Don't panic if you can no longer afford to pay your auto loan. You may see yourself in the midst of a financial crisis, but by keeping a level head, you can find your way out. Although it may take some time for you to rebound, consider solutions to the problem that will do the least damage to your credit.
Loan Modification
Talk to your lender if you are having trouble paying your car loan. Loan modification may be an option if you expect to have only temporary money problems. Your lender may offer various alternatives to lower your payments. One option is to allow you to skip a few payments, and then add the deferred amount to the end of the loan. Another option is for you to make lower monthly payments for a specified time. If you don't expect your finances to improve over the short term, ask your lender if you can negotiate a new payment plan. You are more likely to get a positive response if you go prepared by showing what amount of monthly payments you can afford. Talk to your lender as soon as you realize that you face a financial dilemma. Ask for help before you get behind.
Refinance
Your lender may be willing to refinance your auto loan once you explain your financial difficulty. The steps are similar to refinancing any other loan. Once a lender approves you for a new loan, you pay off the old loan. You don't have to get a loan from the same lender that financed your first loan if you can find a better deal elsewhere. Refinancing your auto loan can lower your monthly payments. Shop around for a lower interest rate than what you currently pay. If you can't get a lower rate, see about extending the number of months you will have to pay off the existing loan. Check whether your existing loan charges a prepayment penalty before paying off the loan. In some cases, your original lender may willingly extend the term of your existing loan without you having to take out a new one.
Sell the Vehicle
If you cannot refinance your auto loan or negotiate new terms with the lender, you can try to sell the vehicle. By selling it yourself, you might get more money than if you take it to a dealership. Even if you sell the car, you will still likely owe money to the bank or finance company. You may need a personal loan to cover the difference you owe and buy a cheaper car. Although you will then have this loan debt to repay, it will be less than your original car loan.
Voluntary Repossession
If your financial situation is extremely bad, and you owe a lot more money than the car is worth, your only option may be voluntary repossession. By giving the car back, you save the lender charging you the repossession fees, including the costs of towing and storage. Talk to your lender before choosing this route, because voluntarily handing over the keys will hurt your credit. If you prove your financial hardship, the lender may be sympathetic and willing to reduce the balance you still owe. It's not likely that he will forgive all of the remaining loan debt, but you might work out a deal that lowers the final payoff amount. Even after you turn in the keys, unless you get any terms you negotiate in writing, the lender can come after you for the difference between what you owe and what the car sells for at auction.
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