Can You Renegotiate Your Auto Loan?
By: BankingMyWay.com Staff

By BankingMyWay.com Staff
With all of the talk of mortgage loan modifications, you may be wondering if you can modify an existing car loan. If you are having trouble paying your monthly car note or you find yourself drowning in an underwater car loan, renegotiating probably sounds like a good idea.

Unfortunately though, it’s not as attractive to auto loan lenders. Most auto loan lenders will not renegotiate the terms of an existing auto loan once you signed on the dotted line. Whether you signed 24 hours ago or 24 months ago, it usually does not make a difference.

If your car loan is seriously delinquent and your car is about to be repossessed, you should contact your lender and see if you can work out an alternative payment arrangement. If you have a serious hardship like losing your job or a medical illness, some lenders will suspend your payments temporarily or make another modification. However, the lender would just stretch out the length of your loan, so in the end, you would still have to make those payments. Unless you have this type of arrangement in your loan contract (as several car loan companies are now offering), this is not very common.

One thing you can do is refinance your car loan. With interest rates at all-time lows, this can save you some money on your monthly payment. Car refinance works like a mortgage refinance by replacing an old loan with a new one. The new loan is a used car loan.

Though, when you look at the bigger picture, a car refinance is rarely a good move. In order to save real money on your monthly payments, you’ll either have to get a lower interest rate or extend the term of the loan, or both. If you only get a lower interest rate, the difference between the original interest rate and the new one needs to be significant to really show in your monthly payments. If you are refinancing from a new car loan into a used car loan, this can be difficult because used car loans tend to have higher starting interest rates than new car loans. Generally the only way to get a significantly lower rate is to have improved your credit score by a wide margin since you took out your original loan.

Extending the term on your car loan will lower the payments the most, but you’ll end up paying for it over the life of the loan. Use the Auto Loan Calculator at BankingMyWay.com to run the numbers.

Keep in mind though, this situation almost always leaves you underwater on your loan, which means you will owe more than the car is worth. This makes it difficult to sell the car later or use it for a trade-in because you will have come up with a lump sum to pay off the remainder of your loan. If you plan on driving the car for a long time and it’s worth it to you to keep it, then this may be a decent option.

If you do decide to take the refinancing path, any auto lender can handle the processes. To shop for the best rates in your area, use the Auto Loan Search Tool at BankingMyWay.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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