Owing to their easy availability and quick processing, today most people choose to take out loans to buy their desired cars. However, when you avail of a loan, timely repayment becomes a huge responsibility.
Unforeseen circumstances may cause you to default on your used car loan installment. But, there is no need to worry; here are four things you may do to overcome this situation:
- Sell the car
Determine the present value of your car and compare it with the balance loan amount. If the value is higher, it means you have equity; you can sell the car to repay the loan amount. This also ensures that the default does not significantly harm your credit score.
- Refinance the loan
If the value of the car is less than the balance amount, selling will not help; you need to arrange for the difference through other sources.
You may refinance the pre-owned car loan by opting for a longer repayment tenure. This may be granted at a higher rate of interest; however, it will reduce the monthly installment amount to ensure that you do not default in timely repayment again.
- Negotiate with the lender
If you find it difficult to pay the Equated Monthly Installments (EMIs) on time, you must get in touch with your lender. You may be allowed to retain the possession of your car rather than let the lender take it over to recover the dues.
Give the lender precise reasons as to why you are unable to make timely payments on your used car finance. Most lenders are willing to assist you and provide manageable solutions. You may be given an EMI holiday, wherein you get an extra few months to repay the loan. The institution may also extend the loan tenure or reduce the Used Car Loan EMI amount in case of a critical circumstance based on the used car loan eligibility criteria.
- Try repossession
The lender may take away your car in case you default on the EMI. However, you may still recover your car by paying the arrears. Lenders like Mahindra Finance offer redemption or may reinstate the repossession for a short period, which may be up to two weeks. However, recovering the possession may be expensive, as you will have to pay the penalty along with the arrears.
If you cannot reinstate repossession, your car will be auctioned for sale. Additionally, you will have to pay the difference between the auction amount and outstanding loan along with the repossession expenses.
When you default on loan payment, it reflects badly on your credit score. This means you may have to pay a higher used car loan interest rate the next time you make an application. Thus, be proactive and implement the aforementioned tips in case you miss out on paying an EMI.