Paying off a regular auto loan early reduces interest charges from your loan account, possibly saving you thousands of dollars. If you're purchasing a leased car from the bank, it might accept a reasonable offer instead of your lease buyout amount. Balances due for repossessed vehicle loans are often negotiable, although settling the balance causes tax issues.
Auto Loan Negotiations
A bank isn't likely to negotiate the actual payoff amount of your car loan, although your future interest charges are subtracted from your payoff amount. Otherwise, the bank loses money if it negotiates the loan's principal balance. When you purchased the car, the bank paid out the original loan amount, and since it can legally collect the balance due, most banks won't negotiate. If your bank charges early payoff penalty fees and you don't plan to refinance, offer to pay the balance in full if it reduces the charges.
Another Negotiation Option
If you plan to finance another loan through the same bank, try to negotiate better terms for your next loan. Talk to a lending representative to find out current rates for a new loan. Submit an application to find out your approved interest rate. Let the lender know that you plan to pay off your old loan and will only sign another loan if the lender reduces your approved rate. While this won't save any money on your current loan, you can at least save a few hundred dollars on your new loan.
Repossessions
Banks often negotiate the balance due on an auto loan after a repossession. When a bank repossesses a vehicle, it sells the car shortly after to recoup some of its loss. If the car sold for less than you owed toward your loan, you must pay the leftover balance. If you pay a negotiated amount instead of the full balance, the balance is considered a settlement. The IRS considers the unpaid portion of a repossession settlement as income and charges taxes on the portion of the loan balance you didn't pay. For example, if you owe $6,000 to satisfy the repossession's loan balance but settle for $2,000, you'll pay taxes on $4,000.
Lease Considerations
Your leasing bank may negotiate with you to lower your purchase price. Leased vehicles are often sold at auctions, which yield wholesale values. Wholesale values are the lowest of all vehicle values. Check the current value of your car using appraisal websites, such as NADA Guides (nadaguides.com) or Edmunds.com. Compare your vehicle's trade-in value, which is the same as wholesale value, to its private sale value. If the car's wholesale value is less than its private sale value, use the wholesale amount as your starting point for negotiations.
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