Car loan delinquency is not something anyone plans on, but sometimes no matter how well prepared we think we are, things can take a downward turn. Defaulting on loan payments has a seriously negative effect on your credit report and in turn, your capacity for borrowing money in the future. Further, your vehicle may be repossessed.
Of course, the greatest way to avoid defaulting on your payments is to ensure from the get-go that your car loan repayments are affordable, but who knows what life might throw at you in the meantime? Here are four tips to help avoid delinquency if your car loan is pulling up to a dangerous place.
1. Speak with your lender.
Repossessing a car is actually a big task for the lender, and this is why touching base with them before your loan goes into default is a sound option. Now, we're not guaranteeing that every lender will cheerily look after you, but by explaining your situation and concerns, there are a few ways your lender might be able to help. You may be able to renegotiate the loan terms to a lower car loan rate, or refinance to a new, longer loan with a repayment schedule that's more manageable. In some cases you may also be able to defer a payment by up to 30 days. This can be hugely beneficial if your financial issues are temporary.
2. Sell the car.
This one is slightly tricker. Cars depreciate fast. There is that old corker of a saying, "a new car loses 11 per cent of its value as soon as you drive it off the lot." This is a concern, however second-hand cars tend to depreciate slightly slower (depending of course on the model and condition). If you can sell the car to pay off all, or at least most of, the debt you have against it, this can be a good way of avoiding delinquency and closing a loan you can't afford.
3. Try to save money in other areas.
Beyond Bank firmly recommends that you create a comprehensive budget before committing to any sort of financing. In this case, you should have a clear example of your finances. If you didn't do this prior to attaining the car loan, now is the time. By working out exactly what's coming in and going out every month, you may be able to identify areas of your spending that can be cut back. Whether this means one less coffee every day, skipping the vacation on the next long weekend or even switching to a cheaper brand of breakfast cereal, freed up funds can go towards your car loan which may keep you from teetering into delinquency.
4. Speak to a credit counsellor or financial specialist.
A credit counsellor is a trained professional in consumer finance and money management. Somewhat ironically, this is not a free service, but if you are desperate and unable to manage your finances on your own (we can't all be accountants) reaching out for some professional advice is your best bet.
5. Learn from this.
Okay. We know that the article is called "four tips." However, Beyond Bank like to go the extra mile so here's an extra 20 per cent for free: Make sure you learn from this. Even if you're otherwise financially sound and have had a spectacular run of bad luck, there is something to said for taking on finance you can manage. Always shop for the best loan, and if things do start to go pear-shaped, speak to your lender and keep them in the loop.
For more information on car loans, contact Beyond Bank today.
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