit score. If you can cut back on other expenses, refinancing when your credit score has improved is your best bet. You will likely qualify for a lower interest rate. That means lower monthly payments and better terms. It also means less interest paid overall, which can benefit your future finances.
  • Request a longer loan term. If you can’t cut back, consider requesting a longer loan term. You will end up paying more interest over the course of your loan, but it is a fast way to reduce the month-to-month cost.

The bottom line

In an ideal world, you should spend no more than 25 percent of your household income on car costs. If you’re spending more than this amount and refinancing is too costly, consider reaching out to your lender to request a modification of the loan agreement. Or you can swap your current ride for a more affordable one by trading it in, selling it privately, transferring the loan to someone else or through a voluntary surrender.

Before moving forward, evaluate the benefits and drawbacks of each option. The one you select should make financial sense and help keep your budget intact.

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