What Should I Do if I Can't Afford My Car Payments?

Lender-Based Options If You Can't Afford Your Car Loan Payments

You can work with your lender in several ways if you can't keep up with your auto loan payments. The best place to start is by contacting your lender to discuss your situation and next steps.

Talk to Your Lender

Call them, explain your situation, and be honest. They will see that you want to work with them to fix the problem rather than adding to it.

Most lenders offer options besides turning in your car, such as payment deferment, in which you are excused from making payments for a couple of months. Then, they will add these payments to the end of the loan term.

This may just give you the time you need to get back up to speed financially. 

The worst thing you can do if you fall behind on your car loan is to resign yourself to the fact that your car is going to be repossessed. Nobody wins when a vehicle is taken back. It's far better if you try to work with your lender to come up with a solution.

The sooner you're able to talk to them, the more you can limit the damage that can be done to your credit and finances. Acting fast should also mean that more options are available to you.

Get Current on Your Payments

Prioritize getting caught up on your payments immediately. You can still speak with your lender and ask about late fees, but getting current should stop the situation from becoming more serious.

Ask for a Deferral or Due Date Change

Talk to your lender about their deferment policy, and ask for a 30-day deferral, or longer if you need it, to get back on track for the long haul. Many lenders offer short deferment periods that you can use to get your finances in order. 

Some lenders also offer forbearance, which is a fancy word for a temporary payment pause. Others will let you make reduced payments for a period of time until your financial situation is righted.

Typically, any skipped payments will be added to the end of the loan. Usually, this means interest still adds up during the deferment period. However, deferment and forbearance offer quick fixes for those dealing with temporary financial trouble.

You can also ask to change the date of your payment. If you can adjust your payment schedule so it's more convenient, this can help you avoid being late.

Be warned that there could be fees involved with adjusting your payment plan. Make sure to discuss all of this with your lender and to get any changes in writing.

Vehicle-Change Options If You Can't Afford Your Car Loan Payments

If a lender isn't able to come to your aid, your vehicle may be able to work for you if there is equity.

Refinance Your Car Loan

See if you can refinance the loan, which allows you to extend the loan term or lower your interest rate.

If you only extend your loan term without lowering your interest rate, you'll reduce the amount of your monthly payment. However, this will also result in additional interest charges over the loan term.

If you choose this option, we strongly recommend that once your situation improves, you get back into a shorter loan term. While you will be paying less per month, you will be paying more in interest charges in the long run.

If your credit has noticeably improved since you've taken out the loan, refinancing could result in a lower interest rate. In this scenario, refinancing could lower your monthly payment even if you don’t extend the term.

Sell or Trade Your Vehicle In

You may need to re-evaluate your budget and car choice if your financial situation has changed permanently. If you find you can no longer afford your vehicle, consider trading it in for something more affordable. If you have equity in it, you could even sell it and pay off the loan.

If you owe more on your loan than the car is worth, then you will either need to pay that remaining amount off, or you could possibly roll it over into the new loan if the dealer allows it.

Consider a more affordable used car. If you made a substantial down payment on your current vehicle, it is possible that you have some positive trade equity in it, and the remaining value can go towards the down payment on a cheaper used vehicle. 

Voluntarily Surrender the Car

Before you miss a payment, call your lender and let them know that you won't be able to continue making payments and would like to voluntarily surrender your car. Once you let your lender know you want to give back the car, they will provide you with a formal agreement in writing and the next steps.

Once you've formally agreed to turn in the car, you'll have to bring it to the designated location at the scheduled meeting time. Be sure to remove all of your belongings from the car and any documentation you have of the loan. A representative from the lending company will be there to collect the vehicle and make sure it is in the agreed-upon condition.

Unfortunately, you're likely to be responsible for the remaining balance on the loan. You may also be on the hook for what's called a deficiency balance. A deficiency balance occurs when the lender sells the vehicle at auction for less than what you still owe. That's certainly less than ideal, but you would still owe less than if the car hadn't gone to auction in the first place. Even if you aren't in a deficiency balance situation, you should still coordinate with your lender to make sure that you're on the same page with the remaining loan balance. In some instances, you may be able to settle for a smaller amount owed after surrendering your vehicle.

The Bottom Line

Take action by calling your lender and talking with them to figure out a solution. Doing nothing is the worst option if you're about to fall behind on a car payment.

If you are in a situation where you need a cheaper car, we can help. Our team is dedicated to finding you the best deal possible, fast. If you're in the market for a car, you don't need to let your credit issues slow you down. At Auto Credit Express, we connect car buyers to local dealerships that specialize in working with unique credit situations. Get started today!

FAQ

Can I Give My Car Back if I Can't Afford It?

Yes, you can. Although a voluntary surrender of your vehicle should be viewed as a last resort, it is certainly a better alternative to an involuntary repossession. Although you won't come out on top like you might if you sold your car, turning in your car voluntarily avoids the headache of trying to sell your car privately while fending off creditors. A voluntary surrender will still hurt your credit, and you will likely still owe the remaining balance on your loan. It should not be viewed as a first option when you can no longer afford your car payments, but turning in your vehicle will be less stressful and damaging to your credit than getting your car repossessed involuntarily.

How Does a Missed Payment Affect Your Credit Score?

Negatively, but there is a little more to it than that. Missing a single payment isn't ideal, but most lenders will have a grace period before charging a late fee, and you can avoid any credit damage by making the payment within 30 days. Payments more than 30 days late can cause pretty serious damage to your credit, though. Lastly, a repossession or charge-off will severely impact your score for several years. This is why you should always make payments as soon as you can and start working with your lender if you are unable to make them on time.

Can I Return My Car to the Dealership If I Can't Afford It?

Although you can surrender your car voluntarily, it's more complicated than just bringing it back to the dealership. A voluntary repossession returns the car to your lender, as opposed to the dealer. You might be able to trade in your car to the dealership in exchange for a more affordable model, but keep in mind that any negative equity from the first loan could carry over to the new one.