How to get out of an auto loan
It's possible to get out of an auto loan before the end of its term, because this type of financing is usually repayable at any time without penalty.
Whether it's because of a high interest rate, financial problems or changes in your lifestyle, getting out of a car loan sometimes makes sense. For example, if your 2nd Chance Credit sports car is costing you a small fortune in interest and maintenance, this strategy will seriously improve your month end, your sleep, and your long-term financial health.
The simplest and most common way to get out of an auto loan is to trade in your current vehicle for another one to obtain new, more favourable financing and a vehicle that better suits your needs. However, this option is only possible and profitable if your credit rating is good or has improved since you obtained your loan. For example, if your loan was obtained through 2nd Chance Credit, it's important to have made all of your payments on time for about two years. In this case, your credit score will have improved significantly and you'll be able to obtain new financing on more favourable terms. If you haven't strictly adhered to the repayment terms, new financing will be just as difficult or even harder to obtain.
The case of the Balloon
The most common problem with a trade-in is the famous "balloon," or negative equity. This means that the value of your vehicle is less than the balance of your loan. For example, if the loan balance is $16,000 and the vehicle value is $12,000, the balloon is $4,000. The common solution to this problem is to defer the amount of this $4,000 balloon to the financing of your new vehicle. This is legal, but controversial. In general, a new or recently purchased vehicle with a good warranty will make it possible to manage a balloon if it is not excessive.
A Successful Trade-in
To ensure that your trade-in is both financially and practically advantageous, we recommend that you consult a credit analyst at a reputable dealership. Auto loans are his specialty, and he does them every day. The analyst will quickly understand your situation and help you achieve your goals quickly and easily.
We wish you a safe journey!