Do you owe a lot of money on your car? Here’s how to make sure you don’t get left behind.
- Rising vehicle costs have led to an increase in auto loan debt.
- It is important to track your payments to avoid unsavory consequences.
- If you can refinance your loan or transfer the extra money into the payments, you may be able to get out of debt sooner.
During 2021, many supply chains have been challenged due to COVID-related shutdowns. This has led to a shortage of everything from foodstuffs to building materials to computer chips, including those needed to operate today’s vehicles.
Due to this shortage, vehicle prices soared last year in the new car and used car markets. And unsurprisingly, consumers have had to borrow more to finance their cars.
In 2021, auto loans were the fastest growing non-housing consumer debt category, according to Visual Capitalist. But the danger is that some vehicle owners could now be overwhelmed with the monthly loan payment.
If you’ve taken out an expensive auto loan, it’s imperative that you keep track of your ongoing payments. Falling behind on this debt could cause considerable damage to your credit score. It could also put you at risk of having your car repossessed, which could lead to consequences such as losing your job due to not having a way to get there.
If you’re worried about your car loan debt, here are some tips for sticking to the payments you’ve committed to.
1. Follow a budget
The better you control all of your bills, the easier it will be for you to pay them individually. If you don’t have a budget in place, take the time to establish one. Simply mapping out your monthly expenses could save you from falling behind on bigger expenses, like paying for your car.
Of course, you can set a budget and find that you can not swing your car payments. At this point, you may need to choose other spending categories to cut, such as cable or entertainment. After all, having a way to get around (including your job) is essential – more so than accessing content or attending social events and outings.
2. Consider refinancing
Just as it is possible to refinance a mortgage, it is also possible to refinance a car loan if there is a better deal to be had. If you’re stuck with a high borrowing rate on your car loan, explore your options for trading in your existing loan for a new one with better terms. You could be able to significantly reduce your monthly payments.
3. Pay off your debt when the bargains hit
The sooner you can pay off your car loan, the less interest you’ll accrue on it — and the sooner you can stop worrying about having those monthly payments hanging over your head. If you earn extra money during the year, it could be beneficial to use it to pay off your vehicle sooner than expected. This is something to keep in mind before spending your next bonus or tax refund.
Many Americans are carrying large amounts of car loan debt due to the higher cost of cars these days. If you’re in this boat, these tips could keep you from falling behind and suffering the consequences.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.