What to Do If You Can't Pay Your Auto Loan

Don't immediately give up your car if you can't afford payments.
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You really love your car, but you are afraid you might lose it because you can't make payments. The best advice: Don't panic. Contact your loan company immediately, because lenders really want your business. Your bank may ask about your specific financial situation and provide assistance in adjusting your payments, depending on your payment history or your credit score. You also have other options.


The lender could offer to lower your interest rate if you refinance, or you can ask about a higher interest loan that spreads your payments over a longer period of time for lower monthly payments. Refinancing means you will get a new loan to pay off an old loan. However, refinancing your car loan may not affect your new monthly payments, unless interest rates change significantly or your credit score has improved. If you bought a new car, the refinance loan would now be for a used car. You can check with banks, credit unions or online car loan companies to determine if you would benefit from refinancing. Each person’s case is different.

Trading In

You could also trade down your loan by trading your car in for a cheaper vehicle. It might lower your payments. However, the trade-in value of the car could be less than the payments you owe. A cheaper car increases the possibility of lowering your payments, but the negative equity from your old loan added to the new loan could make your payments higher. You have to work it out with the dealer and lender. You could get a longer-term loan on your newer purchase to keep the monthly payments lower.

Repossessed Auto

If you don’t make payments, the lender might repossess the car. The loan company may contact you within 30 days of non-payment. The time it takes to repossess the car varies among lenders. A lender may charge off your account as a loss between four and six months from the time of your last payment. The lender usually sells the repossessed vehicle, often at auction, and will charge you any difference on the balance on your loan. You will have to pay off the loan on a car you don’t have anymore. Your late payments lower your credit score and having your car repossessed with a balance remaining could damage your credit report further. You could voluntarily surrender your car as a repossession and you would still owe the lender, but you would avoid expenses from actually repossessing the car. Having your car repossessed doesn’t solve your credit score or debt problems.

Sell the Car

Selling your car is better than having it repossessed. Check the True Market Value of your car compared to the amount you are paying. You can find market value reports online. The value may be higher than what you owe and you could sell the car to pay off the loan. Your existing loan, however, must be paid off completely before you can transfer the title of your vehicle to someone else. The new buyer may need a loan to buy the car as well. You could negotiate with the prospective buyer to include paying off part or all of your loan. It could lower your remaining payments, but depends on what kind of deal you can arrange with the new buyer.

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