Struggling with Car Payments? 9 Essential Steps to Take
A 2023 report from Moody’s Investors Service shows that new auto loan delinquencies are increasing. In the second quarter of 2023, the delinquency rate for new auto loans rose to 7.3%, up from 6.9% in the first quarter.
Moody’s warns that delinquencies on both auto loans and credit cards will continue to rise significantly. The report forecasts that these delinquencies will peak in 2024 as many households face ongoing economic challenges.
Delinquency can harm your credit score, affecting various aspects of your life. Fortunately, there are affordable solutions available, whether you need help due to a loss of income or unexpected costs related to your car loan.
Before taking any steps, consider contacting your lender to request a forbearance. This can give you some time to decide your next move without making rushed or emotional decisions.
### Estimate Your Vehicle’s Fair Market Value
To figure out how to get out of a car loan without damaging your credit, you first need to know your car’s worth. Websites like Kelley Blue Book (KBB) can help you determine your car’s market value by entering the make, model, and mileage of your vehicle, along with any upgrade features. KBB will then provide an estimate of your car’s value.
KBB offers both trade-in values and third-party offers, with the latter typically being higher but requiring more effort to sell. KBB can also connect you with local dealer prices, which are usually close to the trade-in value.
### Compare Prices From Companies Like Carvana
While Kelley Blue Book prices are a good guide, they are not the only option. To get real-world market prices, visit online car dealers like CarMax, Autotrader, Carvana, or Vroom. These companies can provide price quotes for your car within minutes if you provide your VIN and the car’s condition. Depending on market conditions, these quotes may be higher or lower than those from Kelley Blue Book.
One advantage of using an online company like Carvana is that they can pick up your car, saving you the hassle of visiting your lienholder or dealing with a third party. Additionally, if your car loan is causing financial stress, selling through an online company can result in quick cash, often within days, unlike the potentially lengthy process of working with a third party or bank.
### Sell Your Car
Once you know your car’s value, you can sell it if it’s worth as much or more than the loan. Cars.com suggests contacting the lienholder to discuss closing out the loan and obtaining the title to sign over to the buyer. This transaction can often be completed at the lending institution’s office.
### Allow Someone Else To Assume Your Loan
If you have negative equity in your car and selling it won’t make you any extra money, consider allowing someone else to assume the loan. Contact your lender to see if another individual can take over your loan. This person will likely need to pass a credit check and meet certain income-to-debt criteria for approval.
### Make Payments on Your Upside-Down Car Loan Until You Break Even
If you owe more on your loan than your car is worth, and selling it won’t cover the loan amount, continue making payments until you reach the break-even point. This means the amount you owe will eventually match the car’s value, making it easier to sell without financial loss.