Auto loans are the fastest growing category of non-housing debt. Here are 3 tips to get ahead of your payments

woman signs car paperwork

Image Source: Getty Images

Do you owe a lot of money on your car? Here’s how to make sure you don’t get left behind.

Key points

  • Higher vehicle costs have led to an increase in auto loan debt.
  • It is important to keep up with your payments to avoid unpleasant consequences.
  • If you can refinance your loan or transfer additional money to payments, you may be able to get out of debt sooner.

Over the course of 2021, many supply chains have been affected due to COVID-related closures. That’s led to a shortage of everything from food to construction supplies to computer chips, including those needed to run today’s vehicles.

Because of that shortage, vehicle prices soared last year in both the new-car and used-car markets. And, unsurprisingly, consumers ended up having to borrow more to finance cars.

In 2021, auto loans were the fastest growing category of non-housing consumer debt, according to Visual Capitalist. But the danger that exists is that some vehicle owners may now be in over their heads on the monthly loan payment front.

If you took out an expensive auto loan, it’s imperative that you stay current on your ongoing payments. Falling behind on that debt could do a lot of damage to your credit score. It could also put you at risk of having your car repossessed, which could have consequences like losing your job because you don’t have a way to get there.

If you’re worried about your auto loan debt, here are some tips for keeping up with the payments you’ve committed to.

1. Follow a budget

The better you understand your bills as a whole, the easier it will be to pay them individually. If you don’t have a set budget, take some time to set one. The simple act of mapping out your monthly expenses could make it less likely that you’ll fall behind on bigger ones, like your car payment.

Of course, you can set a budget and discover that you really can not balance your car payments. At that point, you may need to choose other spending categories to cut back on, like cable or entertainment. After all, having a way to get to places (including your work) is essential, more so than having access to content or attending social events and outings.

2. Look at refinancing

Just as it is possible to refinance a mortgage, it is also possible to refinance a car loan if there is a better deal. If you’re stuck with an expensive loan rate on your car loan, explore your options to trade in your existing loan for a new one with better terms. You may be able to substantially lower your monthly payments.

3. Pay off your debt when the windfall comes

The sooner you can pay off your auto loan, the less interest it will accrue on it, and the sooner you can stop worrying about having those monthly payments hanging over your head. If you get extra money during the year, it might be worth using it to pay off your car ahead of schedule. That’s something to keep in mind before you spend your next bonus or tax refund.

Many Americans have large amounts of auto loan debt due to the higher cost of cars these days. If you’re in that boat, these tips could prevent you from being left behind and suffering the consequences.

The best personal loans from The Ascent for 2022

Our team of independent experts pored over the fine print to find select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.

Leave a comment

Stay up to date

Register now to get updates on promotions and coupons

Shopping cart