If you don’t live in a big city, it’s likely that you will require a car to get around. Sometimes an auto loan is the most realistic option. We’ve put together 6 tips to help consumers responsibly manage their auto loan to avoid undue consumer debt.
6 Tips to Manage Auto Loan Debt
- Manage a budget – Place the auto loan in your household budget and see how it will change it. Consumers should ask themselves if they will need to cut back in any other areas to pay off the loan. Be cautious when picking a car, as the auto loan should not be more than consumers can afford.
- Know how the loan works – Auto loans are secured, fixed debts, meaning they require collateral- the car. Additionally, the monthly payments are set amounts. The more consumers contribute to their down payment the lower their debt will be.
- Consider refinancing – If a consumer got their loan through the car dealership, chances are the rates aren’t great. Car dealerships often make a decent amount of money off their financing schemes. Shop around for a better loan at banks or credit unions and see which offers the best refinancing rate.
- Automatic payments – Setting up automatic payments each month should make it easier to handle the auto loan payments and ensure they are all paid on time.
- Consolidating debt – Many consumers have other debts on top of their auto loans, such as credit cards and mortgages. Debt consolidation allows consumers to take out one loan to pay off all their smaller individual loans. This can help save money on interest rates as well as the number of bills consumers need to focus on.
- Car loan default – If a consumer senses they may be close to defaulting on their loan, they should call the creditors and renegotiate the loan. Consumers should explain the situation and why they may default and decide on an alternative payment plan.