You can’t afford your monthly payment and have already applied to refinance, but it’s still too pricey. You still have options that can keep you behind the wheel — or at least reduce your payments.
Modifying your loan, selling your car or surrendering your vehicle are all ways to cut the amount you owe. However, some options may still have a negative impact on your credit. But these strategies 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. 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. It may seem like you need to trade in your car and buy from the same dealership, but you don’t. 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.
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. You will no longer be responsible for your loan, but you may continue to owe money if you’re upside-down on your loan.
Like with repossession, your lender will sell the vehicle to cover any remaining balance on your loan. If 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 than repossession. The loan won’t be reported as a default, and you won’t owe fees for towing and other repossession costs. But it is still considered a derogatory mark, according to Experian, one of the major credit bureaus. This means voluntary surrender will lower your credit score.
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 or request a longer loan term.
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.
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. So, if refinancing isn’t enough, choose a less expensive vehicle or modify your loan to keep your budget intact.