For those with existing mortgage or car loans, recessions and work slowdowns can be a tough time. Making ends meet and making sure payments are still made on time can be challenging.
Missing car payments can have major consequences, such as repossession or bad credit. The last thing you need right now is another pitfall.
There are various options to help pay your car payments and minimize negative impacts in the long run.
What Happens If You Miss Paying Car Loans?
Losing your job and many other kinds of personal emergencies may out your financial situation in distress. Whatever the reasons are, not paying car loans on time can be a frightening scenario.
When you fall behind on payments, your lender may start by sending you a letter or calling to remind you. This is the best time to talk with them. Explain what’s going on and see if you can work out an arrangement.
If no payments are still made, and no agreement is reached with your lender, the possibility of having the car repossessed becomes higher.
Once these late payments and repossessions are reported, it could have damaging effects on your credit score, making it harder for you to get credit in the future.
Some states may allow lenders to repossess a car after just one missed payment. Others make them wait a little longer. In some cases, it all depends on the policies of the lender.
Once you have your car repossessed, it will be sold through an auction sale. Cars are usually sold at an auction for a fraction of the total resale value.
A “deficiency balance” may be asked by the lender for you to pay if your car was sold at a price lower than your loan balance.
So even if you lose your car, you may still be expected to pay! You can either pay the balance all at once or arrange a payment plan with the lender. Not all lenders will push through with deficiency balances, some will just forgive them. However, forgiven debts can increase your tax liability, as the IRS considers this a source of income.
What are your Options if you Can’t Pay Car Payments?
- Analyze and Review your Current Financial Situation
Losing a job is tough, but before making any decisions on why you will need to skip your payments, review your budget.
Check if you have any savings that could possibly cover this month’s bill. Review your spending to figure out if there are some things you can eliminate.
You can also try selling some valuables, such as forgotten jewelry or unused equipment that could help cover the cash shortfall.
- Coordinate with your Lender
If you think you are still unable to pay for your car loan, speak with your lender. If you are proactive enough, you may be given the best possible solution for your situation.
If this is just a temporary financial mishap and you know that things will go back to normal in a month or so, the lender may be happy to work something out. They might be willing to accept a deferred or reduced payment for a short time period and add those months to the end of the car loan.
- Loan Refinancing
Refinancing your loan may be another option to help lower your monthly payments.
Not all car loans are eligible for refinancing and this option may only work for those with very strong credit scores.
If your loan does qualify, your best chance is refinancing through community banks or credit unions.
- Voluntary Repossession
Turning over your car keys may not be the ideal option. However, if you know that you will not be able to make ends meet and paying the loan is not an option anymore, you can surrender the vehicle.
This will reflect less badly on you than having it repossessed.
You may still have to pay the deficiency balance, if there is any.
- Sell the Vehicle
If you know that your financial distress will not end anytime soon, you can consider selling the car to pay off the loan balance.
Make sure that you sell it a price that will let you pay the entire loan, since you will still need to pay it in full before transferring the ownership.
Being stuck in a tricky financial situation is never a good thing, but being proactive with your situation helps.
If you have more questions about your vehicles or planning to purchase or sell, contact Carfect.