Your Options When Behind On a Car Payment

an auto loan billing statement that has "past due" stamped on it that is on top of a desk.

Debt Management Article

What to Do When You Fall Behind on Your Auto Loan

For most people, reliable transportation is about as important as food and shelter. Unless public transportation is really convenient from your home and work, or these two places are really close together, it would be difficult to live without a vehicle of your own.

And to have that vehicle taken from you because you can’t make the payments puts you in a vicious circle. No vehicle, hard to get to work to make money. No money, no vehicle.

When you get into trouble with an auto loan, as with any other type of loan, it is critically important that you communicate with the lender as soon as you realize that there is a problem. If you wait for them to start calling you, or if you don’t return their calls right away, you’re likely to find that they’re not very willing to work with you.

The worst-case result of non-payment is involuntary repossession. If you have an involuntary repossession on your credit record, it will be a long time before you are approved for an auto loan again. Plus, it’s a humiliating experience to have “the repo man” come to your house and take your car against your will.

So your biggest priority, once you fall behind on the payment, is to get caught up by sending the lender enough money to make up for the missed payments, plus late fees. If you don’t have enough money on hand to do that, there are still several things you can do to keep your car.

The hands of someone working on a calculator and writing in a caluculating their options for their car payment.

First, ask your lender what their deferment policy is. Some banks will allow you to skip a payment and add it to the end of the loan. They will require you to pay the interest portion of that month’s payment, but that will likely be substantially lower than the full payment. However, every lender has a different policy and they may require you to be current on the loan to exercise this option. So it’s best to anticipate the problem before the payment is late, then ask for the deferment. Also, they will likely limit the number of times per year or over the life of the loan that you can defer a payment.

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. A third option is to refinance in such a way that the term of the loan is extended, reducing the payment to a more affordable level. You’ll end up paying more in the long run, but it may save your car.

If these options don’t work, there are still several things you can do to save your credit record, even though you lose the car. For example, you could sell it. If the car is worth more than what you owe, simply sell it and use the money to pay off the loan. Then take any money left over and look for a more affordable car, possibly one that doesn’t require you to take out a loan.

Another possibility is finding someone who will take the car and take over the payments. Before considering this option, check with the lender to make sure the paperwork is done correctly. The last thing you want is to be responsible for the loan if the person assuming the loan can’t make the payments.

As a last resort, you can voluntarily surrender the car to the lender. While it still shows up on your credit record, it’s much better than having a repossession. Also, be advised that if the lender can’t pay off the balance of your loan by selling the car, you will be liable for the difference.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined in 2003 and has over two decades of experience in the industry.

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