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What Should You Do When You Can’t Make Your Car Payments?

Things happen to all of us that we are unprepared for, and sometimes that impacts your finances. Maybe you got laid off and your emergency funds ran out.  Perhaps a medical emergency took precedence and you can’t make your car payment.  What’s next? First, remember that you are not the first, and won’t be the last, to find themselves in this situation.  Second, don’t simply stop making the payments, take some action!


What are your options?


Try and refinance your loan


The first thing you must do when you’re struggling with your car payment is talk to your lender. Have a conversation with them and see if there is anything they can do.  If you’re loan is not upside-down (more is owed than the car is worth) you may be able to increase the principle amount of your loan and delay the next payment for a short time.  If your credit has improved since you purchased the vehicle you may qualify for a lower interest rate and reduce your monthly payments.  Evaluate the available options, but you won’t know what they are until you ask.


Work out a payment plan to get up to date


If you have been making regular, on-time payments on a consistent basis for an extended period of  time, your lender is much more likely to work with you.  Lenders do not want to repossess vehicles, it is an added expense, added time spent on an account, added compliance issues and then they must sell that same car all over again.  The key to getting a lender to work with you to avoid repossession is to have an explanation regarding how the situation came about and a plan for getting back on track.


Can you sell your vehicle?


If you’ve concluded that there’s no way you can make your monthly payments, you can try and sell your vehicle.  If you owe substantially more than the vehicle’s current value this will probably not be a realistic option.  If the value of the vehicle is more than the amount owed, this is the way to go.  Of course, the lender, since they are the lienholder, will be the recipient of most, if not all, of the funds but it will save you from a repossession showing on your credit report.


Another possibility would be to sell the vehicle and borrow enough funds to make up the difference.  For example, let’s say you owe $4,000 and have a prospective buyer willing to pay $3,500.  If you can borrow $500 from another source you can use those additional funds to pay off the lender and minimize the damage that may be inflicted on your credit report.


Out of options and the lender wants the vehicle back?


If you have been unable to arrange a solution and repossession is on the horizon, a voluntary surrender will save you money in the long run.  While it may be tempting to play hide-and-seek with the repo man, it’s simply not a feasible, long-term option.  Arranging to surrender the vehicle to the lender will be looked at as a failure to repay the loan on your credit account, just like a repossession, you will save substantial costs.  Any costs a lender incurs while repossessing a vehicle gets tacked on to what you already owe so that savings can be several hundred dollars.  But you’re still not off the hook yet. Once the lender resells the vehicle, typically at a public auction, you are still responsible for the amount remaining on the loan. This includes the lender costs involved in repossessing and selling the vehicle minus the funds received from the new buyer.