Last Updated on December 19, 2020 by Bernard Juchli
Howdy, Driver? You are here to learn how to lower car payment without refinancing? Fortunately, I have legit ways to avoid refinancing while lowering your car payment.
High car payment is a burden; you are likely going to record huge debts to purchase a car you need. To repay the debt, you have to avoid unnecessary expenses that affect your income.
Refinancing is an excellent way to reduce car payment. However, when the car payment is too high, you would have to think of alternatives to clear your debts. Since you cannot afford the car payment, what are the options available? This article guides you through lowering car payments without refinancing.
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Can I Lower My Car Payment Without Refinancing?
Yes, you can lower your car payment without refinancing. However, this treat arrives with the financial consequence(s); it exposes you to pay higher interest rates. Nonetheless, it allows you the benefit of having money to spend and invest for returns.
Several borrowers consider refinancing as a good option for a car payment. It does not deny the fact that refinancing requires complex processes and the extension of a loan term.
How to Lower Car Payment Without Refinancing
In this section, you will learn how to lower your car payment without having to refinance. Below are the ways to lower car payment without refinancing:
Request Rates Reduction
Some lenders have policies that permit borrowers to request lower rates. If a lender does not allow car payment reduction, delinquent loans will likely set in and it pleases no lender. Simply inquire about the policies of your lender regarding the vehicle. Study the systems and see if you can adjust to accommodate and agree to the terms.
Meanwhile, understand that while some lenders will lower car payment without refinancing, some others will not. The chances are generally 50/50 and you have to inquire from your lender. Boost your chances by disclosing your loan status and credit history to your lender while requesting a lower interest. It is a decent option regarding how to lower the interest rates on a car payment.
Extend Payment Timeline
Instead of worrying that my car payment is too high, I will simply extend the car payment timeline. It may not console the chances of lowering the amount without refinancing. Nonetheless, it buys time that may trigger three definite things:
- Reduction in the monthly payment.
- Lender’s payment policies may turn out to be favorable.
- You have enough time to balance debts.
However, you will have to pay an extra total interest at the end of the car repayment if you:
- Do not refinance.
- Keep the same interest rate over time.
You should be glad because you will get to invest the money you save every month. So, if the returns rate of the investment is high, it becomes easy to balance new proportions. You may as well realize surfeits.
Payment in Advance
Prepayment or cash in advance helps to lower car payment without refinancing and significantly reduces debts. Think about it; if you pay a sum higher than what is due, it lowers the principal amount. Now, divide the remaining principal amount by the timeline, and you will realize lower car payments each month.
For example, if the car is worth $25,000, you can make an upfront or down payment of $5,000. You now have $20,000 which means the principal amount is down by 20%. If the interest rate is 4% and the timeline is 60 months, you will now be paying approximately $277 monthly.
Before then, confirm whether your lender attaches a prepayment penalty. If no, you are good to go. Moreover, endeavor to channel your bonuses and surpluses to the loan to reduce monthly payments.
If I Pay Extra Car Loan, Does It Go to Principal?
Yes, it goes to the principal. It shortens the timeline for your car payment and the total interest rate during the payment timeline.
You can request your lender to suspend or reduce the car payment for a while. Although some lenders do not offer this plan, your lender likely provides room for forbearance. During the period, employ several measures to regain your financial strength and pay off the loan.
Can’t Afford Car Payment, What Are Options?
If you can’t afford a car payment, do the following:
Identify the Difference Between Loan Refinancing and Modification
Loan refinancing is when you replace an existing loan with a new loan. The new loan typically has a low-interest rate and favorable terms. Loan modification, on the other hand, is when you modify an existing mortgage into an acceptable condition within a time frame. If you have bad credit, opt for loan modification over refinancing to see off the car payment.
In truth, no lender prefers repossessing your car due to value loss. The lender, instead, prefers to restructure the loan favorably.
Understand Car Loan Modification
A loan modification is an option when you miss a car payment or make a late payment. It is an excellent option because it prevents car repossession. It is somewhat a manner of refinancing but takes place when a borrower suffers financial challenges. Car loan modification involves a simple change in the policies governing the car payment, and that is favorable.
As earlier outlined, it includes timeline extension, the reduction of interest rate, forbearance, etc. Lenders each have their conception of loan modification. While some permit, some others do not. Lenders that permit loan modification integrate financial hardship programs or plans to ease the burden for the car payment.
Is Car Loan Modification Better Option?
Figure out whether a loan modification is a good option for you to reduce car payment. The process can be tedious nonetheless, but it suits the worth.
Note: Car loan modification will be considerable for you if:
- You lose your job, or your source of income is down.
- There is car damage occurring from an accident or any disaster.
- Your vehicle loan is upside-down, which suggests that the debt is higher than the car value.
You may refer to your lender’s policies for their position regarding loan modification.
Check for Your Loan Modification Eligibility
Lenders each have requirements for borrowers to qualify for any loan modification. Find out what your lender requires and ascertain your stance. Meanwhile, you must have a clean debt repayment history.
If your repayment history is weak, the lender may not grant you the car loan modification. You should be expressive, disclose that adverse and unexpected events are the reason for your inability to repay.
For example, reveal the breakdown of your source of income, disaster, etc. These will not automatically grant your loan modification request, but increase the chances of reducing car payment.
Steps to apply for Car Loan Modification
Below are the steps to apply for a car loan modification:
Find Out Your Debt Status
You can find out your debt status by calculating your debt-to-income ratio (DIR). It is a great way to determine whether the lender will grant your request by dividing the monthly payment rate by income. If you $1,000 monthly, and your debt is $500 monthly, your DIR stands at 50% which is quite high.
In this case, you should extend the car loan timeline to reduce your monthly payment and increase DIR.
Reach Out to Your Lender
You may visit your lender’s physical office, send an email, or phone in to ask about their loan modification program. You may visit their website for information regarding the loan modification and eligibility; watch out for the FAQs.
If your lender has no loan modification plan, describe your situation to them and state why you deserve pardon. It forces the lender to allow modifications to evade any default.
Prepare Required Documentation
The lender needs evidence that your financial challenges are viable and that you do not fabricate stories. Documents that the lender require may include:
- Phone bills
- Utility bills
- Bank statements, etc.
If you have a good record in these documents, your chances of modifying car loans will increase.
Prepare Your Request Letter
On rare occasions, the lender may not request a letter after assessing your documents. It is recommendable to provide still a hardship letter stating good reasons why you can’t keep up with the car payment.
The letter must be such that it incites pity, and that would compel the lender to accept your loan modification request.
The things to outline include why your income crashed, and that your financial breakdown is viable.
You will also include the terms you require for the new loan modifications. For example, the amount you are willing to pay monthly and a new payment timeline. Just be sure to highlight terms you can cope with after the modification.
Submit the Required Documents
During the process, the lender may repossess the car while assessing your request. Prevent this by keeping up with the payment until the application is successful.
Stay in touch with the repossession team and ensure constant communication between the lender and the repossession team.
Assess Lender’s Offer
Before the lender reduces car payment, you have to agree with their terms. It is so because they may not immediately accept your terms. The lender’s offer may include a reduced fee, lower interest rates, etc.
Employ an Enhanced Financial Strategy
Endeavor to restructure your budgets after the lender accepts your request. It is especially essential when the loan modification plan is short-lived.
A loan modification is the most significant option when you can’t afford a car payment. Nevertheless, it involves tedious processes and a 50/50 chance of acceptance. That notwithstanding, if you record good financial history, it boosts your chances of loan modification. Also, lenders do not prefer car payment default as a decreased car value affects their profit.
In a nutshell, it does not end at knowing how to lower car payments without refinancing. You would have to keep your head above water and try to adapt to the changes.