One of the biggest financial decisions you’ll make is buying a car. It’s likely the second most expensive purchase you’ll ever make, after a house, and it can be tough to find extra money for a down payment.
It often makes sense to finance your car so you don’t have to come up with thousands of dollars. But sometimes, people get stuck paying on a car they no longer drive – and that costs them big time. Getting out of a car loan early is possible, but it’s not always easy. If you’re looking to escape your auto loan, here are some options to consider.
Option 1: Paying in full
The plainest way to get rid of your car loan is to pay it back in full. Banks or credit unions that finance car loans don’t offer this option, but you can set up a payment plan with your lender to pay off the loan early. The catch is that you’ll have to cover all of your monthly payments plus an additional fee for paying it off early.
Option 2: Become upside down on financing
If there’s no equity in your car – meaning its current market value is greater than what you owe – a dealer might be willing to “take over” the loan. It’s a situation where buyers have negative equity – they owe more on their car than it’s worth – and want to get out of the auto finance contract so they can turn around and sell the car.
Most dealers don’t like this option because it’s risky for them. A new buyer might not be able to afford the car, making it harder to find a trade-in. And if you have an accident shortly after your contract is switched over, the dealer could be liable for damages because they’ve technically given you another loan agreement.
Option 3: Transfer financing
If you have negative equity, but the dealership isn’t letting you go, there’s another option. You can refinance your car loan to a lender that will accept the negative equity from your old auto finance contract as part of its offer.
The catch is that a number of lenders won’t consider a transfer unless you have an impeccable credit history and score – usually 720 or higher. If your credit is good, you can refinance to a new loan with an interest rate lower than what you’re paying now. The downside here is that the new lender might charge an application fee (typically $300) and other fees for refinancing (up to $1,000).
If you’re looking for the best car loans in Australia, it’s a good idea to use a comparison website such as Drive to ensure you’re getting the best deal.
Option 4: Sell your car
If you’re still upside down on your loan, the best way to get out of it is simply to sell your car. You’ll have to pay off whatever you owe, but at least the headache will be over. Keep in mind that for a quick sale, dealerships might offer you less than what you paid for it.
