Auto Loan Debt Settlement Services

A good debt to income ratio for an auto loan is 40% or less, meaning that if an individual earns $5,000 per month, debt payments should not exceed $2,000. Debt includes installment loans, credit card debt, student loans, and housing payments.

An auto loan is a form of secured debt, because the borrowing is collaterally backed by the automobile. It is also considered a form of installment debt, as payments are typically made monthly.

When a vehicle is repossessed, the balance due on the loan remains, along with repossession costs that are often added to it. Even after your car has been repossessed, the auto lender can seek collection and sue for a deficiency judgment. Even if your vehicle is sold at auction, the amount raised may not be enough to cover the deficiency owed, leaving you owing the remainder.

When a vehicle is repossessed and sold, it is often the case that the money raised is not enough to cover the debt owed, and a deficiency results. In the case of a deficiency, many lenders are willing to set up a reasonable payment plan to pay the deficiency off over time, or may agree to a lump sum settlement when proof of financial hardship is established.

Getting an auto loan approved following debt consolidation is not especially problematic. In general, even when a credit report includes negatives related to debt settlement or debt consolidation, other existing positives on the report from other accounts will at least partially offset the negatives. Generally, one year is sufficient time to establish some positives on a credit report following debt consolidation, and making timely repayment on a car loan goes a long way toward rebuilding a credit profile.

Debt consolidation traditionally involves combining and paying off multiple unsecured debts, such as credit card debt, personal installment loans, medical debt and some student loans, from the proceeds of one single loan, typically resulting in a lower blended interest rate and monthly payment. Secured debts, such as auto loans and home mortgages, are backed by collateral that can ultimately be seized in the event of default and are therefore not eligible for traditional debt consolidation. However, many lenders do provide car loan consolidation, which combines multiple auto loans with varying payment cycles, interest rates, and minimum payments, and therefore functions in essentially the same manner as traditional debt consolidation – providing the dual benefits of streamlining the repayment process while simultaneously lowering interest expense and the total amount repaid over time

Individuals pursuing a car loan who have bad credit need to go about things a bit differently than those with strong credit. A weak credit history will usually limit the car loan amount, and it will also come with a higher interest rate attached – sometimes twice as high as the rate granted to someone with stronger credit. However, getting a car loan with bad credit is possible when you take the necessary time to prepare your credit report, pursue pre-approval before approaching auto dealerships, and avoid potentially crucial mistakes by verifying all documents prior to signing.

Auto loan refinancing involves replacing a current auto loan with a new auto loan from a different lender, usually at a lower interest rate and/or with more favorable terms, such as a lower monthly payment or change in duration. In general – and especially when an individual’s FICO credit score has improved since the initial auto loan was taken out – it makes good sense for borrowers possessing a good repayment history to look for opportunities to refinance a car loan. In fact, some of the best auto loan refinancing opportunities emerge within two years of an individual making consistent monthly payments on an original auto loan, during which time a credit score often improves. Refinancing an auto loan frequently results in considerable interest expense savings over the life of the auto loan.

In general, an effective way to get out of auto debt is through auto loan refinancing, which involves replacing a current auto loan with a new auto loan from a different lender, usually at a lower interest rate and at more favorable terms – such as a lower monthly payment or change in duration. In general – and especially when an individual’s FICO credit score has improved since the original auto loan was first granted – it makes sense for borrowers who possess a solid repayment history to investigate opportunities to refinance car debt. Refinancing a car loan frequently results in considerable interest expense savings over the life of the loan and helps make it easier to get out of auto debt faster.

There are a number of instances when it can make sense to refinance a car loan. At the top of the list is when timely payments have been made for up to two years on the initial auto loan, resulting in credit score improvement and access to more favorable terms and a lower interest rate. Or, when the macroeconomic climate changes and interest rates decrease from those attached to the initial auto loan, refinancing will often lower your rate and aid in paying off the auto loan in less time while saving on interest expense. Remember – even if interest rates were low when you took out your initial auto loan, interest rates can fluctuate as a result of increased competition within the auto refinancing space as well as from changes in the regulatory environment. In other instances, when an auto loan was initially borrowed through the lending department of an auto dealership, the dealership will sometimes mark up the interest rate, as the lending arm of a dealership can be a significant profit center – especially when a potential borrower appears visibly excited about a new car purchase and fails to shop around sufficiently. Auto loan refinancing can help remedy that mistake.