When you spot financial difficulties up ahead, you must adopt a proactive stance. Dealing with a shortfall in your income before you have missed car payments will make life easier because you will seem more reliable to your creditor, making them more cooperative.The earlier you act, the better options you will have when money is short. Creditors consistently offer better interest rates to people with good payment histories, not those who may really need cheaper monthly bills. You will have to concoct a balanced mix of self confidence and necessity to convince your car loan provider, making it clear that you are reliable but that you need to reorganize your finances in order to repay your car debt.
Review Your Overall Expenditure
It goes without saying that if you are having difficulties with one aspect of your finances, it is important to look at your overall expenditure. It is often possible to make large savings by cutting out certain luxuries or by taking a different approach to the way you shop. If you haven’t done this already, do it. Some people even consider taking on part time jobs to get some extra cash. These may not be the best options for you, but they should always be kept in mind, just in case some of the other more painless options are closed to you.
Begin Communicating With Your Car Loan Provider Early
When struggling to pay for your car, get on the phone nice and early to your loan provider and ask for a reduction of your interest, to decrease your monthly payments. If you have a good payment history, this should not be too difficult to justify and it is a good place to start. Depending on how short of money you are it could make a big difference. It is also intelligent to negotiate interest rates when you are in a good position to bargain, just in case your situation makes you become less attractive in the future.
By being proactive early, you could save yourself a fair bit of money later on.
When Speaking to Your Car Loan Provider Remember the Following:
- Always be civil but firm.
- Ask to be put through to a supervisor.
- Explain that you are happy with the service but need to cut back your expenses.
- Explain that you have been offered better deals.
- If you are not successful the first time, persist, particularly if you have had other offers.
The Options You Can Discuss With Your Car Loan Provider
A loan extension will let you make lower monthly car payments. This will cost you more money in the long run but could make a very big difference on a monthly basis. Again, you should try to negotiate it before you have missed payments.
If you have a short term cash flow problem, you can ask if you can make interest-only payments for a few months, but expect to have to pay a lump sum at the end to make it up.RefinancingIf your lender won’t offer you a new deal, you may have to threaten or even (really) consider refinancing.
This is a less attractive option but one that you should nevertheless consider if your car loan provider does not cooperate. Often, you have to pay a penalty for refinancing, so find out if you do, and write down what that penalty amount is.
Find Alternative Loan Providers
Compare and contact alternative loan providers to find out what different options are open to you. When interest rates are low you could find some really good options, but conversely, there may be less companies out there who are willing to stick their necks out. Its a double-edged sword and this will mean more work during this time.
Providing that your credit rating is OK, you should be able to get other offers. Once you have them, call your loan provider once again. Ask to be put through to a supervisor and explain that you have a better offer from ‘such and such’ and that unless they are able to match it or at least get closer to it, you’ll be forced to take your business to them. Your first call may not be fruitful, don’t take it as a final outcome though, contact them some days later and try again. You should be obstinate and call back and talk to a supervisor at least four or five times, you never know when you’ll speak to a more cooperative person.
Coming to an Agreement
During the negotiation process, take notes on the new car loan repayment plan that has been agreed, whom you have spoken to, when you have spoken to them and include the time and date.
Once an agreement is made, insist on getting a written statement of any changes made. The written statement should include the company’s letterhead. If it is easier, get the changes stated on your next bill. Having this in written form will provide a legal record of the proceedings which you may need later on, if the loan provider does not amend the payment plan as agreed.
You should ensure that whatever the car payment plan you agree to, it is not too much for you. It is very important to keep up all payments on an agreed alternative payment plan. Negotiate as hard as is necessary to achieve the payment plan that you need.
If after two years of paying a $20,000, 4 year loan at 7% you refinanced with another 4 year loan at 7% for the remaining balance ($10,697), your monthly payment would decrease from $478.92 to $256.15, a savings of over $200 a month. The same result can be achieved with a loan modification if your current lender is willing to extend your loan and lower your monthly payment.
If you cannot get a better deal from your loan provider, consider your options with other companies. Weigh up any penalties with the benefits gained from moving the debt to them too though. There may be some big gains available here in any case.
A Chapter 13 Bankruptcy
If none of the above options will do, or if they are not available, you may have to consider selling your car, or under very particular circumstances you could consider a chapter 13 bankruptcy agreement on the loan.
A bankruptcy should always be your last resort, used only when you need to protect property from creditors if you don’t have any chance of agreeing a payment plan, AND when you don’t plan on using credit in the near future. A chapter 13 Bankruptcy will stay on your credit report for six years and will make future credit difficult and/or expensive.
If your loan provider will forgive any part of the loan, it could mean that the IRS will almost certainly consider the forgiven amount income, and tax you for it. Forgiven car loans are generally included in your taxes, except under very particular circumstances.
If you cannot get an alternative payment plan from your loan provider or from anyone else and chapter 13 does not fit in or you can do without your car, you should consider selling it.
Changing the Car for a Cheaper One
If you simply cannot make your car payments and you are going to lose the car anyway, you should sell the car privately to get as much as possible for it, then pay off the loan as cleanly as possible. Once a car is repossessed, it is usually auctioned off, this way cars often sell for just a fraction of their resale value. If your car sells for less than your loan balance, you will owe the lender the difference. This is known as a “deficiency balance.” It would leave you without a car and with the need to work out some sort of payment plan for the outstanding value of the loan.
Car loans are difficult customers, you must consider what your needs are and do your best to meet them. Take all necessary steps to reduce your payments and car debt if that is your goal, and always remember to highlight your positive aspects as a customer, and what your loan providers have to lose. Take action early, play your cards carefully and remember that as long as you appear reliable you will be seen as an asset.
Grub Street Writing and Translation: Leaving out the parts that people skip