What’s the impact of one late car loan payment? Well, it can be significant. Because payment history is the most important factor influencing your credit score, a late or missed payment on any kind of debt can change your score for the worse. This is especially true for larger payments, and for installment loans.
In many cases, your car loan qualifies as a “larger” loan — and it’s an installment loan as well. For many consumers, the only installment loans with larger balances than a car loan are mortgages and student loans. This means that one late car loan payment can hurt your credit score more than you might think.
The Higher Your Credit Score, the Bigger the Hit
One of the realities of your credit score is that the higher your credit score is, the bigger hit it will take if you are late on one payment. This is true of one late mortgage payment or one late credit card payment as well, when paying 30 days late can drop your score 100 points if you have a score of 780. The drop is less if you have a lower credit score.
The same is true of a late car loan payment. If you have a higher score, you have more to lose. A late payment for someone with good to excellent credit is sometimes seen as an indication that trouble is coming. You are seen as someone who is formerly very financially responsible, but who might become unreliable. On the other hand, someone with an already-poor credit score isn’t exactly acting out of character with a late car payments. It’s in line with expectations, so the hit to the credit score isn’t as large.
How Late Is Your Payment?
In some cases, if you are only a few days late with your car payment, the lender might not report the payment as well — especially if it is an isolated incident. Paying a couple days late on your car loan, unless late payments become habitual, might not have any impact, since it’s up to the lender to report payment issues to the credit bureaus.
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The later your payment, the more likely you are to see an impact from your delinquency. Once you hit the 30-day late mark, lenders are inclined to report you to the credit bureaus even if they initially cut you some slack during the first 30 days. And the longer you wait, the worse your credit score is impacted. A payment that is 60 days late will bring your score down further, and a payment that is 90 days late can damage your score further.
If your single late payment is late enough (this usually happens at the 90-day mark), your lender might decide to begin the repossession process. This means that the lender might decide to take your car from you and then sell it, using the proceeds to try to recoup some of the losses associated with lending you the money to buy the car.
What To Do If You Pay Late
A late car loan payment can be serious, so it’s important to get on top of the situation as quickly as possible. First of all, if you are experiencing economic hardship, contact your lender to see if you can work out a deferment or forbearance. If your difficulties are temporary, you might be able to work something out, including a refinance or some type of car loan modification. If the hardship is of a more permanent nature, you might try selling the car quickly so that you can pay off your loan and avoid future hits to your credit score.
If the late car payment is the result of a mistake on your part, you might be able to call the lender and explain. Pay what you owe for that payment as quickly as possible, and then make your next car loan payment on time. It can help to arrange an automatic withdrawal from your account on the day your payment is due in order to avoid late payments in the future.
Your best bet, though, is to purchase a car that you can afford. Choose a loan with payments that you can easily afford — even if you end up with a financial emergency. That way, your car isn’t at risk, and it’s easier to maintain your good credit.
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