While the prospect of finally buying the are of your dreams can be thrilling, the realization that your dream car turned out to be a financial nightmare is stressful and a bit heartbreaking.
If you have come to the conclusion that the car you purchased is far more expensive than you imagined, you’re not alone. Many people purchase vehicles and then later determine that they may be in over their heads after making a few payments. So how can you get rid of an expensive auto loan when you can no longer afford your car?
Auto Loan Rates and Other Car Ownership Costs
There are so many factors that play into the cost of car ownership, there’s much more than the sticker price to consider when determining how much you can afford to spend.
First, monthly payments can vary significantly from person to person depending on the auto loan rate granted. A person with a higher credit score is probably going to obtain a lower auto loan rate than someone with poor credit.
But the auto loan rate is not the only expense a person will face in terms of car ownership. Here are a few other costs many car buyers don’t consider when purchasing their vehicle:
- Sales tax
- Annual property taxes
- Inspections and license plate/tag renewals
- Car insurance
- Vehicle maintenance
Many people are saddled with higher car ownership costs when they purchase a luxury vehicle, but the cost of just about any brand of a new car can be enough to push expenses through the roof.
According to TrueCar.com, a website that estimates the average sticker price of vehicles around the country, the average cost of a new car or light truck is $30,000. Even if you’re able to negotiate a 4 percent auto loan rate, you’re looking at more than $500 per month over a five-year term. Add in car insurance and the monthly payment of a brand new car could cost more than a mortgage.
Of course, not everyone is lucky enough to score a low interest rate. A recent Los Angeles Times article revealed that dealers can charge interest rates that surpass 30 percent — for used cars!
Unfortunately, it’s all too common that auto loan borrowers end up having their vehicles repossessed because they can no longer afford the payments. Last year, Tom Webb of Manheim, an auto auction service, estimated that 1.3 million repossessions were performed in 2011 alone.
The damage a vehicle repossession can do to a person’s credit score is nothing short of detrimental. So rather than ignore the inability to pay for a car loan, it’s better to find ways to get rid of the high auto loan rate — or the auto loan altogether.
Auto Refinance and 3 Other Ways to Drop a Costly Auto Loan
One of the best ways to get rid of a costly auto loan without opting for repossession is to attempt an auto loan refinance. To refinance your car means to basically drop your current auto loan and take on a new one, ideally at a lower rate.
This is a good option if your current auto loan rate is sky high and you believe that you can acquire a lower rate due to a qualifying factor like an improved credit score. Of course, auto refinancing is not the best option for every person, so here are additional ways to manage or get rid of the expensive auto loan payments you can no longer afford:
1. Rent Your Car
Car sharing is an option that has recently become popular for some car owners who want to make money, particularly if they don’t drive their vehicle regularly. To car share, or rent your car, usually entails signing up with an online car sharing company like RelayRides or Wheelz that helps you connect with individuals interested in paying to use your vehicle for a set period of time.
This option could help you afford your expensive car payments, but be sure to consider the risks involved, which can include car damage at the hands of the renter.
Also note that according to the Insurance Information Institute, insurance companies frown upon this practice. “If the ‘renter’ were involved in an accident, most likely the insurer would non-renew or maybe even rescind the auto policy,” Loretta Worters, an I.I.I. told the New York Times.
2. Sell Your Car
Another option to consider when attempting to get rid of your auto loan is to sell your car. By acting as a private seller, you can earn the quick cash needed to pay off your auto loan.
Even if you are unable to sell the car for as much as your loan’s value, you can pay your loan off partially then take out a personal loan to cover the difference. The amount owed on the personal loan will likely be considerably less than that of the expensive auto loan you were paying.
3. Find Someone to Take Over Payments
A third option that’s a bit more challenging is finding someone to take on your auto loan payments for you. Many people are not interested in taking over a payment, particularly if it’s a bit expensive. One way to increase your chances of finding an interested person is to advertise the proposal on a marketplace like Craigslist or eBay Motors.
There’s nothing fun about finding your dream car only to realize that you can no longer afford the payments, but it’s good to know there are other ways to get rid of the expensive auto loan you can no longer afford.