Over 7 percent of all car loans in America were in some sort of financial hardship program by last June, according to data from TransUnion, a credit bureau. That includes deferred payment plans, forbearance programs, frozen accounts or frozen past due payments.
If you’re in that group or worry about soon joining it, you have options. Just skipping car payments can ding your credit score and, eventually, lose you your car. However, many lenders have financial hardship programs and, particularly in light of the pandemic, are willing to work with borrowers who are falling behind.
But the first step is asking for help. And whatever you do, don’t just stop paying and hide your car. As CNET points out, the repo man will find it eventually. And the more time your lender and the repo company put into the search, the more they’re going to charge you for their efforts when all is said and done.
Basically, when you’re struggling with auto loan payments, you have three major options. The first and, for most people, best option is to reach out to your lender and ask for help. Many offer deferment or more affordable payment plans for borrowers in distress.
Another option is to refinance your auto loan. You could secure a lower interest rate or lower your monthly payment, although the tradeoff may be a longer repayment period. Finally, you also have the option to sell or trade in your car. But as Credit Karma notes, that’s really only an option for borrowers who aren’t upside-down on their loans.
Here Are Some Resources If You’re Struggling With Car Loans
Here are some resources if you want to work with your lender to shrink your monthly payments. Finance your car through the dealer? Here’s a list of relief programs by manufacturer. If you lease your vehicle, check out this list.
There are also additional relief programs for existing dealer loans, which you can peruse here. And if you got your loan through a bank or other financial institution, see the American Bankers Association’s list of relief programs here.
Meanwhile, if worst comes to worst and you want to know what your state has done to protect your car from repossession during the pandemic, the National Consumer Law Center has a state-by-state list of recent measures. Check it out here.
What to Do If You Owe More Than the Market Value of Your Car
If you’re upside down on your car loan, you can’t just sell or trade in your car and wash your hands of the problem. Your best choice is probably to pay off the negative equity in a lump sum without going further into debt. The latter path could put your other property in peril.
If you can’t do that, you can call your lender and ask if it offers any programs to reverse your upside-down loan situation. If not, try paying extra toward your principal every month. If you pay down the loan faster, you may be able to outflank the pace of your car’s devaluation.
Finally, if you have good credit, you could refinance your loan for a more reasonable interest rate. Just remember that lower payments stretch out longer over time and could result in more negative equity. The longer you wait, the more your car is likely to depreciate.