How Can I Negotiate to Pay Off My Car Loan?

by Michael Roennevig, Demand Media Google
    Ask about early settlement fees before taking a car loan.

    Ask about early settlement fees before taking a car loan.

    It's important to read any loan agreement in full before you even think about signing it. This is especially true of car finance deals. Vehicle loans' terms and conditions can contain clauses that can make it very expensive to pay off your loan early. Due to the nature of certain types of car financing agreements, there's little chance you'll be able to negotiate any money off.

    Penalties

    It's possible that you'll have to pay some sort of early settlement fee if you want to clear your car loan before the end of its term; check your loan agreement for information on this. Early settlement fees are typically either a percentage of the capital you have left to pay or an amount equal to a certain number of months' repayment installments. Your car loan creditor has no incentive to give you a discount for settling early, as the credit you took out is secured by your vehicle. You can save money by settling early if you have a simple-interest loan, but this will depend on the size of any early settlement fee you have to pay. Simple-interest loans apply interest to your account on a daily or monthly basis. As such, settling early can cut the overall amount of interest you have to pay; however, any fee you have to pay can exceed what you'd save in interest payments if you settle toward the end of your loan's term.

    Front-Loaded Loans

    Many car loans are heavily front-loaded. This means you pay off more interest than capital when you start your repayments. If you settle early, your lender will have already received a large chunk of interest, leaving much of the capital of your loan left to pay. You may be surprised at how high the settlement figure is if your loan is front-loaded. Again, you'll be in no position to barter, since your car loan is secured.

    Default

    There is a chance you can negotiate a settlement with a creditor if you get into trouble with an unsecured loan or credit card. Unfortunately, you have considerably less room for maneuver with a car loan. Since your vehicle acts as collateral on your car loan, your lender will be able repossess the car if you default. Cars bought with financing can be repossessed quickly, since vehicle lenders don't need a court judgment before seizure. Your creditor can repossess your car if you're unable to pay, and then chase you for any money that's left outstanding. It's unlikely you'll be able to negotiate any form of settlement if you still have possession of your vehicle.

    After Repossession

    A common misconception is that once a vehicle has been seized, the borrower's debt will be cleared . This is not the case. Your car will have depreciated in value while you've been driving it, and interest and fees will have been added to your loan. This can leave you with a hefty sum still to pay after your car has been taken away. However, once your car has been seized, the rest of the money you owe is effectively unsecured debt, and you may be able to negotiate a settlement on any amount left outstanding in the same way as you would with an unsecured credit card or loan.

    About the Author

    Michael Roennevig has been a journalist since 2003. He has written on politics, the arts, travel and society for publications such as "The Big Issue" and "Which?" Roennevig holds a Bachelor of Arts in journalism from the Surrey Institute and a postgraduate diploma from the National Council for the Training of Journalists at City College, Brighton.

    Photo Credits

    • Polka Dot Images/Polka Dot/Getty Images