A car loan with a sky-high interest rate or a balance higher than the car's value can bury a consumer's finances. The loan can put a strain on making timely payments on other bills, and a consumer could be just one missed paycheck away from a serious financial problem. Fortunately, there are several strategies you can employ to help pay down the loan or get out the debt altogether.
Bankruptcy
If your awful car loan is symptomatic of a greater financial catastrophe, a way out may be bankruptcy. Chapter 13 bankruptcy can allow you to restructure your debts, pay them down over three to five years and retain your assets after completing the repayment plan. You must meet certain eligibility criteria for Chapter 13 bankruptcy, such as a steady source of income, full disclosure of your debts to the court, and successful completion of courses in credit management.
Pay Down and Trade
You may need to budget your money for a while to make timely payments on your car loan until your balance is on an even keel with the vehicle's fair market value. Once the loan balance equals the value of the vehicle, trade it in when purchasing a new car. The trade-in value should pay off the balance of your loan and give you a new set of wheels. Review the terms of your new car loan closely to make certain it won't put you in the same financial hole as before.
Refinance
Refinancing your car loan may be a way to lower payments and make them more manageable for your budget. Before contacting your lender with a refinancing request, you should have a history of timely payments on the loan. This helps put your lender at ease because he knows you've been responsible with payments in the past and are likely to continue doing so in the future. Your lender isn't required to refinance your auto loan, and he may choose not to because of the profit gained from a higher-interest loan.
Negotiate a New Payment Plan
Your lender may be open to negotiating a new payment plan on your auto loan if you can carefully explain your financial situation. You must do more than simply claim you cannot make the current payments -- that will make your lender more inclined to send your loan to collections. Come prepared with your financial records and proof of other debts to show your lender that a new plan can help you make the payments and ensure full payment to your lender.
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