 |
| A Model with Car |
In practical terms, a car is a source of transportation, but when it comes to buying a car, most people go above and beyond these practical needs.
Many people end up paying a lot of money to get these additional automobile luxuries: DVD players, navigation systems, automatic everything, more power than they need, etc. All of this is fine, as long as you can afford it.
SEE: The True Cost Of Owning A Car
Experts say that you should be paying no more than 15 to 18% of your income for this "debt on wheels."
This figure includes car payments, maintenance and car insurance. Anything above this means that you can't afford the car and it's wise tosettle for something within your means.
Since many people look at buying a car from the perspective of monthly commitments, the golden rule is to buy a car that you can payoff within 36 months. If you cannot afford the monthly payments that will allow you to pay it off in 36 months, it means you can't afford it.
But what if you've already bought too much car and you now can't afford it? A layoff, demotion, divorce or any drastic downturn in your financial situation could mean you are stuck with a fancy car and are staring at repossession or a bad credit report.
Just what should you do?
To start, you need to confront the situation.
It may be very hard to confront the fact that you're short of money and can't afford your dream car. The earlier you make the decision to do something about the problem, the better. This way you will avoid compounding the problem.
Once you are ready to solve the problem, there are several options you can try to fix your car problem.
Go Back to Your Car Dealer
The first option is to go back to your dealer and discuss the option of trading in your car for a less expensive one. Most dealers want you to stay with the brand and will have options to help you out. For example, Hyundai has a very friendly return policy.
However, this may not always work because the value of a new car depreciates really fast. This means that after a few months of owning the car, you may owe more than the current value. Imagine your car value has depreciated to $20,000 but you still owe $25,000 on it.
Even if your dealer agrees to trade your car for a less expensive one, you will have to pay the difference of $5,000.
SEE: Buying A Car: The Worst Investment?
Refinance Car Loan
The second option is to look at refinancing your car loan. You may try to extend the car loan, or look for refinancing at a lower rate. Some finance companies may even offer a higher interest rate, but they will extend the loan period substantially.
This could bring down your monthly payments.
Sell Your Car
Another good option is to sell your car and pay off the loan. If the car value is less than what you owe, you can consider taking a personal loan to cover the difference. Financing the difference with your credit card is a bad idea.
Once you are free from the loan, you can make a wiser choice – buy a used car, use public transportation or get a bike.
Find Someone to Assume Your Payments
You also have the option to find someone who will be ready to take the car and the loan from you. You can advertise in market places such as Craigslist and eBay Motors to find potential buyers.
In Case of a Lease
If you've leased the car, then it is a very different situation because you don't own the car and can't sell it. You can return the vehicle back to the dealer, but you will still have to pay the remaining balance of the lease. You also lose the upfront money paid for the car and pay an additional recapture fee.
A better option is to find someone who will be willing to take over the balance payments for your car. This is called a lease transfer and most leasing companies allow you to do that.
The Bottom Line
Like all deep in debt positions, it is important to take a hard look at your lack of financial well-being and seek help to get back on track.
All stakeholders in a car purchase – the dealer, the financier and you - can minimize damage if you diagnose the condition quickly and act on it swiftly.
Many people end up paying a lot of money to get these additional automobile luxuries: DVD players, navigation systems, automatic everything, more power than they need, etc. All of this is fine, as long as you can afford it.
SEE: The True Cost Of Owning A Car
Experts say that you should be paying no more than 15 to 18% of your income for this "debt on wheels."
This figure includes car payments, maintenance and car insurance. Anything above this means that you can't afford the car and it's wise tosettle for something within your means.
Since many people look at buying a car from the perspective of monthly commitments, the golden rule is to buy a car that you can payoff within 36 months. If you cannot afford the monthly payments that will allow you to pay it off in 36 months, it means you can't afford it.
But what if you've already bought too much car and you now can't afford it? A layoff, demotion, divorce or any drastic downturn in your financial situation could mean you are stuck with a fancy car and are staring at repossession or a bad credit report.
Just what should you do?
To start, you need to confront the situation.
It may be very hard to confront the fact that you're short of money and can't afford your dream car. The earlier you make the decision to do something about the problem, the better. This way you will avoid compounding the problem.
Once you are ready to solve the problem, there are several options you can try to fix your car problem.
Go Back to Your Car Dealer
The first option is to go back to your dealer and discuss the option of trading in your car for a less expensive one. Most dealers want you to stay with the brand and will have options to help you out. For example, Hyundai has a very friendly return policy.
However, this may not always work because the value of a new car depreciates really fast. This means that after a few months of owning the car, you may owe more than the current value. Imagine your car value has depreciated to $20,000 but you still owe $25,000 on it.
Even if your dealer agrees to trade your car for a less expensive one, you will have to pay the difference of $5,000.
SEE: Buying A Car: The Worst Investment?
Refinance Car Loan
The second option is to look at refinancing your car loan. You may try to extend the car loan, or look for refinancing at a lower rate. Some finance companies may even offer a higher interest rate, but they will extend the loan period substantially.
This could bring down your monthly payments.
Sell Your Car
Another good option is to sell your car and pay off the loan. If the car value is less than what you owe, you can consider taking a personal loan to cover the difference. Financing the difference with your credit card is a bad idea.
Once you are free from the loan, you can make a wiser choice – buy a used car, use public transportation or get a bike.
Find Someone to Assume Your Payments
You also have the option to find someone who will be ready to take the car and the loan from you. You can advertise in market places such as Craigslist and eBay Motors to find potential buyers.
In Case of a Lease
If you've leased the car, then it is a very different situation because you don't own the car and can't sell it. You can return the vehicle back to the dealer, but you will still have to pay the remaining balance of the lease. You also lose the upfront money paid for the car and pay an additional recapture fee.
A better option is to find someone who will be willing to take over the balance payments for your car. This is called a lease transfer and most leasing companies allow you to do that.
The Bottom Line
Like all deep in debt positions, it is important to take a hard look at your lack of financial well-being and seek help to get back on track.
All stakeholders in a car purchase – the dealer, the financier and you - can minimize damage if you diagnose the condition quickly and act on it swiftly.
News by Businessinsider
Read current news at http://bbc-cnn-worldnews.blogspot.com
No comments:
Post a Comment