What Happens If You Crash A Financed Car

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For many people, a car provides essential transportation to work, school or other daily necessities. But if you’re having trouble making your payments, you may be wondering how to get out of a loan.

What Happens If You Crash A Financed Car

There are several options you can consider, including selling your car, working with your current lender, and refinancing your auto loan. But before getting into one of these paths, it’s important to understand how each works and how it affects your finances and credit.

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A car loan is a secured installment loan that you can use to buy a car. The car itself is used as collateral for the loan, which means that if you stop making payments, the lender can re-possess the car to get the loan amount back.

Since a car loan is an installment loan, the borrower pays equal monthly installments until the loan is fully paid off. Auto loan repayment terms range from 12 months to 84 months, but the average maturity is around 72 months for new cars and 65 months for used cars.

Auto loan interest rates depend on your credit score, income, and other factors and apply throughout the loan term. When you borrow money to buy a car, the lender calculates how much you have to pay each month in principal and interest to reach zero balance at the end of the repayment plan. A lower interest rate can help reduce the amount you have to pay.

You can get a car loan from many places. Banks, credit unions, and auto manufacturers are the most common sources of auto loans. You can even get financing directly from the dealer (“buy here, pay here”), but that’s usually not a good option. In some cases, you can apply directly to a lender for a loan, while in other cases, your lender can arrange financing on your behalf.

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During the financing process, it is important to consider your budget so that you can afford the vehicle you will buy. However, financial circumstances may change and you may find it difficult to stay on the right track at the moment.

Getting rid of your mode of transportation isn’t ideal, but you can still lose your car if you don’t stick to your reimbursement plan. By selling it, you control the entire process and can get enough cash to cover the down payment on a cheaper car on sale.

Alternatively, you can visit a dealership to see if you can trade in your car to pay part of the purchase price for a cheaper car. Note that you will usually earn less from a trade than from selling your car to a private party.

Depending on your situation, getting out of a car loan can be overkill. Call your lender and talk about your situation and see if you can come to an agreement.

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For example, if your financial difficulties are temporary, you can negotiate a grace period that briefly suspends your payments. Your lender may also offer to change your monthly payment to make it more affordable until you’re back on your feet financially.

Each lender has their own policies for people in financial distress, so contact your lender to see what options are available.

Refinancing your car loan can help in a number of ways. First, if your credit score goes up or market rates go down, you might get a lower rate than what you’re currently paying, which will lower your payments.

Second, you can refinance a loan with a longer repayment period. Spreading your payments over longer maturities will make your payments more affordable each month. But at the same time, you pay more over the life of the loan.

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When it comes to refinancing your auto loan, you’ll want to shop for the best rates to get the most out of your financing payments. Also, consider the possible fee costs associated with new loans, government paperwork, and whether your existing loan has prepaid fees if you repay the loan early.

If you default on your car loan, the lender can choose to buy back the car. The process is not pleasant and can ruin your credit score. If you want to avoid foreclosure but have no other choice, you can voluntarily hand over the car to the lender.

Voluntary surrender allows you to return the car to the lender on your own terms, and while it will damage your credit, it won’t have as much of an impact as a rollback. You will also avoid certain repossession-related fees that lenders may choose to add to your debt. If you think this is the only option to avoid a buyback, contact your lender to arrange the time and place to return your vehicle.

The way you exit your auto loan can affect your loan, depending largely on the path you choose:

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Automatic credit reversal happens when you owe more than the car is worth. Also known as underwater or negative equality.

If your car loan is bought back and sold, refinanced or voluntarily abandoned, you may have to pay the lender the difference between the value of the car and the outstanding loan amount. If you are already struggling with payments, this payment could make things worse for you.

If you already have a car loan, there’s probably not much you can do. But there are several ways to avoid this:

If you have a tight budget and cannot afford a car, your current situation and needs may be your primary concern. But it’s also important to consider the potential long-term consequences of surrendering or re-owning the car.

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As you evaluate your options for getting out of auto loan, make sure you understand how they can affect your credit and how you can minimize that impact. You can get a free credit report from three major credit bureaus at AnnualCreditReport.com. You can also get free credit reports and scores directly at. Or consider using your account to monitor your credit score so you always know where you are and keep track of fluctuations so you can troubleshoot potential issues as they arise.

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