For most people, reliable transportation is as vital to survival as food and shelter. Unless you live in an area with exceptional public transportation or you work close to home, living without a vehicle of your own is next to impossible.
Imagine if you were to miss a car payment and have your car taken away. You’d quickly fall into a vicious cycle:
- Having no money means you can’t make your car payments
- Not making your car payments leads to losing your car
- Losing your car makes earning money harder
- Not having money means you can’t get your car back
Naturally, your instincts tell you to avoid this cycle. But sometimes, due to financial restraints and looming debts, skipping a payment can be unavoidable.
Luckily, there are ways to soften the blow if you can’t afford your car payment. Even better, fixing your financial situation is much easier than you would think.
1. Ask Your Lender to Skip or Defer a Car Payment
Some lenders offer borrowers deferred payments. This means that you may not be required to make the monthly payment. Instead, the amount due will be delayed until the end of your loan. This could result in lower monthly payments when you’re having trouble paying when bills are due.
However, every lender’s policy is different. Some policies may require that you still pay the monthly interest that is due. Also, each lender may have a different type of deferment policy and the number of times you can defer a payment may vary. So, you may not be able to defer payments very often. It’s important to compare the policies of different lenders before landing on a loan provider.
2. Push Back or Change the Payment Due Date
Another option that allows you to keep your car is a change of due date. If your lender allows it, you can request that the due date be pushed back a few weeks, giving you more time to come up with the money.
However, you should keep in mind that changing your due date may affect the total amount of interest you pay at the end of your loan. It might even result in a higher fee for the next payment due.
3. Refinance Your Auto Loan
A third option if you can’t afford your car payment is to refinance your loan. Refinance loans are new loans taken out to pay off an existing loan balance. Just like your previous lenders, the new lender will use the car as collateral.
Refinancing is a good option for those struggling to make their current monthly payments. However, you may want to avoid refinancing altogether if:
- Your loan is nearly paid off
- The car has less equity than it’s worth
- The fees for the loan are too high
The refinancing option could also mean a lower interest rate on your loan.
4. Find Someone to Take Over the Car Payments
If you’re still struggling to make your payments or to find a refinancer, the next idea that may come to mind is to find another person to help with car payments by taking them over. However, there is a difference between someone helping you with car payments and someone taking on or “assuming” your loan.
In theory, someone with bad credit but the ability to make car payments might seem like a perfect candidate, however, this is not usually feasible. Often, lenders require the new borrower to apply for their own loan, which will be based on their own credit history and income. This means that they may not have the same monthly payments as you and may even have a relatively higher interest rate.
5. Sell the Car
It’s important to know when you should sell or trade in your car if you can’t afford the car payment. This would allow you to become free of fees that you just can’t afford while also removing the chance of it harming your credit.
Once you sell the car, use the money you make to pay back the existing loan. If there is money left over, you could look into buying a more affordable car. This could mean buying a car that does not require a loan or getting a new loan at a better rate.
6. Surrender the Car Before Repossession
If selling your car isn’t an option, the next best alternative may be to return it if possible. But how do you return a car you can’t afford?
Giving the car back to a lender is known as “voluntary repossession” or “voluntary surrender.” This means that you, the borrower, are aware that you cannot afford the payments and would like to return the car.
However, that does not mean that the payments stop immediately. Once you’ve contacted your lender and set up a return date, the lender will begin the process of selling your car. If the amount they receive from selling your car is less than the amount you owe, you are still required to pay off the difference, known as the “deficiency balance.”
Like repossession, voluntary surrender is a loan default that will remain in your credit history for seven years. However, it will be noted that you, the borrower, took proactive steps before you completely defaulted, which may add points in your favor. It will also prevent you from paying extra in storage, towing, and late payment fees.
7. Communicate with Your Lender
When you get into trouble with an auto loan, the most important way to handle the situation is to communicate with the lender as soon as you realize that there is a problem. Waiting for phone calls – or even worse, avoiding the calls – can make your lenders less agreeable and more aggressive.
Once you fall behind on the payment, your top priority should be to catch up on your payments. Every late payment may tack on another late fee, which may put you further into debt than before.
It’s also important to gather as many documents as you can. Statements of sell, repossessions, and receipts can be a great resource when dealing with collections and future lenders.
8. Talk to a Debt Coach
No one buys a car knowing they may not be able to make the payments. Life can change in an instant, and whether its auto loan payments, mortgages or even too much credit card debt, it’s easy to become overwhelmed.
Debt coaching is one of the best ways to handle financial issues. Our debt coaches are available to help you control your financial well-being by addressing your specific financial needs and obstacles. They can even help you to free up funds and make paying your car payment easier.
If you think debt coaching might help you save your auto loan, call us today for a free session.
How Many Payments Can Be Missed Before Repossession?
If none of these options to skip or defer your car payment are possible, the worst-case result of late car payments is involuntary repossession. This leaves you constantly checking over your shoulder.
Typically, most lenders wait until you are about 3 months behind on car payments. Although you can be considered in default after 30 days, lenders may wait 90-120 days before taking action.
In addition to an added sense of uncertainty, repossessions also leave a negative mark on your credit history. The next time you apply for an auto loan you may be considered high risk and will have a much higher interest rate.
It’s important to know your options when you’re faced with financial hardships. It’s possible to get help from your lender by writing a hardship letter. Use our free hardship letter template to get started.