What should you do if you cannot pay the debt of the vehicle you purchased? Step by step things to do
These days having a car is not a luxury but a necessity, but if to acquire it you become indebted and arrive at a situation of not being able to fulfill the payments, the safest thing is that the bank will end up seizing the good, and your credit report will remain negatively affected. But the good news is that the embargo is the last option, since there are other alternatives that you can take.
• Change the car
The first option is to contact the dealer where you bought the car to see the possibility of changing it for another lower cost.
This is a good option as long as the balance of the debt is less than the value of the car. But considering that the cars depreciate very quickly, in many cases the balance of the debt is greater than the value of the car, and if so, you will have to pay the difference.
For example, if as a result of depreciation the value of the car is $ 15,000 and the outstanding debt is $ 18,000, you will have to pay $ 3,000.
• Modify the loan
The modification consists in contacting the lender to request changes in the terms of the loan such as reducing the interest rate, extending the term, and thus reducing the payment installments.
It is a process that can benefit you because it allows you to stay with the car and reduce costs. At the same time the lender benefits because the costs of seizing the vehicle will be avoided.
Through a refinance you can extend the term of the loan and access to lower payment installments. Another benefit is accessing a lower interest rate, reducing the financial costs of the debt. Unlike the modification, the refinancing replaces the existing debt with a new debt.
• Sell the car
You can put the car on sale and use the money to pay off the debt. If the value of the car is less than the balance of the debt, you can get a loan to pay the difference. For example, if you sell the car for $ 15,000 and the debt is $ 18,000, the difference of $ 3,000 can be settled through a personal loan.
If you plan to use your credit card you must be careful because if you withdraw cash the debt can become unpayable. Better contact the issuing bank and ask if they have offers to transfer balances and how much is the rate and the interest rate. Balance transfers are a very cheap and easy way to access loans, as long as they are done correctly.
• Transfer the debt to a third person
You can find a person to take on the debt and keep the car. The process is very simple. You only have to contact the lender to start the process that involves verifying that the person who is going to assume the debt is able to make the payments, so they will analyze your financial information and credit.
If everything is in accordance with your credit parameters, the lender will send the new owner a new loan agreement detailing the terms such as the interest rate, the payment installments, and the term that remains.
• Avoiding falling into arrears
To reduce the chances of default, before buying a car, analyze your financial situation and make a budget for the car expenses that includes the payment, maintenance, and insurance fee.
Try not to allocate more than 18% of your monthly income to the total expense for the car. If after buying the car your financial situation changes and the car expenses exceed the limit, it would be good to consider exchanging it for a cheaper one that you can pay in a period no longer than 36 months.