Bills, bills, and more bills. All too often, it feels like that’s the only thing in your mailbox. And while no one looks forward to receiving bills, unfortunately, there’s no way around them. To maintain good credit and stay in good standing with various financial institutions, you must pay each bill on time.
But with COVID-19 putting many people in a financially uncertain place, making car payments on time is getting more and more difficult. For those who might be driving less in the wake of the COVID-19 pandemic, returning their car might seem like an attractive option. But if you’re financing this car with a loan or a lease, how can you return this car without incurring a penalty?
Before you return your car, it’s probably worth making sure you’re lowering your car insurance costs as much as possible. One way to find a cheaper car insurance policy is by comparing quotes on Insurify. With Insurify, you can place 10+ free car insurance quotes side by side, giving you a clear image of the car insurance landscape and finding a policy that works for your budget.
Penalties for Returning Your Financed Car
Financial difficulties can arise when you least expect them. Whether it’s a layoff or some pesky debt, you might find that your car is a frustrating expense that’s only making matters worse. Finding a cheaper car or getting rid of your vehicle altogether might be the best option. But what are the drawbacks of returning your financed car?
Before returning your car, make sure you look at your loan terms or lease agreement. In most cases, any penalties that come with returning your car will be outlined there. In the vast majority of cases, there are cancellation fees that come with getting out of a car lease or car loan before the end of the term. These vary based on your lease agreement, so be sure to give it a look.
Additionally, your credit score could be affected by returning your financed car. After all, returning this financed car tells lenders that you had difficulty paying off a car loan. Going forward, lenders may be more hesitant to give you a loan if they see your credit report and aren’t confident you’ll be able to pay off a loan fully.
Your credit report can take even more of a hit if you opt for a voluntary repossession. This is the last resort when you simply turn in your keys and accept that you won’t be able to make your payments. It doesn’t look good in the eyes of lenders, and it still could mean you’re on the hook for the rest of your loan.
You’re probably wondering how you can get out of these monthly payments without incurring hefty penalties or facing repossession. Keep in mind this won’t be easy. Cars differ from other investments in that their value tends to depreciate reasonably quickly. If you’ve been driving your vehicle for a few years now, what you owe on your car loan might exceed your car’s value. So if you return your vehicle to the dealership, you still might be on the hook for thousands of dollars—not to mention the additional cancellation fees outlined in your lease agreement.
Don’t fret just yet. Below we’ll outline a few of the ways you can lessen the financial strain of returning your car—and even lower the cost of your car payments in the first place.
Options and Alternatives to Returning Your Car
Swap your lease with someone else
Say you’ve signed a four-year lease, which will be paid off in monthly installments for the next four years. You’re no longer able to afford these payments—but maybe someone else can. In the same way that you might find a tenant to take over the rest of your apartment lease, you can also look for someone to take the reins on your car lease. Be sure to look at your lease agreement before starting this process, as there is a possibility that a lease transfer is not permitted.
This can be a great deal for both sides. If you find someone who doesn’t want to spring for a new car (and deal with a sizable down payment), taking over an existing lease can be a great idea. People who only need a car for a year or two are also good candidates for a lease takeover. To initiate such a deal, you can search online for lease swapping websites. A popular option is Swapalease, though there are several other sites out there, too. And while many include fees for a lease transfer, this fee is usually much lower than the penalty you’d face after returning your car.
Trade in your car
When you originally bought your car, you might have shelled out for a new model with all sorts of bells and whistles. Now you might regret that car purchase and wish you had opted for a cheaper option. If so, you can try to trade in your car. You might want to buy a more affordable new vehicle or even go for a used car. Keep in mind you’ll only want to trade in your car if what you owe on your loan is nearly equal to your vehicle’s value. Otherwise, you’ll have to pay the remaining balance, which can be in the thousands.
To cover this balance, consider taking out a personal loan. Ideally, this loan is one that comes with a low interest rate. You also wouldn’t want to cover this cost with a credit card, unless you’re using a credit card with an especially low interest rate.
Sell your car
Maybe you don’t need a car right now. Due to the coronavirus pandemic, you may be working from home and the kids might be learning remotely, which means you don’t have to take them to and from school for the time being. In that case, selling your car might be a feasible option. Finding buyers is easy with websites like Craigslist.
Again, you’ll want to make sure your car’s value isn’t much lower than your loan amount. To get a better idea of your vehicle’s worth, you can use a site like Edmunds to appraise it. With this knowledge in hand, you’re better prepared to communicate with a car dealer about a trade-in or speak with potential buyers about selling.
Refinance your car loan
You might be struggling with the above options because you’re hoping to hang on to your current car, or your car’s value makes it difficult to sell or trade in. If that’s the case, you’ll probably want to look into refinancing your car loan. You might be able to score a lower interest rate or extend the loan term in exchange for more affordable loan payments.
Keep in mind this isn’t always the best personal finance decision, as it puts you on the hook for the loan for a more extended period. Take stock of your financial situation and think carefully before refinancing.
Get a Cheaper Car Insurance Policy
You can reduce how much you spend on car insurance by up to 70 percent by switching to another company. Using an insurance comparison website like Insurify, you can compare insurance quotes from up to 20 different companies side by side, all in one place. Insurify also applies any discounts you may be eligible for, which will further reduce your monthly premiums. This will ease your financial burden, allowing you to allocate more toward your auto loan.
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Adjust your car insurance coverage
There’s a good chance you can find a cheaper car insurance option when you compare quotes. But if you want to lower your car insurance costs even more, you could also adjust your coverage. For instance, if you have an older car, you might want to get rid of your comprehensive and collision coverage. These coverage options make the most sense if you have a newer, high-value vehicle that you wouldn’t just replace in the event of damage.
You could also look into a usage-based insurance policy. Programs like Allstate’s Drivewise calculate your monthly premiums based on your mileage and your observance of safe driving habits. If you’re only driving a handful of times per month, it might make sense to sign up for one of these programs.
Talk to your current lender
The finance companies that extend loans understand that times are tough right now. Even with lower interest rates, many drivers have a harder time making their monthly payments. If you fall into this camp, speak with your current lender about your options. You may be able to score a loan extension, especially if you have always made your loan payments on time in the past. Remember: you’ll still have to make this payment eventually, even if your lender gives you the month off. But if you’re having some short term financial difficulties, a loan extension can be beneficial.
Find Cheap Car Insurance Within Minutes
Insurify helps you make informed, empowered decisions when it comes to car insurance. Simply answer a few questions, and you’ll gain access to free personalized quotes from a wide range of insurance companies, as well as information about useful discounts. Then, you can find the policy that works for you and quickly connect with insurance agents.