How To Settle Car Finance

It’s one thing applying for a car finance and getting approval and it’s a completely different bore game altogether when you have to pay back. For this reason, I have decided to tackle this “necessary evil” and show you how to settle car finance.

Findings from a survey by the Federal Reserve in 2019 revealed that about 35% of American adults use car loans to finance their car. Additionally, an Experian study in 2020 also shows that the total car loan debt in 2019 owed by Americans stands at $1.3 trillion.

These numbers are staggering and goes to show how much Americans rely on car loans to purchase their cars and the amount of auto loans debt in the country. But its not really a big deal if you can easily and comfortably pay back your loan as agreed. That is why it is important that you continue reading this piece as I show you how to settle car finance.

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How Do I Settle My Car Finance? 

So just as there is an “out-of-court settlement in law where an agreement is reached between the parties involved to sort out a dispute or lawsuit away from the courts, a borrower and lender can also do something similar. Ordinarily, resolving the issue in the courts is the logical thing to do, however, the parties involved can sometimes come into an agreement to resolve the issue without  the court due to certain factors.

The same thing can be done in the case of loans and in this case car finance. When you go for a car loan, you enter into an agreement with the lender to make monthly payments throughout the course of the loan term till the loan is paid off. However it sometimes becomes very difficult and sometimes impossible for borrowers to follow that payment plan.

One of the options that are available to you incase you find yourself in that situation is to reach out to your lender and request for a loan settlement. In which case the lender will have to verify if indeed you cannot go by the payment plan.

The lender then arranges with you to make a lump sum payment which is usually lower than the initial amount owed. You are required to make payment within a specific time frame and once payment is done, the lender writes off the loan as settled and reports same to the credit bureaus.

Will Settling My Car Finance Affect My Credit Score? 

Yes! Settling your car finance early affects your credit score negatively. Agreeing to pay the lump sum amount against what was initially agreed upon in the loan agreement affects your credit score

Such a closure of loan is not the traditional way of closing an account hence so far as you choose to settle and your lender writes off the loan as “settled”, then be rest assured that your credit score will reduce by at least 70 points.

This then affects your credit worthiness and reduces your chances of securing loans in the future. But it can be a blessing in disguise as you wouldn’t be tied to a loan for the next couple of months or years. You can then work on building your credit score steadily.

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What To Do If You Don’t Want To Settle Your Car Finance 

As mentioned earlier, settling your car finance may not always be the best option and should infact be your last resort. Here are some options you can first explore before considering settling;

  • Speak to your lender for adjustment of the initial loan agreement. Some lenders offer room for adjustments or amendments or you can change certain details of the loan to a form that is best for you.
  • Talk to friends and loved ones to see if they can give you loans with no interest and which will not affect your credit score because it won’t be reported to any credit bureau.
  • Try as much as possible to follow the initial payment structure and pay off the loan. This then means the loan will be closed in the manner it ought to be closed hence not affecting your credit score negatively.
  • You may also consider trading in your car to a less expensive one which will then means that your monthly payments may be reduced.

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