For most people, access to reliable transportation is as important to survival as access to food and shelter. Living without a car is nearly impossible unless you work nearby or reside in an area with excellent public transportation.
What would happen if you were to miss a car payment and have your vehicle impounded? You’d quickly fall into a vicious cycle:
Naturally, your instincts tell you to avoid this cycle. However, it is sometimes unavoidable to miss a payment because of financial constraints and pending debts.
Fortunately, if you can’t afford your car payment, there are ways to lessen the blow. What’s more, improving your financial situation is much simpler than you might expect.
Ask Your Lender to Skip or Defer a Car Payment
Some lenders offer borrowers deferred payments. This implies that the monthly payment may not be necessary from you. Instead, the payment will not be made until your loan is paid off. If you’re having trouble making ends meet when bills are due, this might result in lower monthly payments.
However, every lender’s policy is different. You might need to continue paying the monthly interest required by some policies. Additionally, the number of times you can defer a payment and the type of deferment policy each lender allows for may differ. Thus, you might not be able to postpone payments frequently. Before choosing a loan provider, it’s crucial to compare the policies of various lenders.
Push Back or Change the Payment Due Date
Change of due date is yet another choice that lets you keep your car. If your lender permits it, you can ask to have the payment due date pushed back a few weeks so you have more time to raise the funds.
However, you should be aware that altering your due date might have an impact on the total amount of interest you pay when your loan is paid off. It might even lead to a higher fee for the following due payment.
Refinance Your Auto Loan
Refinancing your loan is a third choice if you can’t afford your car payment. Loans obtained through refinancing are new loans used to settle an existing loan balance. The new lender will use the car as collateral just like your prior lenders did.
For those who find it difficult to make their current monthly payments, refinancing is a good option. However, you may want to avoid refinancing altogether if:
Your loan’s interest rate could be reduced as a result of the refinancing option.
Find Someone to Take Over the Car Payments
The next thought that may cross your mind is to find another person to help with car payments by taking them over if you’re still having trouble making your payments or locating a refinancer. However, there is a distinction between someone paying your car loan for you and someone “assuming” your loan.
In theory, a person with poor credit who can still afford car payments might seem like the ideal candidate, but this is typically not possible. The new borrower is frequently required to submit their own loan application, which will be based on their own credit history and income. This indicates that they might not have the same interest rate as you and may not even have the same monthly payments as you.
Sell the Car
If you can’t afford your car payment, you need to know when to sell or trade it in. This would enable you to stop paying fees that you simply cannot afford while also removing the possibility that it would damage your credit.
Use the proceeds from the car sale to repay the previous loan. If you have any extra cash, you might consider purchasing a more reasonably priced vehicle. This could entail getting a new loan with a better interest rate or purchasing a car that does not require financing.
Surrender the Car Before Repossession
Returning your car, if at all possible, could be the best option if selling it is not an option. But how do you return a car you can’t afford?.
“Voluntary surrender” or “voluntary repossession” refers to returning the vehicle to the lender. This indicates that you, the borrower, are conscious of the fact that you are unable to make the payments and would like to return the vehicle.
However, that does not mean that the payments stop immediately. The process of selling your car will start once the lender receives a call from you and arranges a return time. You are still responsible for paying off the “deficiency balance” if the proceeds from selling your car fall short of the balance you owe. ”.
Voluntary surrender is a loan default that, like repossession, will appear on your credit report for seven years. But before you completely default, it will be noted that you, the borrower, took proactive measures, which might add points in your favor. Additionally, it will save you from having to pay additional storage, towing, and late payment fees.
Communicate with Your Lender
The most crucial step to take when you encounter difficulties with an auto loan is to contact the lender as soon as you become aware of a problem. Your lenders may become less amicable and more aggressive if you wait for phone calls or, even worse, if you avoid them.
Your top priority after falling behind on a payment should be to make up the difference. Every late payment may result in an additional late fee, increasing your debt even more.
Additionally, it’s crucial to compile as many documents as you can. When dealing with collections and potential lenders, statements of sell, repossessions, and receipts can be a great resource.
Talk to a Debt Coach
Nobody buys a car with the knowledge that they might not be able to afford the payments. Life can suddenly change, and it’s simple to feel overwhelmed by obligations like mortgage payments, auto loan payments, or even an excessive amount of credit card debt.
One of the best ways to handle money problems is through debt coaching. Our debt coaches are available to assist you with managing your finances by addressing your unique financial needs and challenges. They may even make it easier for you to free up money and pay your car loan.
Call us right away for a complimentary session if you believe debt counseling could help you keep your auto loan.
How Many Payments Can Be Missed Before Repossession?
The worst-case scenario for missed car payments is forced repossession if none of these options to skip or postpone your payment are feasible. This leaves you constantly checking over your shoulder.
Most lenders typically wait until you are approximately 3 months behind on your car payments. Even though you can be considered in default after 30 days, lenders might not take any action for 90 to 120 days.
Repossessions not only increase your sense of uncertainty but also negatively impact your credit history. You might be viewed as high risk the next time you apply for an auto loan, in which case your interest rate will likely be much higher.
Knowing your options is crucial if you find yourself in a difficult financial situation. By submitting a hardship letter to your lender, you may be able to receive assistance. Use our free hardship letter template to get started.
Can I defer my car payment for 3 months?
Most lenders permit a three-month deferral of car loan payments. Only a small number of lenders permit you to miss payments for up to six months. However, if you have a high credit score, a solid payment history, and your current financial situation, the lender might take these factors into account.
Does Capital One auto Finance have a grace period?
The Capital One grace period lasts at least 25 days. It is the period of time between the end of a billing cycle and the due date for your bill. If you pay your entire balance by the due date each month, you won’t be assessed interest during the grace period.
Can you defer a payment on a car loan?
Can you defer a car payment? Yes, many lenders permit their borrowers to postpone a car payment to the end of their loan when necessary if you find yourself in a difficult financial situation.
Does deferring auto loans affect credit?
Deferments do not hurt your credit score. A deferred payment counts as “paid according to agreement” because you prearranged it with your lender, as opposed to simply missing or paying it late. That’s especially crucial if you’re already experiencing the kind of emergency that necessitates a postponement.