What Happens When You Don't Pay Your Car Payment?

If you don't pay your car payment, your creditor might repossess your car, in addition to adding late fees and interest to the outstanding amount on your loan. Contact your creditor before you miss a payment, to discuss the situation and options.

Repossession

Most state laws allow your creditor to seize your vehicle, even on private property, without notice if the auto loan is in default. Your contract should state the determining factors of default. Missing between one and three payments typically amounts to default.

Sale

After repossessing your vehicle, your creditor can sell it. State law may require your creditor to notify you of the date and time of the sale.

Personal Property

You will be allowed to retrieve any personal property left in the car. Your creditor can't legally sell your personal property.

Deficiency

The difference between the amount your creditor gets for the vehicle and the amount you owe on the contract--plus late fees, interest and any expenses detailed in the contract--is the deficiency. If you owe $5,000 and the car sells for $3,000, the deficiency is $2,000 plus any fees owed under the contract. Most states let creditors sue for the deficiency.

Reinstatement

Some states allow you to reinstate your loan by paying the past-due amount in full before the auction date.

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Does It Adversely Affect Your Credit Score if You Refinance Your Car?

It's tough to outrun your credit score. Any time you attempt to finance a home, rent an apartment, purchase a car, apply for a student loan or fill out an application for auto insurance, someone is likely to run a credit check. A number of variables impact your credit, which may cause you to wonder if attempting to refinance an auto loan is a good idea.

Reasons You Might Refinance

You might want to refinance your automobile for a number of reasons. It's possible that your original interest rate was high due to your debt ratio or credit score. If your credit score has improved since that time, you may consider refinancing at the lower rate. It may be that interest rates have simply dropped since the time you purchased your car or that your bank is running a special rate for its customers that you'd like to take advantage of.

What Happens

As the refinancing process gets underway, your original lender is being paid off as your new lender takes possession of your auto lien. As far as your credit is concerned, there is an addition and subtraction going on at the same time. This is referred to as a "trade line."

Impact on Your Credit Score

Any time anyone other than you checks your credit, your score take a little ding, generally less than five points. You can cause that slightly lower score to rebound quickly by making your new loan payments on time each month.

Overall Outcome

The slight dip in credit score you experience will be offset by the fact that, as you make payments, your credit report will show that you are efficiently handling another account. If refinancing your automobile lowers your interest rate, helping you pay the loan off earlier, or provides you with a more manageable payment, it is likely worth going through the process.

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How to Avoid an Auto Repo

The repossession of a car can be a traumatic experience, particularly if you depend on your car to get you to work or your kids to school. In many places, having a car is the only way to get around to get groceries and other necessities. Avoiding a repossession can be simple, if you are upfront and honest with your lender. However, if you are completely unable to pay, due to a job loss or other unfortunate circumstance, avoiding repossession becomes more difficult.

Instructions

1

Work on a budget. If you have recently had a catastrophic event that has financially depleted you, you will need to figure out how much you can pay for a car, if anything, and how you are going to make that work.

2

Call your lender before you default. If you have already defaulted, call anyway. Your lender doesn't want your car. It's worth much less now than it was when you bought it. Your lender wants your money. Call them and be honest. Tell them you lost your job or whatever else occurred, but explain that you want to work with them. Tell them what you can pay. Your lender may be able to restructure your loan.

3

Sell your car. If you can sell it for what you owe on it, this might be a valuable option, however, it does leave you without a vehicle. If you live near public transportation or have another car, this might be worth your while. If you can't sell it for what you owe, see if you you can sell it for enough so that you can make up the difference.

4

Give it up. If facing repossession and a horrible credit report, giving up the car voluntarily looks better than if it's taken from you. This will also help you avoid legal fees and other costs from it being repossessed. If you lease your car, you may be able to turn it in without a big penalty.

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Websites That Sell Used Cars

You can buy nearly anything on the internet, including used cars. Used car Internet sites function in a manner similar to the newspaper classified sections of yesterday, though now you can often find the exact vehicle for which you are searching. You can often find research tools and financing options online when buying your used car from a website.

AutoTrader

AutoTrader offers used cars from private sellers and businesses alike in a search engine format. You can search by make and model on the website, as well as by your zip code. You can create an account on the website in order to save your browsing history. This feature is beneficial for finding used car listings again after you have left the page. When you buy a used car from AutoTrader, the company provides numerous resources for financing and insuring the vehicle.

CarMax

CarMax offers a used car website in addition to its physical locations throughout the United States. CarMax, unlike other websites that sell used cars, inspects its vehicles for problems before offering the vehicles for sale. CarMax provides customers with a vehicle history report and, as of 2010, a five-day money-back guarantee. CarMax provides financing for your used vehicle purchase if you qualify.

CarsDirect

CarsDirect offers a used car database comprised of private and corporate sellers. In addition to its used car search engine, CarsDirect provides research information and reviews on prospective used vehicles. After you purchase your vehicle, CarsDirect can provide financing resources for you.

EBay

For used cars in an auction format, eBay provides a search engine for a variety of vehicles. Listings are provided by private and corporate sellers, and vary in auction length. You must be the winning bidder on an auction in order to win the vehicle. After winning the vehicle, you must pay via a secured payment method online, as well as in person for the remaining balance. The company provides a rating system for sellers to ensure that you are buying from a quality seller.

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Buying Vs. Leasing a Minivan

If you need a minivan for extra room or family demands, you can likely save money over the next few years by choosing to lease just as long as you can stay within the requirements of your contact. Leasing is restrictive, so consider your overall minivan use to determine whether leasing or buying is best for you.

Mileage

Determine your current annual mileage and expected future mileage over the next few years. Many leasing banks offer up to a 15,000 mile per year mileage allowance. Carefully consider the use of your minivan over the term of your lease. If you have children or other family members that you drive around frequently, you may exceed your mileage allowance. Fees for exceeding your mileage allowance may cost up to 20 cents per mile. If you are unsure of your family's transportation needs, you may benefit from buying instead. If purchasing, you can drive your minivan without restriction or penalty even if your needs change.

Wear-and-Tear

Many leasing banks offer up to $1,000 of wear-and-tear allowance for a minivan, which covers normal vehicle wear such as light scratches in the paint or slight wear on the seats. If damage exists beyond the bank's allowance, you will be charged for loss of the minivan's value. You must consistently repair and maintain your vehicle while leasing, as well. If purchasing, you won't be penalized for excess damage or wear as the minivan's owner. Unless you can avoid excessive seat and carpet wear, stains and other issues possibly caused by driving around a family or group of people, you can avoid excess lease fees by purchasing.

Trading or Selling

If you lease, the bank assumes responsibility for the minivan's future market value. When you return the van at the end of the contract, the bank resells it and assumes any loss of value if it was wrong about the minivan's future value. Financing or purchasing the minivan leaves you responsible for the vehicle's future market value. If you intend to trade out of the van or sell it privately within a few years of purchase, leasing protects you from a negative equity position.

Overall Costs

With any kind of vehicle lease, you should compare the overall costs of leasing and purchasing. Leasing may provide a cheaper monthly payment if you want to avoid providing a down payment and plan to return the minivan to the bank at the end of the contract. If you decide to purchase your lease, you'll likely spend thousands more than a purchase. A smaller monthly payment doesn't help to create equity in a vehicle. If you fail to negotiate pricing of your leased minivan, you'll likely end up paying sticker price in addition to taxes and fees for ownership.

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What Happens if You Break Your Car Lease Because You Are Unemployed & Disabled?

By signing a car lease, you agree to drive the vehicle and make monthly payments for a certain length of time. If you become disabled and unemployed, you may have to break your car lease. Breaking a lease has consequences to your finances and your credit score, but you may have other options.

Financial Issues

When you know you will need to break your car lease, you have the option of returning the car to the dealership. You can also request a voluntary repossession. However, simply returning the car does not release you from any financial obligations. You will owe the dealership the remaining balance on your lease. Most dealerships also charge a fee for early termination. The total early termination fee is listed on your lease agreement.

Consequences

If you return the car to the dealership, but do not pay the balance owed, the dealership may turn your account over for collections, which will cause a negative remark on your credit report. If you requested a voluntary repossession, the dealership will repossess your leased vehicle and arrange to have it collection from your possession. A repossession can also appear on your credit report and will damage your credit score.

Options

If you cannot make your car lease payments, you can arrange a lease assumption with another person. In a lease assumption, someone else agrees to take over your leased vehicle and begin making the monthly payments. You will have to pay a transfer fee for the dealership to change the name on the lease, but this fee will cost less than paying off your full lease.

Tips

Talk to the dealership as soon as you become disabled and unemployed and know you will not be able to continue to make payments. The dealership can help you determine how much you owe and what you will need to do to prevent damage to your credit score. Act quickly to avoid negative remarks on your credit, as these remarks will stay on your credit report for several years.

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Can You Finance a Vehicle With One Already in Your Name?

You may find that you can finance a second vehicle depending on your credit standing and debt-to-income ratio. If you can provide your lender with valid proof of income and the lender determines you can afford to pay another car loan, you are likely to obtain a loan approval.

Debt-to-Income Ratio

Your auto loan provider determines your approval based on the amount of money you have coming in and the amount of money you owe, known as a debt-to-income ratio. Your credit report lists your total debts, including monthly payment requirements for credit cards, loans and mortgage balances. A potential lender can also view secondary accounts, or debts that you share with someone else, such as a co-signed auto loan or a shared mortgage. Even with an excellent credit score, you may be declined for a loan if your lender rates your debt-to-income ratio poorly.

Employmment and Address Considerations

Expect to provide proof of income, employment and address information to your lender. Most lenders prefer to see at least two years of stable address and employment history. If you have moved multiple times or just started a new job, your loan may be declined. Your lender uses your year-to-date income on your most recent pay stub to determine your actual income. If you recently received a raise, the lender might not apply it to your income; most lenders figure gross annual income based on a verifiable year-to-date statement instead of the income you plan to make.

Considerations

Before you apply for a second car loan, consider the total cost of owning two vehicles, which costs more than loan payments alone. Lenders require a consistent, full-coverage insurance policy on loan vehicles, which may prove expensive. Check the cost of adding another vehicle to your insurance policy. Check also with your dealer or the auto shop where you maintain your current vehicle to determine the total costs of maintenance. Ensure you can comfortably afford owning two vehicles.

Preapproval

To determine whether you can obtain a second car loan, apply to an auto loan provider for a pre-approval before you head out to shop. Your lender may offer an approval with restrictions. You may have to provide a down payment or may find that your approval requires you to stay within a certain monthly payment, which restricts your vehicle price range. Depending on your approved term, interest rate and down payment, you may have to adjust your price range.

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