If you're behind on your car payments, immediately call your lender to discuss your financial situation. Many lenders can offer help to distressed borrowers to eliminate late fees, bring payments current or lower a car payment. Repossession should be your last resort, as it significantly damages your credit rating. Consider the different options your lender may offer and if any can help you to bring your payment current.
Defer Payments
Ask your lender if you can defer one or more of your car payments. If your lender allows this, it can help to bring your account current without having to pay penalty fees. You also can avoid having your missed payments reported to the credit bureaus. Even if your lender only allows one payment deferment, you can subtract the amount of the car payment from the money you are past due. Some lenders may offer a deferment only if your payments are not past due, so call your lender as soon as you know you can't make your payment.
Loan Modification
Your lender may work with you during financial hardship by lowering your monthly payment amount, which is accomplished by extending your loan term. Before you ask your lender for this option, go over your budget to determine how much you can afford to pay per month. If you are facing hardship because of unemployment, disability or other documented causes of hardship, have your paperwork ready to provide to your lender. Discuss loan modification with your lender, but do not agree to an unaffordable payment. If you come to an agreement, be sure to get it in writing.
Sell Your Vehicle
If a loan modification or payment deferment isn't an option, consider selling your vehicle. Obtain your loan's payoff amount from your lender and check your car's value at the Edmunds or Kelley Blue Book website. If you can sell your vehicle for less than the amount you owe to your lender, you can keep the profit. If you owe more than the loan's payoff amount, determine if paying your past due amount or the remaining balance due on the loan after your sales price is cheaper. You must satisfy your loan to sell the vehicle.
Repossession
If your payments are already past due, your lender may have already started the repossession process. Rather than allow the lender to collect your vehicle unexpectedly, arrange to bring the car to the bank or a dealership for return. Otherwise, the repossession company can take the vehicle from your home, place of employment, a friend's house or a parking lot. Once the vehicle is taken back, your lender will sell it and bill you for any amount due on your loan balance if the vehicle's sale doesn't satisfy your loan. You must still pay your lender if you owe money to avoid a future lawsuit or wage garnishment.
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