Lowering the Balance of a Car Loan

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Even with poor credit.

By

Automotive Editor

John Diether has been a professional writer, editor, and producer since 1997. His work can be found on TV, radio, web, and various publications throughout the world.  He is a graduate of Northwestern University and has a 1992 Cadillac Brougham d’Elegance in his garage. 


, Automotive Editor - May 23, 2016

If you're trying to get out of debt, reducing or eliminating the balance on your car loan is a good place to start. For many consumers, vehicle loans are the largest obstacle to becoming financially stable.

Here are the most effective ways to start lowering the amount you owe:

Pay extra principal

Part of each payment goes toward the interest due on your loan, and the rest is applied to reducing the amount you owe, or principal. You always have the option of paying more than the amount due or making extra payments. The additional money will be applied the principal, which means you will pay less interest and your loan will pay off faster.

Talk to your lender

If you're having trouble making your payments because of a legitimate financial hardship, your lender may be able to help. Request that the lender restructure your loan to make the payments more affordable. This is often called a loan modification and may involve reducing the interest rate, spreading the payments out over a longer period of time, or forgiving some of the principal. You will be required to show proof of your hardship (such as bank statements) and sign a new loan agreement. Most lenders would rather make your loan more affordable for you than repossess the vehicle.

Sell it

You can quickly rid yourself of the loan by selling the vehicle. You will simply pay off the loan with the proceeds from the sale. This is no different than paying off your mortgage when you sell your house. Of course, you will need to find another car or do without one for a while. But that might not matter to you when your top priority is reducing debt.

Trade it

If you're in a position to buy a different car, you can trade in your old one and pay off the loan with the proceeds. For this approach to work, the trade-in value must be more than the loan balance. Once the loan is paid off, any leftover funds can be applied to the new car you're buying.

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, Automotive Editor

John Diether has been a professional writer, editor, and producer since 1997. His work can be found on TV, radio, web, and various publications throughout the world.  He is a graduate of Northwestern University and has a 1992 Cadillac Brougham d’Elegance in his garage. 


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