The credit bureau Transunion released figures which indicate that the number of auto loan delinquencies is declining even though there are more auto loans being issued. As lenders establish more careful lending patterns, delinquencies are expected to continue to fall, but where does that leave the average auto loan holder who is struggling to avoid delinquent payments?
Often people take on auto loans without researching the financial offers available first. Caught up in the excitement of driving away in their new vehicle, what can appear as a sweet deal ends up being one monthly payment too many. Those who have secured auto loans have more than just their credit scores to worry about if struggling to meet monthly car payments, as the lender has the legal right to repossess the vehicle if payments are missed. Not only will the borrower lose their vehicle but the funds already ploughed into it such as the down payment.
Although it is not good financial sense to take an extended auto loan, it may be prudent to refinance the current auto loan and extend the period if possible delinquencies loom. Borrowers can refinance their loans to extend the term of the loan and thus reduce the monthly payment due, but if they do so it is advisable to look for a finance package which does not impose any early redemption penalties or pre payment penalties. It could be that if the borrowers circumstances improve then there would be the possibility of making a payment towards the principal and thus reduce the total amount due.
Another option for reducing the auto loan payment is to move the loan from an unsecured one to a secured one, and thus receive a lower interest rate. However this could be a dangerous move for those who are feeling the pinch as the vehicle is then at risk of repossession if the new payments cannot be met. If changing the type of loan from unsecured to secured is considered, then ensure that the new monthly payment will be affordable.
If you are taking an auto loan out and worry about future payments but need access to your own transport then invest the time to research auto loan rates in advance. Don’t include any extras which you choose for the car as part of the finance deal, as it simply means you will be paying interest on the extra additions. Instead limit the finance to the cost of the actual vehicle and remember that the extra items which the dealer tries to sell you are where the most profit is made and may well not be worth the cost.
Researching rates in advance and obtaining pre approved auto loans which give you better negotiating powers with the dealer, will lessen your likelihood of future delinquencies, if you can be sure the monthly payment is affordable. If you are struggling with the current auto loan then refinancing will be the best approach to avoid delinquencies on the loan. Of course the remaining option is to sell the vehicle and repay the loan in full, and drive a cheaper vehicle in future.