Not being able to afford your car payment can be a stressful experience. In addition to the prospect of losing your mode of transportation, your credit score may also suffer, making it more difficult to find affordable financing in the future.
If you're concerned about falling behind on car payments, here are seven steps you can take to get some relief and hopefully avoid some of the negative consequences of missing a payment.
1. Contact Your Lender
It might not seem like the best idea to let your lender know that your financial situation is a bit shaky. But because vehicle repossession is usually the most time- and resource-intensive route when payments are missed, many lenders are willing to work with borrowers to get their payments under control.
The sooner you get in touch, the more options your lender may be able to offer. Here are a couple of minor requests you can start with:
- Change in due date: If your payday has changed or you simply need another week or two each month to make the cash available, a new due date may be the right move.
- Payment schedule modification: To keep you from defaulting, your lender may be willing to create a payment plan that suits your needs. For example, it could extend your loan term so your monthly payments are lower, break your payments into smaller biweekly chunks or let you pay off missed payments over time.
Heads up that these options might come with fees and could cause you to accrue more interest than you otherwise would. Ask your lender about these potential ramifications, and get updates in writing to avoid future confusion.
2. Request a Deferral
If you're experiencing financial hardship and a minor adjustment isn't going to suffice, you can also ask your lender about deferring your car payment. If approved, this will allow you to skip a small number of payments without penalties or fees.
Every auto lender has different rules and requirements when it comes to deferring payments. Some allow you to defer your entire payment, while others require you to keep paying interest. Some may also limit the number of times you can request a deferral or even prohibit deferrals entirely if you're already behind on your bills. Check with your lender to understand your options.
Keep in mind, though, that your lender will simply tack deferred payments onto the end of your loan, so you'll end up paying interest on your loan for longer. That said, it can be much better than losing your car to repossession.
3. Refinance Your Car Loan
If you have good credit and owe less than what your car is worth, refinancing your car loan could provide some long-term relief. Refinancing involves replacing your current loan with a new one, often with a different lender.
Depending on your situation, you may be able to get a loan with a longer repayment term than what you have left on your current term, which can help reduce your monthly payments. For example, if you have 24 months left on your auto loan, you could refinance with a 36-month loan.
Just keep in mind that extending your loan will typically result in more total interest charges. Additionally, some lenders may charge a penalty for paying off your loan early. But again, all that can be worth it to avoid repossession and damage to your credit.
4. Trade In or Sell Your Vehicle
If you need more than just short-term relief and refinancing isn't an option, it might be worth it to get rid of the car. You could either trade it in to a dealership or sell it to a private party and buy a used vehicle. Note that trade-ins tend to be more convenient, but you'll typically get more value with a private-party transaction.
If you replace your current car with an older one, that can also help you secure cheaper insurance. That said, if you owe more than the car is worth, this option might not work as well.
5. Ask Friends or Family for a Loan
If you have a good relationship with someone in your inner circle who can help, consider asking for a short-term loan to cover your monthly payments until you can get back on your feet financially.
Asking family members or friends to help out may be uncomfortable, so it's important to make it as formal as possible. You may even want to draw up a contract with a set repayment plan. Then, pay it back on time or early to avoid damaging your relationship.
6. Get a Side Hustle
Starting a side hustle can make it possible to increase your income quickly, particularly if you choose options like driving for rideshare or food delivery services or providing labor through online marketplaces.
You may also ask your employer for overtime hours or, if it's not a short-term problem, find a second job to make your income increase more predictable.
7. Voluntarily Surrender the Car
If you've already missed several payments and you're on the verge of having your car repossessed, consider giving the car back to your lender.
A voluntary surrender will still have a serious negative impact on your credit scores, but it won't be as drastic as an involuntary repossession because you're taking the initiative and responsibility for your debt.
That said, if there's a deficiency balance—your loan balance minus what the lender received for your car at auction plus any additional fees—you'll need to pay it. If you can't, the lender may send the remaining debt to collections, which can damage your credit further.
Frequently Asked Questions
In many cases, lenders offer a grace period on their auto loans. For example, your lender may not charge you a late fee until you're 10 days past due on your monthly payment. Check your loan agreement to understand your options.
Lenders may report late payments to the credit bureaus once they're 30 days past due. Because your payment history is the most important factor in determining your FICO® Score☉ , even one missed payment can damage your credit significantly.
What's more, late payments remain on your credit reports for seven years. While they may lose their influence over time—particularly if you start paying on time going forward—they can still make it more difficult to obtain affordable financing in the future.
If you default on your auto loan, your lender will likely repossess the vehicle unless you surrender it voluntarily. A repossession can compound the damage done to your credit by your late payments and make it difficult to get approved for another auto loan for a while—or other types of financing like a home loan.
If you do get approved with a repossession on your credit reports, you'll likely have a high interest rate.
Monitor Your Credit to Understand How Your Actions Influence Your Score
Whether you just need some short-term relief for a month or two or you're already behind on your payments, monitor your credit regularly to track how your debt management impacts your credit profile. While you may not be able to fix past missteps, knowing where you stand can help you know which areas you can address to prevent further damage and start rebuilding your credit again.
