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Can You Negotiate a Car Payoff Balance?

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Your payoff balance is the amount owed on your vehicle loan, including interest and early termination fees, if any. Whether you can negotiate a car payoff balance for a lower amount depends on the lender and what you’re willing and able to do. It takes two to tango, as the saying goes. But it could be worth the effort — you might save money and free up your budget for other things.

    1. Keep making your payment
    2. Find out what you owe
    3. Take a look at the big picture
    4. Talk to the lender
    5. Get everything in writing

How to negotiate a car payoff: 5 steps

There’s no guarantee that you’ll be able to lower the amount you owe on your car loan, but following these steps will help improve the odds.

1. Keep making your payment

While you negotiate a payoff, keep making your existing car payment. “No matter what the situation is, whether the car is totaled, wrecked, non-drivable, you still have to make that payment,” said Patrick Holmes, a personal finance advisor in Charlotte, N.C.

You don’t want to get behind in your payments and then have to contend with a black mark on your credit history and a lower credit score at the same time you’re negotiating with your lender.

2. Find out what you owe

Obtain the exact dollar figure of what you owe on your car loan — you may be able to get this number by checking your balance online or with a quick call to your lender. Is it a few hundred dollars or a few thousand? It may be more or less than you think, so get the exact amount.

3. Take a look at the big picture

Now that you know how big the financial obstacle is in front of you, there’s more information you may need before requesting a lower payoff amount.

Can you afford to make a lump sum payment? You might be looking to negotiate the car payoff because your car was totaled and insurance won’t cover the balance between what the car is worth and what you owe. Or maybe your car just doesn’t work and you’re looking to get out of it. The lender might agree to a lower payoff if you’re willing to pay off at least part of the balance with a lump sum. Look at your bank account and see how much money you have that you could put toward the balance.

If you can’t pay anything and you feel you’re in over your head, take a breath. There are programs out there that could help you. The National Foundation for Credit Counseling is a non-profit service that charges no or low fees, with accredited counselors who could help you better understand your finances and how to pay down your debt.

Do you need another car? You most likely do if you’re looking to replace a wrecked or non-working car. In that case, budget for a lump sum as well as a down payment and car payments on your new vehicle.

But maybe you want to pay off and keep the car you have. In that case, you might be able to make a larger lump payment, which might sweeten the deal for a lender considering lowering your payoff balance.

4. Talk to the lender

Now that you have gathered the right information, it’s time to talk to your lender. This may seem scary, but you’ve got some facts on your side. Plus, the only thing worse than talking to a lender is not talking to a lender, because they could be looking at repossession if you’ve postponed this conversation and fallen behind on payments.

To have this conversation, you could call the lender or go in-person to one of its locations, whichever makes you feel more comfortable. Here are some tips before you call or make the trip:

Say you want to avoid repossession. Lenders usually want to avoid it, too. Repossession isn’t cheap. The repo fee the lender is charged can range from $150 to $400. And after repossessing the vehicle, the lender would have to pay for all the paperwork to be processed, clean, repair and sell the car at auction — or just sell it for the value of the scrap metal if the car was wrecked.

Offer the wholesale value of the car. At auction, cars are valued at their wholesale prices, which is much lower than the retail or trade-in price of a car. If you offer the wholesale value of the car, the lender could at least avoid the fees associated with a repossession. You can find out your car’s wholesale value on free industry guide sites, like NADAguides and Kelley Blue Book.

Don’t agree to more than you can afford. This may be common sense, but don’t agree to pay your lender $2,000 in cash if you only have $1,000. If you’re negotiating a new monthly payment, don’t agree to pay $300 a month if you know that you can’t afford that plus a new car payment. The worst thing that can happen is defaulting on your original agreement plus a new loan.

Tell them you’re considering bankruptcy. If this is the truth, tell the lender. It could impress upon them how serious the situation is and that you’re still trying to do the right thing and work with them. If you’re working with a credit counseling agency, tell them that as well.

Be polite. Even during the stress of the aftermath of a car accident or financial strain, don’t be rude or mean to the people you’re asking for help. Explain your situation, say you’re trying to do what you can and ask for them to work with you and help you.

5. Get everything in writing

Sure, your phone call to the lender is probably recorded, but it’s important to get things in writing. Whatever new agreement you and the lender reach, request  a copy of it. If you called them, ask for them to email or mail a copy to you.

Another reason you would want to negotiate a car payoff balance

We’ve discussed emergency situations when you might want to negotiate a car payoff balance, but maybe there’s a positive reason you want to negotiate a lower car payoff balance such as an unexpected windfall.

Yes, you could simply pay off the loan without any negotiation (assuming there are no prepayment penalties). But If you’ve been working hard and saving money or received an unexpected bonus, you might be able to turn around and use that cash to pay off your car loan for less than the payoff balance because you have the money right now. That might be attractive to a lender as well.

Are there any downsides to negotiating a car payoff balance?

Yes, there is a downside. Paying less than what you agreed to in your contract will negatively affect your credit. Even if the lender agrees and works with you, you didn’t follow through on your original contract. When or if you apply for a loan in the future, lenders will see that you didn’t pay what you agreed to for the car and consider the chances that it might happen again.

Your credit score could recover from this, perhaps more easily than it could recover from a repossession or complete non-payment. You could check out these credit repair tips.

Alternatives to negotiating a car payoff balance

If the lender is not willing to negotiate or work with you, don’t worry, you still have options.

Get a personal loan. You could pay off your car loan balance with a personal loan, but beware of a higher interest rate than what you might have paid for your auto loan. The average APR for a personal loan is 33.38%, according to LendingTree. But it’s possible that a personal loan could save you from repossession — a personal loan would pay off your car loan and you’d make payments on the personal loan, perhaps at a longer term.

Pay with a credit card. Be careful with this solution as well, because, like a personal loan, credit cards tend to have high interest rates. But if the payoff balance is small and you know you’ll be able to wipe it out in a couple months, paying with a credit card might work. There are also zero-interest credit cards out there, but you need excellent credit to qualify for them.

Ask the insurance company for a higher payout. If your car was totaled and your insurance payout is lower than what you owe on your car loan, you may have recourse other than simply paying the loan balance. Sometimes insurance companies will throw out an offer on a claim and it was a low-ball offer. Many people don’t realize they don’t have to accept it, they can ask for or sue for a higher amount,” Holmes said.

Trade in your car. Buy another car and use your current car as a trade-in, rolling what you owe on your old car into the loan on the new car. The caveat with this is that you would need to be approved to carry that negative equity into your new loan. Be careful though, because this would put you upside down on your new loan.

“One time a client’s son had power washed the engine on his hybrid car — killed it,” said Alicia Garcia, a car salesperson in San Antonio. “Car wouldn’t start at all. Insurance didn’t cover the whole amount. So he traded it in. We could only give him a dollar for the trade. It cost us more to recycle it, but he was able to put the negative equity into the loan for his new car.”

If you do choose to do this, we highly recommend GAP insurance as well as the appropriate amount of auto insurance so this situation won’t happen again.

The bottom line on negotiating a car payoff balance

Negotiating a lower car payoff doesn’t have to be a stressful experience if you keep your end goal in mind. Whether you plan to hold on the car you have or buy a new one, don’t agree to pay more than you can afford. Doing so might mean that you end up where you started: not being able to pay off a car loan and asking for help.


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