The rising cost of living has been putting pressure on households and it’s seen many people looking at ways to save money. One of the biggest expenses people face outside of their mortgage is the cost of buying and owning a car. These days it’s not uncommon for car loans to run into the hundreds of thousands of dollars.
Here are some steps you can take if you find yourself in a position where you are unable to make your car loan payments.
Assess Your Finances
The first step if you’re struggling with your car repayments is to take stock of your finances. It’s vital that you have a clear understanding of your monthly expenses and income. Make a budget to find out where you stand financially and where your money is going every month. If you have the scope in your budget to pay your loans, it’s worth continuing to make those repayments, but you can also assess your options.
Talk to Your Lender
Contrary to what many believe, lenders actually do want to help borrowers who are struggling with their loans. Contact your lender as soon as possible if you think you may fall behind on your repayments and discuss your options. You may be able to negotiate extra time to repay the loan, or reduce your repayments based on what you can afford. Your lender may even offer you a repayment holiday to give you a few months to get back on track.
Renegotiate Your Car Loan
If taking a break on the loan won’t help, it may be worth talking to your lender about renegotiating. You may be able to negotiate a lower interest rate on your loan, which will result in lower repayments over the length of your loan, giving you more wiggle room in your budget. Alternatively, your lender may allow you to extend your loan term, which will also result in lower monthly payments.
Refinance Your Car Loan
By comparing your options, you might find you can get a better deal on your car loan by refinancing with another lender. However, before you do, you need to consider your ability to get approved for a loan, as your credit score may now be lower than when you first applied for your car loan. Additionally, exiting your current loan early may result in early exit fees, which could be expensive. You need to factor this into your decision to refinance and make sure it is cost-effective in the long run.
The most important thing to do if you fall behind on your repayments is to be proactive. It’s unlikely your financial situation will improve if you ignore it, so if you are struggling to make loan repayments, speak to your lender, and assess your financial situation to determine the best course of action. Remember, communication is key, and mostly all lenders are willing to help borrowers who are going through tough times.