When you borrow money to buy a car, you sign a contract with the lender. This contract is called a finance agreement. The agreement spells out how much money you will borrow, the interest rate, and the number of payments you will make. It also states what will happen at the end of the loan.
Most people assume that they will have to pay back the entire loan amount plus interest. But this is not always true. In fact, there are several things that can happen when you finish paying off your car loan. Let’s take a closer look at each one:
1) You can trade in your car for a new one
At the end of a car finance agreement, you may have the option to trade in your car for a new one. This is beneficial for those who want to upgrade their vehicle or change their current model. Trading in your car means that you can use the equity from your financed vehicle as a down payment towards the new car purchase. In doing so, you may be able to lower your interest rate or obtain more favourable loan terms for the new vehicle.
It’s important to note that when trading in a financed vehicle, you will need to pay off any remaining balance due on your loan before starting the process. Once this is done, there are several steps to take before sealing the deal on your new car. First, be sure to get an appraisal of your trade-in vehicle. This will help determine its fair market value and give you an idea of what it might be worth if sold outright versus trading it in.
Next, research available financing options and compare rates and terms to find a deal. Consider shopping around at different dealerships and talking with banks or credit unions about securing a loan if needed. Also, remember that many dealerships offer special financing options such as cash-back incentives or 0% APR offers that could make it easier for you to secure a good rate on your loan
Finally, make sure you negotiate with the dealer for fair market value on your trade-in vehicle when factoring in its condition, age and mileage into consideration. If possible, try negotiating separately for both trades so that any haggling over prices does not affect each other’s side of the deal. If all goes well, then all that’s left is signing on the dotted line and driving away with your brand-new car!
2) You can sell your car and use the money to pay off your loan
This may be a good option if you no longer need the vehicle or if it has begun losing value quickly due to age, usage, or depreciation.
When selling your car as a way to pay off your car finance agreement, it’s important to understand some key points before taking any action. First of all, it’s essential to estimate how much your vehicle will be worth so that you can plan accordingly for how much money you’ll need from its sale in order to pay off your loan balance in full. The condition of the car will be a significant factor in determining its value, so it’s important that you take care of any necessary repairs and upkeep before trying to market and sell it.
Another important point is that with most finance agreements, any amount owed on the loan after the sale of the vehicle will still be due and payable once the deal has been completed and closed out. That means that if you don’t get quite enough money from the sale of your car, you’ll still need to come up with more funds in order to settle up with your lender and close out the account properly.
Finally, when selling a car while still under a finance agreement, remember that there may be additional fees associated with ending or transferring ownership before the loan is paid off in full. These fees vary depending on each lender’s terms and conditions but can include charges for early termination or transfer fees for having someone else assume responsibility for payments on an existing finance agreement. Be sure to ask about these ahead of time so that there are no surprises down the road when trying to finalise a deal.
3) You can keep your car and continue making payments until the loan is paid off in full
At the end of a car finance agreement, you can keep your car and continue making payments until the loan is paid off in full. In some cases, once you have made all of your payments, including any applicable fees or taxes, you may be able to trade in your current car for a newer model with a new finance agreement. This is known as a refinance or trade-in agreement.
4) You can default on your loan and lose your car
If you default on your loan, it could lead to the repossession of your car and a potential hit to your credit score. Default occurs when you fail to make payments or comply with the terms of your finance agreement.
Depending on the terms and conditions specified in your contract, you may have missed several payments before being considered in default. If you fall behind on your payments, it’s important to contact the lender as soon as possible and make arrangements to bring your account up to date. If you do not, the lender may pursue legal action in order to recover the full amount of the loan. In some cases, this may result in the repossession of your car and a blemish on your credit report. Therefore, it is important to remain aware of the terms of your finance agreement and keep up with payments in order to ensure that you do not default on your loan.
In Summary
At the end of your loan term, it’s important to make sure that you understand exactly what will happen and how it will affect your credit score. A missed payment or default on a car loan can have significant repercussions for your financial health. Be sure to consult with a knowledgeable professional about your options so you can make an informed decision and take control of your finances. By understanding what happens at the end of a car finance agreement, you’ll be better equipped to choose the right option for you.
🚗 Read more: What happens if you want to refinance at the end of a guarantor agreement?
