When Your Car Loan Outlives Your Car

It’s a tough situation. Many people need to borrow money to finance a car just to get to work. If you can afford a new car, your warranty should see you through the term of your loan on most major repairs. But what about those of us that buy a used car?

Many used cars don’t come with warranties. If the car breaks down and can’t be driven, you’re still on the hook.

The vast majority of car loans are just that: loans. The credit union makes the loan in good faith, and you are expected to pay back the money on schedule – regardless of the condition of the vehicle.   But if the vehicle is not driveable while you still owe money on it, you may find yourself in a bind. Here are some things you can do to lessen your exposure.

Keep your insurance current.
This is a big help, because if you lose the use of your car due to theft, or an accident, your insurance company will reimburse you.  The reimbursement will pay off all or a substantial portion of your loan. The only thing you are out is your deductible, and could then apply and qualify for a new auto loan.  

Note:  An auto loan from Genisys Credit Union, and most lenders, will require insurance, so be sure to check your fine print on your loan agreement.

Don’t skimp on maintenance.
Many breakdowns are preventable and a little bit of routine maintenance will help keep it running well.

• Check the oil regularly.
• Change your oil and filter as scheduled.
• Use the recommended transmission fluid, brake fluid and coolant.
• Keep your tires balanced. Monitor their wear -- bad tires cause accidents.

Buy “GAP” coverage.
Unless you come up with a large down payment, chances are you will, at some point, owe more on the loan than the car is worth. If you crash your car, your insurance company will reimburse you only up to the insured value of the car. But if you own “GAP” coverage, your insurance company will reimburse you the GAP you may have between the insured value of the car and the balance of your loan.

Consider the warranty.
Think about purchasing the warranty on your used car, if one is available. If a major engine, transmission or drivetrain issue is a risk you can’t afford to bear, then you might need to consider buying the warranty.  Otherwise, you run the risk of owing money on a car you can’t even drive. Don’t take risks you can’t afford to lose.

Mechanical Repair Coverage (MRC)
If the factory warranty has expired, Mechanical Repair Coverage (MRC) can help you limit the cost of any breakdowns and minimize the disruption that car repairs can have on a budget.  Most plans can be customized to your car and specific needs while still keeping the coverage affordable.

Buying a used car doesn’t have to be a risky purchase and Genisys Credit Union can help you protect your investment without breaking the bank.

 

© Genisys Credit Union and www.genisyscu.org, 2018.  Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to Genisys Credit Union and www.genisyscu.org with appropriate and specific direction to the original content.

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