Missed Car Payments? Here’s What Happens Next

Staying afloat when you have too many bills to pay and not enough money is a challenge, and it’s understandable that certain payment due dates start to slide. Between credit card bills, mortgage payments, student loans, and car payments, the priority for paying off debt often goes to some rather than all of the bills you owe.

So What if You Let Due Dates on Car Payments Pass by Without Paying?

The first payment you’re late on or miss entirely puts you into something called delinquency. This means that you’ve violated the terms and conditions you initially agreed upon with the lender by not making your payment on time. Once your car is delinquent, lenders will charge you an additional fee for being late (and your risk of an increase in interest goes up).

If you continue to not make payments (or only make part of your payments rather than the full amount) your loan goes into default. This means that the lender has the right to repossess your car and sell it to try and make back whatever money they’ve lost on your loan. This doesn’t mean you’re off the hook, either; you’re still accountable for paying back any of the amount left on the loan that couldn’t be recouped even after the car has been resold. The typical time it takes for a car loan to go into default is between 60 and 90 days.

How to Prevent Your Loan from Going into Default

Be Proactive and Call Your Lender

If you know or suspect that you’re going to be late making a payment, call the lender and give them a heads up before it happens (or as soon as possible after you miss the due date). You might be able to get your payment deferred by a month or they might be able to extend your due date by a couple of days until you can make the payment. Be prepared for your interest rate to go up and a late fee to be slapped onto your next month’s payment (though you can likely get the interest rate lowered again so long as you make your payments on time for the next few months after).

Look into Refinancing

If you still aren’t able to keep up to date on your payments, your next step will be to look into refinancing. Dealers would much rather you keep your car than have it repossessed because they take a cut from the interest payments you make. Through refinancing, you’ll hopefully be able to negotiate terms that are easier on your wallet and allow you to make your payments on time.

Sell Your Car

If refinancing isn’t an option (or you still can’t afford your car payments), you can try to sell the car and use a portion of the money you make on it to pay off the rest of your loan. Depending on how much  (or how little) you still owe, you might have enough left over to put towards another (significantly less expensive) vehicle. Even if all of the funds from the sale go to the lender, at least you’re out of debt and won’t have a red mark on your credit report.

Voluntarily Surrender Your Vehicle

Your last resort option is allowing your car to be repossessed by the lender. This means that you must return the car to them and will not get any of the money you’ve already paid on the loan back. It will also be significantly harder for you to get financing in the future should you choose to buy another car. If you’re absolutely left with no other options, make sure you’re the one voluntarily surrendering your car to the lender rather than waiting for the bank to send someone to forcibly repossess it.

Of all the loans you can default on, auto loans are one of the worst because lenders act much faster to punish you for missed payments than with almost any other type of loan. In addition, it can be incredibly difficult (or even impossible) for people whose cars have been repossessed to get to work otherwise. In addition, defaulting on a car loan will show up on your credit report for a minimum of 7 years.

If you want to learn more about how you can stay on top of your car payments, check out our online application page here.