By Sarah Morgan
QUESTION: I have paid 24 months of a 60 month car loan. I still owe $10,500 to pay it off but the payments are now too much for me, despite an interest rate below 5%. Should I cash in some stock or use my equity line (over 5%) to pay it off, or should I hold on a few more years to get a slightly better percentage back on a sale?
–Robin Gregory, Enka, N.C.
ANSWER: If you owe more than the car is now worth, you probably won’t be able to refinance the loan — and you’ve already got a lower-than-average interest rate anyway, says Tanisha Warner, a spokeswoman for Money Management International. If you could sell this car to buy a new one without a loan, selling now might make sense; if you can continue making the payments or pay the loan off quicker, you may as well wait to sell later, Warner says.
But, if the payments have become too much to handle, the best option is probably to call the lender and ask to restructure the loan based on the current balance, Warner says.
Adding this loan to a home equity line of credit isn’t a great idea, because you’ll be paying a higher interest rate, and if you fall behind, it’s your home at risk instead of your car. “The interest rate and the risk is higher,” Warner says.
Selling some stock only works if you don’t need the money any time soon. Depending on how close you are to retirement, however, you’ll have to consider how long it would take you to replenish those savings, says Warner.