Facing Car Finance Troubles? What To Do When You Can't Pay

Falling behind on your car payments can be stressful. Your vehicle is often essential for work and daily life, making the situation feel even more urgent. Understanding your options is the first step to regaining control.

Recognize the Problem Early

The moment you anticipate difficulty making a car payment, contact your lender. Don't wait until you're already in default. Early communication shows responsibility and opens the door to potential solutions. Explain your situation honestly and clearly. Lenders may be more willing to work with you if they believe you're proactive.

Explore Your Options

• Loan Modification: The lender might agree to lower your interest rate, extend the loan term, or both. This reduces your monthly payments, making them more manageable. Be aware that extending the term means paying more interest overall.
• Deferment or Forbearance: This allows you to temporarily postpone payments, typically for a month or two. Interest usually continues to accrue, so your balance will increase. Carefully consider whether you'll be able to catch up when the deferment period ends.
• Refinancing: Shop around for a new loan with better terms. A lower interest rate or a longer repayment period can significantly reduce your monthly payments. However, like loan modification, refinancing extends the loan term, increasing the total interest paid.
• Voluntary Surrender: If you absolutely cannot afford the car, you can voluntarily surrender it to the lender. This avoids repossession, but it will still negatively impact your credit score. You'll likely still owe the difference between the car's resale value and the remaining loan balance (the "deficiency balance").

Understand the Consequences of Default

Failing to make payments can lead to repossession. The lender can seize the vehicle without a court order in many states. Repossession seriously damages your credit score, making it harder to obtain loans in the future. You will also be responsible for any costs associated with the repossession and sale of the vehicle, on top of the deficiency balance if the car sells for less than what you owe.

Seek Professional Help

If you're overwhelmed, consider contacting a credit counseling agency. They can help you create a budget, negotiate with creditors, and explore debt management options. The National Foundation for Credit Counseling (NFCC) is a reputable resource.

Prevention is Key

Before taking out a car loan, carefully assess your budget and ensure you can comfortably afford the monthly payments. Consider a larger down payment to reduce the loan amount. A shorter loan term means higher monthly payments but less interest paid over the life of the loan. Think about all aspects before committing to a car loan.