31 August 2022 Concept Car
Are you finding it hard to pay your monthly car loan instalments? Perhaps you’ve thought about asking someone else to chip in. Wouldn’t it be great if a friend or relative could take over your car and the associated car payments?
It sure would. But it’s unlikely to happen. The problem is not so much finding someone willing to do it. In fact, if you ask nicely, you’d be surprised how many people will be willing to help you out.
No, the real issue lies somewhere else. In this article, we’ll fill you in on everything you need to know about the topic. And although it’s going to be hard, we’ll even try and come up with a solution in the end.
As we dive into the subject, it’s important to first understand that there are four possible scenarios how this could play out. And depending on which applies, your strategy will be slightly different.
It looks like the most straight-forward thing in the world: You need a loan to pay for your car, but you don’t have the resources. So you simply ask a more affluent friend or family member to apply for the loan. You get the money, your friend pays the loan, you pay your friend, the bank gets its money … Everyone’s happy, right?
In fact, it’s so wrong you’d be hard pressed finding just one bank or dealer willing to take this deal on.
What we’ve described above is called an accommodation deal. The concept has been around for ages and lenders have always despised it.
Think about it and try seeing things from their perspective. In the scenario, you would be the owner of the car and your friend would take out the car loan. The reason that your loan application was refused in the first place – or why it was so expensive – is that your risk of a default was considered very high. In an accommodation deal, you circumvent this concept by asking someone else to apply at a much better rate. But the risk of a default is as high as it ever was.
This is why no bank or dealer will ever touch one of these deals.
It’s best to get an accommodation deal out of your head. It’s simply not going to happen. Plus, it’s better that way for you as well. Too many friendships have broken apart over such arrangements.
If you can’t get any decent car loan at your current credit score, you have plenty of alternative options:
Sometimes, things don’t look half bad when you’re applying for a loan. You have a job, you have some money on the side, and it looks like you’ve signed a decent enough contract. What could possibly go wrong?
Quite a lot, in fact. You don’t even need to loose your job for disaster to strike. What happens a lot is that a full-time position is reduced to a part-time job. Suddenly, with only 50% of your income, that formerly easy-to-maintain payment plan suddenly looks like a heavy burden.
In a situation like this, it would be incredible if you could ask for someone else to wire you some cash as long as your income isn’t enough to pay for the loan. Then, once the worst is over, you can pay them back and continue paying back the loan.
But that requires a massive amount of trust. So you’ll most likely need to find a different solution.
If you can’t find someone to support you through trying times, rescheduling the loan may be your only alternative to defaulting.
The first thing you should do is call your lender. You may think of banks and other financial institutions as being cold-hearted. But it makes sense for them to help you avoid bankruptcy. It is very hard to get any money out of someone battling with insolvency. So, from their perspective, it is a whole lot better to agree to modified terms instead.
In a phone call, you may be able to reduce your payments for a few months or even skip one or two rates altogether (you’ll pay them at a later date).
Generally speaking, however, most lenders will not agree to a total rescheduling of your debt. To this end, you will probably have to find a different outside bank to take on your loan and set up a new, more realistic payment plan.
Rescheduling your loan is not ideal, but it can be a workable solution to a very big problem. If you can’t see a way out of your current predicament, it’s one of the options you should definitely look at.
Leasing is becoming more and more popular in the UK. From our point of view, this is a not a good thing. Leasing may look attractive on paper, as it offers affordable monthly payments. But in the end, it is by far the most expensive of the traditional car finance options. And at the end of the lease, the car isn’t even yours.
Be that as it may, transferring a leasing plan is actually thoroughly possible. It not even remotely as hard as transferring a car loan contract. This is because the leasing rate does not depend on your credit status. Instead, the leasing company works it out on the basis of the car’s depreciation.
They will probably still want to run a credit check on the potential new driver. After all, they do want to make sure he will actually be able to meet his obligations. But if that check goes through without a hitch, there is no reason why such a deal should not be possible.
This situation kicks in when you are looking to sell your car, but still have outstanding finance on it. In itself, this is not illegal. And again, on paper, this doesn’t look particularly problematic. But just like an accommodation deal, it is next to impossible to pull off.
First off, you can never simply go ahead with such a deal without contacting the loan provider first. The contract you set up for car finance was between you and them. It can not be renegotiated or changed without their explicit consent.
Secondly, you need to let the prospective buyer know about it. Although you can theoretically sell a car with outstanding finance, this is something the new buyer absolutely has to be aware of. It goes without saying that it will also reduce the price you can expect the car to be sold at.
Here are the reasons why asking someone else to take over your car payments is so hard:
Things may be different, of course, if the buyer has a great credit rating. But even then, it’s by no means certain that the credit company will agree to such a transfer.
Don’t once consider these warnings exaggerated. There are more than enough examples of loan transfers gone wrong. Here’s just one example which we found on an online forum:
The poster describes how he signed his car over to a friend of a friend. The loan company agreed to the deal. The friend was able to use the car and in return was going to continue paying off the loan.
The poster believed everything was going well, until, two years later, he received bad news from the finance company saying …
“… a payment has not been paid since we signed the car over and I am responsible for the £4800 that is outstanding. Plus the finance company want the car back so they can auction it off. And I also have to pay the balance of what’s left on the finance agreement and what the car is auctioned off for. Also to make matters worse, the lady that took over the agreement has split with her partner and he has the car but no one knows where.”
We don’t know how this story ended. If there was indeed a signed contract with the finance company, they may actually have been in the wrong here. But the risk of something like this ending in a complete disaster is simply too high.
There is, however, one solution which is almost certain to work. Most loan contracts these days include a clause about an early settlement of your loan. What this comes down to is that, instead of paying back your loan in monthly instalments, you pay back the remaining money in one lump sum.
Early settlement comes at a cost: Usually, the lender will slap a penalty fee on to the remaining sum. However, early settlement makes it possible to sell your car and settle the remaining debt in one go.
The way this would work is that the buyer pays off the early settlement. After that, he or she becomes the new owner of the car and you are now debt-free. If you can sell the car for more than the remaining debt, you will even have made a little money on top of that.
In this scenario, truly everybody is happy.
Now it goes without saying that it would be even better if you could avoid such a situation in the first place.
At Concept Car Finance, we always look at setting up a sustainable payment schedule. We know that something can always go wrong. Yes, the shorter the loan term, the cheaper it becomes. But things also become more risky, as your monthly instalments rise.
So, instead, we prefer to keep the monthly sums to what you know you can afford and build in a little buffer for safety’s sake. That way, you should even be able to keep your obligations if disaster strikes.
31 August 2022 Concept Car