What are the best auto loan debt relief options for you?

If your auto loan payments are too high for your budget, you may need to explore options for auto loan debt relief. This can include modifying your loan or surrendering your car. Here are some strategies for managing an auto loan you can't afford.

Compare offers to find the best debt relief company for you

Work with your lender

If you find that you cannot make your auto loan payments, contact your lender. The Consumer Financial Protection Bureau states that it is typically more costly for a lender to repossess a car than to find an alternative solution to assist you. As a result, your lender may provide you with the following options.

• Moving some payments to the middle of the month can provide relief and make for easier budgeting.
• Deferring a payment until a later date can be helpful when facing short-term financial difficulties, such as an unexpected large expense that your savings can't cover.
• If your financial situation has changed permanently, some lenders may agree to modify your auto loan. This could mean adjusting your loan term or interest rate to make monthly payments more manageable.

Your lender may have more options for you if you contact them sooner, as the availability and eligibility requirements for these solutions vary.

Compare offers for the best auto loan

Refinance your loan

Replacing your existing car loan with a new one through refinancing can lower your monthly payment if you get a better interest rate or longer repayment term. However, extending your loan term may result in paying more interest over the life of the loan, but it's better than defaulting on your payments and facing repossession.

Several car lenders may or may not allow you to refinance your current loan. To compare their terms, you should seek offers from multiple lenders. Lending platforms that connect you with various lenders can be beneficial. For instance, MyAutoLoan can provide you with up to four offers, making it simple to compare. You can check your estimated interest rates without a hard credit check before applying.

Autopay is our top recommendation for refinancing a car loan due to its extensive range of car refinancing options. In addition to traditional refinancing, the lender offers cash-back refinancing, which enables you to borrow additional funds from your car equity (the portion of the loan balance you've already paid off). You can utilize these funds to settle high-interest debt or other pressing expenses. Furthermore, Autopay provides lease buyouts, allowing you to pay off your car lease early and retain possession of the vehicle.

Sell your car

If you can't afford car payments even after modifying or refinancing your loan, selling the car could be a financially sound option (assuming you can manage without it).

To avoid being stuck with an upside-down loan, it's crucial to determine your car's current value before deciding to sell it. If the car is worth less than the remaining balance on the loan, the proceeds from the sale won't be sufficient to cover the loan, and you'll be responsible for paying the lender the difference, J.D. Power advises.

Settle your loan

A settled debt is when your lender accepts less money than you initially agreed to pay, which can improve your credit score compared to a default, but it will still be recorded as a negative item on your credit report since you didn't fully repay your loan. A settled account will remain on your credit report for up to seven years from the date of settlement.

Securing an auto loan with your vehicle means that if you default on payments, your lender has the right to take back your car. However, if the lender determines that the repossession process isn't worth the effort, they may consider a settlement. Unfortunately, there's no guarantee that this will occur.

Surrender your car

If your lender is unwilling to negotiate and settle, you may need to voluntarily surrender your car. In this case, the lender will sell the car to recover the money you owe. If the car sells for less than the amount owed, you will be responsible for paying the difference.

Although voluntary surrender may be less harmful to your credit than repossession, it is still a negative mark on your credit record and can negatively impact your credit score.

Why trust CNBC Select?

Our goal at CNBC Select is to deliver top-notch service journalism and in-depth consumer advice to our readers, enabling them to make well-informed decisions when it comes to their finances. Each of our auto loan guides is the result of thorough reporting by our team of expert writers and editors, who possess extensive knowledge of car loan products. At CNBC Select, we take pride in our journalistic standards and ethics, and we ensure that all our content is created without any input from our commercial team or external third parties. We earn a commission from our affiliate partners on many offers and links, but this does not affect the quality of our content or our commitment to providing our readers with the best possible information.

Stay up to date with CNBC Select's comprehensive coverage of credit cards, banking, and money by following us on TikTok, Facebook, Instagram, and Twitter.