What To Do If You Fall Behind on Car Loan Payments

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As much as we strive to spread financial literacy and awareness to our readers, we also learn a lot from you as well – especially regarding what’s most important to you. And what’s the best way for us to do this? Reading your comments!

It was exactly that which recently helped us realize that a lot of you have a particular topic of concern on your minds: car loans. Notably, a lot of you are wondering what to do when you’re struggling to make your car loan payments.

On a personal note, I have to admit, when I was assigned this post, I got a little nervous. It’s been years since I owned a car and, when I did, I didn’t even realize there were any options to help if you couldn’t make your payment. I pretty much paid my car before buying anything else because I assumed it was pay or have it repossessed. How misinformed I was! (Or rather, how l should have done my research) As it turns out, there really are options for people who can’t make their car payments – and they don’t all revolve around giving up your car.

What to Do If You’re Struggling to Pay – But It’s Temporary

If you’ve recently hit a financial snag that could last for a month or a few months, act now. Your best option is to:

Negotiate with Your Lender
Just like with all other financial products, it’s in the lender’s best interest to keep you as a customer (even if you are temporarily struggling). That’s why they’re often much more willing to negotiate than most consumers realize. These are just a few options you can work out with your lender:

  • Ask for a 30 day deferral (or longer even)
  • See if you can pay less per month by extending the life of your loan
  • Renegotiate to lower your interest rate

While these solutions are helpful, it’s important to know that they could cost you more money in the long run. Anytime you skip a loan payment or opt to pay longer on a loan (even with a lower interest rate), you could find that you’ll pay more in interest over the life of the loan. But if you’re in a bind, this might not be the most important thing to consider. Once you get back on track with your finances, you can start paying more on your car again to avoid paying too much more on interest.

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What to Do If You’re Struggling to Pay and It Will Likely Stay That Way

If your rough patch doesn’t seem to have an end in sight (or if you realized you bought more car than you can afford), then you’ll want to take more permanent measures to fix the situation. Here are a few options:

Refinance Your Car
Anyone who has a “good” or “excellent” credit score has a decent chance of refinancing their car at a lower interest rate. The idea behind refinancing your car is that it can provide a lower interest rate that will in turn lower your monthly payments. You can do this with your current lender or a new one – so be sure to shop around for the best interest rates.

Trade Your Car in for a Cheaper Car
If you bought too much car for your budget, another option is to trade it in for a more affordable car. Just like with a refinance, you’ll want to shop around to get the best trade in value you can (and to make sure the dealers have the car you want to trade it in for). Also, keep in mind that the trade-in value of your car may be less than the balance of your loan, which means you could still have payments leftover on the original loan – in addition to any payments on the new vehicle. (Even so, downsizing your car may save you money in the long run.)

Find Someone to Take Over Your Payments
If you can bear to live without your car, you could consider having someone take over (or “assume”) your payments. Before you can do this, you will need to make sure your lender allows it. If they do, ask someone you know or create an online listing on Craigslist to find someone who might be interested in your car. Once you find someone to take over your payments, your lender will check their credit and decide if you can move forward with a transfer. Make sure their name replaces yours on the loan documents to avoid any future liability for the debt.

Sell Your Car
An even better way to get out from underneath a hefty car loan is to sell your car. You can sell your car to websites like Carmax or use websites like Carlypso to sell to another owner online. While tools like this are great, don’t forget to look at your local community. Even if your car isn’t brand new or all that nice, you might find that someone is hoping to purchase an affordable car and is having trouble finding one through a dealer.

And don’t forget about people you know that have teenagers. Many parents prefer to buy their teens a used car until they can prove their skills on the road. Your car (and its price) might be just what they need.

If You’re Underwater on Your Car Loan

All of the above options could work if you’re currently underwater on your car loan, but it does change the situation a bit. Here are the best options to consider if you currently owe more on your car than it’s worth:

Trade It In and Roll the Difference Over to the New Loan
If you need to have a car, one option is to trade your underwater car in and roll the remaining amount onto a new loan on a cheaper car. Before you sign any paperwork though, do the math. One possibility is that the payments will be lower, making this option affordable but also meaning you’ll pay more over the life of the loan. Another possibility is that your payments end up being just as high by the time you combine the amount due with the new loan, in which case this would have been pointless and costly.

Get a Loan to Pay Off the Difference
If you’re underwater on your car loan but your credit score is “good” or “excellent”, you may be able to get a loan to pay off the difference of what you owe. This will then free you up to sell the car, trade it in, or have the car loan assumed by someone else. Peer to peer lenders like Lending Club and Prosper can help you obtain a loan with lower interest rates than many traditional lenders.

Voluntarily Surrender Your Car
If you’re really in dire straits, your last resort before a repossession is to voluntarily surrender your car back to the lender. This will have a deep impact on your credit score and will leave you without a car. However, it is a better option than actually having your car repossessed because you will avoid being charged for the cost of repossessing the vehicle. One thing to keep in mind is that when you do this, the lender can then sell the car and sue you for the “deficiency”, or the remaining balance owed after the sale. Be prepared for this possibility.

Final Word
For many, car ownership is nothing more than a necessary burden. Not all cities come equipped with reliable and fast public transportation and the chance of finding that are even less in rural areas. However, there are ways to reduce the compounding stress of car ownership. And if things get a bit tight, remember that you’re never without options!

Image Credit: Matt Gibson

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  • pinky

    hi i have a car loan i have to pay weekly every monday .this is my first time being late i try to contact the loan agency they are not willing to work with me and want a payment right away.. i can pay next monday both payment but they are threating me to come pick up the vehicle..is there anything i can do? i never been late my payments are evry monday . they say because its the end of the month i have to pay or they will pick it up..

    • Hi, if you are able to make both payments next Monday then your best bet is to avoid having them take the car between now and Monday. Once you make both payments on Monday, then you’ll be back on track. Good luck!

  • shawn

    hello. im three payments behind on a bi-weekly payment plan. i purchased the car in phoenix arizona. i had to move back to missouri because of some family issues. im a recent full time college student. i recieve financial aid on the 26th of june. i had an agreement with the manager if i made a partial payment could i make up the remaining balance on june 26th. then i recieved a call back saying i had to make a payment between now and the 26th. i cant make it. and i maintained contact with the manager the whole time to ensure them that i would make my payments current on the 26th. i emailed her documentation to prove the financial aid would be here. what can or should i do. thanks

  • Peter

    I am behind 4 monthly payments. I think I can’t pay them anymore, but I need a car. Is there any dealer that I can trade my car for a cheaper car so I can star over.

    • Smith Michelle

      If your in east. Los Angeles go to m c. Motors on Olympic and Atlantic tell them Michelle sent you

  • Sammy

    How long after getting caught up on current car loan should I wait to apply for refinancing with another lender? Should I wait to get caught up?What are my chances of being approved if I’m behind? Also, I’m upside down on current loan.

  • Don

    Hi there. I am struggling a bit with my truck note. Currently I am 3 months behind, but by Friday I will only be two months behind. I am going to make a payment then because I don’t want them to repossess my vehicle. But I really want to trade it in and get a smaller, more economical vehicle but wasn’t sure of my options with my credit and owing on this vehicle. I am in Dallas Texas.

  • Nicci

    Last year I had to do the deferred payment thing.an now a year later I need to do it again is that allowed