If you’ve fallen on hard times and worry about defaulting on your auto loan, which could lead to a repossession, here are some options to explore. The coronavirus pandemic has created tough financial situations for borrowers, but many lenders are being more flexible as a result.
Talk to Your Lender
If you think you’re going to have trouble making your next car payment, the first thing to try is simply talking to your lender. Believe it or not, your lender doesn’t want you to default on your auto loan. A default can lead to a repossession, and when this happens, the lender usually has to put the repossessed vehicle up for auction in an attempt to recover at least part of the amount owed.
Typically, lenders don’t get what they need from auction to cover the balance on your car loan. This also leaves you to cover any fees (towing, storage, auction, etc.) that your lender incurred during the repossession process plus the remaining loan balance following the sale at auction (called the deficiency balance).
On top of this, your credit reports show late payments and a repossession that can stay on them for up to seven years, which can impact your ability to get future credit and loans.
To try to stop the ripple effect of a default, you should call or visit your lender and discuss your options. Some may be willing to delay your payments or adjust your monthly payment due date, while some may even offer job loss protection programs if you lose your job involuntarily. Many are offering special options in light of the coronavirus situation.
It’s in your (and your lender’s) best interest to try to work something out with them before you try anything else. The worst that can happen is nothing, so there’s no risk in asking. If your lender can’t do anything, you could try refinancing.
Look Into Refinancing
If you’ve had your auto loan for at least a year, and your credit score is in good shape or has increased since taking out your car loan, refinancing may be for you. Refinancing is done, almost always, to make monthly loan payments more affordable. There are two ways that refinancing does this: by lowering the interest rate, extending the loan term, or both.
There are a few requirements that you and your vehicle must meet in order to be considered for refinancing. Your lender’s requirements may be different, but here are the most common rules:
- Your credit score has either increased since the start of the loan, or your credit score is at least in the good range
- You’ve had the loan for at least one year
- You’re current on the payments and have a consistent, on-time payment history
- You have equity in your car
- Your vehicle is less than 10 years old and has fewer than 100,000 miles
If you don’t meet all of these requirements, or you don’t have the time or resources to meet them, trading in your car for something more affordable may be your next option.
Trading In for Something More Affordable
If you can’t keep up with the payments for your current vehicle and don’t want to risk a repossession, try talking to dealerships in your area about financing something more affordable.
Some dealers have special finance departments that work with bad credit lenders who are equipped to handle unique credit situations. If your credit score has decreased since the start of your auto loan, and you don’t want to default, but you still need a reliable car, subprime financing could be for you.
At Auto Credit Express, we have created a network of dealerships with special finance departments. We match borrowers with less than perfect credit with these dealers for help with their next car loan. To get started, all it takes is completing our free auto loan request form, and we’ll get to work finding a dealership in your local area.