When your car loan is killing you

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When you can’t afford your car payment

You lost your job, your commissions are down or maybe you single-handedly tried to help the economy by buying too much car. Then, you may be facing the dilemma of falling behind on your car loan.

Your car should only consume 15 percent to 18 percent of your income, says Cate Williams, vice president of financial literacy for the nonprofit credit counseling agency Money Management International, in Houston. That should include car payments, auto repairs and car insurance.

Since you can’t undo what’s already been done, follow these six tricks to fix your car loan.

Looking for a car loan? Check out Bankrate’s auto app for price comparisons, loan calculations and more.

The consequences of missing payments

You need to confront your car loan problem, says Eric Hoffman, spokesman for Americans Well-informed on Automobile Retailing Economics, a consumer-education organization in Washington D.C.

“It’s very hard to confront that you don’t have enough money, but if you don’t, you can compound it,” says Hoffman. “Try to make this call before you’re late with a payment or you totally miss one. This will help keep your credit in good standing.”

Auto finance companies want to work something out with you, Hoffman says. They want to avoid the cost of repossessing your car. “There’s no incentive to repossess your car because that costs the financier about $8,000,” says Hoffman.

Even if you voluntarily return the car to the finance company, it will show up as a negative on your credit report, says Williams.

You’ll need to do some research before calling your lender. According to Hoffman, you should calculate the value of your car, how much you owe on the car loan and what you can reasonably pay.

Williams recommends you prepare a complete monthly budget that includes your reliable income, expenses and other credit obligations.

“Being prepared puts you in a good negotiating position,” says Williams.

Go back to the dealer

If you originally bought the car from a dealership, contact the finance manager. Tell him or her you want to stick with the same make of car, but you’d like to trade in what you have for a less expensive model, says Lauren Fix, an automotive writer, commentator and blogger from Buffalo, N.Y., who goes by the name Car Coach on her website.

“The dealer wants you to stay with their brand and they want your loyalty,” says Fix.

In addition, some carmakers like Hyundai have a very consumer-friendly return policy. According to Hyundai’s website, if you buy or lease a Hyundai in 2010 and there’s a radical change in your income after the purchase, you can return the car within 12 months of purchase.

Refinance your car loan

Extending your car loan is a realistic way to solve the problem, says Williams. Or, you can ask your lender if it will allow you to move two payments to the end of the car loan’s term.

According to Fix, car loans can be refinanced in some cases. To see if you can get a lower interest rate than what you have now, visit Bankrate.com and see what lender is suggested. The refinance application will ask for your pretax income, your current monthly payment and the interest rate you’re now paying.

“If you owe more on the car than what it’s worth, refinancing isn’t possible,” says Fix.

Sell your car yourself

Fix says another solution is to sell the car and pay off your car loan. Try to sell it for the balance owed.

“If you’re still going to have a balance on the loan after that, putting that balance on a credit card is one of the worst situations you can put yourself in,” says Fix.

Of course, you’ll still need transportation of some sort. Fix suggests buying a used car or a scooter, taking the bus, biking or joining a ride-share program.

Have someone assume your payments

Another option, if you can swing it, is to find someone willing to assume your payments and take the car off your hands.

“Whoever assumes your loan must be deemed creditworthy by your lender,” says Williams. “To find that person, you can advertise. But be sure to check with the lender to find out what it requires and what the application process will be.”

What if you’re leasing?

Leasing is a different situation from a car loan. With leasing, you don’t have equity in the car and don’t have the right to sell it, Williams says.

“You can voluntarily give the vehicle back, but you still owe the balance on the life of the lease, which could be very expensive,” says Williams. “You’ll also lose the upfront money you put into the car like the first and last month’s payments, and pay a recapture fee.”

Once again, communication with your lender is your first line of defense. The lender might be able to find someone who can take over paymentsfor your car. You can also look for potential new leasers at Swapalease.com, a car-lease transfer website.

“If you fall behind, don’t sweep it under the rug,” says Hoffman. “Take the emotion out of the problem because everyone involved wants to work something out.”

For more car stories

For information about cars and car loans, checking out these stories at Bankrate.com: