Even someone relatively responsible with finances can be subject to unforeseen issues that mean a monthly car payment is no longer in the budget. No matter the reason, such as a lost job or unexpected extra expense, there are steps you need to take as soon as you realize you cannot make a car loan option. Consider the following options carefully and move forward with proactive urgency in order to handle the situation without seriously damaging your credit.
1) Deferment
Your car loan company would prefer you continue paying your car loan off, instead of defaulting and surrendering the vehicle. For one, the lender stands to earn a profit on the interest you pay. Simply put, there is more money to be made by deferring or refinancing your loan within reason.
First, decide whether your inability to make a payment is a one-time or potentially on-going issue. Call your lender and be upfront with the reality of your current financial situation. If you believe you will be able to resume making the regular payments next month, or even in a few months, request a payment deferment. During a loan deferment, the payments you skip will be rolled into the balance which increases the amount of interest eventually paid. This option does mean you will inevitably pay more for your vehicle, but that you get to avoid having your car repossessed.
2) Refinance
You can also try to refinance the loan in order to make the payments more manageable within your current monthly budget. The choice of refinancing can be especially beneficial to those who have improved their credit worthiness since applying for the car loan. You can refinance either through your original loan company or through a new lender. Some car loan companies will provide more attractive offers to existing customers they think may refinance through a new lender. If you haven’t improved your credit rating since buying your car and getting your loan, consider adding a trusted cosigner with a higher rating to the newly refinanced loan. A refinanced car loan can result in a lower monthly payment that you’re more able to make moving forward.
3) Sell Your Car
The third option you have when you cannot make your car loan payment is selling your car and using the proceeds to cover the bulk of your outstanding car loan. Privately sold cars will usually bring in more money than one traded in to a dealership, as you can work directly with the buyer in pursuit of the best possible offer. You will still owe whatever balance is left outstanding on your loan, but the somewhat fast influx of cash from the car sale will ease the burden substantially. While this option does mean giving up your car, it will save your from a credit-damaging loan default and repossession.
When you know you can’t make a regular car loan payment, you need to move quickly toward a solution that will preserve your credit and, hopefully, your car ownership.
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