What Are Your Options When Car Payments Become A Burden?
April 28, 2014 / Sara Davis / Finance a Car
When life throws a curve ball, sometimes people are unable to make car payments as planned. There seems to be no option but to default on your loan and miss payments. This is a bad scenario for anyone.
However, defaulting on a loan or even missing a few payments is disastrous for your credit score and may limit future credit approval. It is important to consider alternative ways to handle your car finances besides missing payments and waiting for repossession.
Take a proactive approach and keep your car, by any means possible.
Options When Car Payments Become A Burden
If you are struggling to make car payments, you aren't alone. Many people find themselves over their heads in debt and behind in their monthly payments due to reduced income, unexpected expenses or emergencies. The good news is that there is often some flexibility built into your agreement for situations like this. It can vary drastically by lender, so take the advice below and give your auto loan lender a call, explain you situation and see what options are available for you.
Here are a few of the ways you can be proactive about car payments and avoid defaulting on a car loan.
1. Modify the lease or loan agreement
This is one of the best options for those with unexpectedly tight finances. Discuss with your lender or dealership what options are available for modifying the current agreement on the car. Although, it may be possible for loan payments to be lowered by extending the life of the loan not all dealerships or lenders will offer this as an option. If a driver is leasing a vehicle, this agreement can also be changed but this is on a per dealership/lender basis. One option for doing this is to lower the limit of how many miles can be put on the vehicle annually. The amount paid for the lease is dependent in part on how many miles are put on the car. By agreeing to drive less with lenders that will allow it, the payments will often go down.
2. Avoid Delinquencies
Once someone has gotten behind on payments, they may be concerned that the car will be repossessed. Avoid this consequence by catching up on late payments. As soon as possible, pay back the delinquent payments as well as all late fees. While it should be discussed with the creditor, if late payments are accepted, the creditor may have waived his right to repossession. However, should your car be repossessed, it is possible to get it back by reinstating the loan, which requires paying all past due payments and fees at once to make the loan current.
3. Contacting the creditor with changes
It is important that a borrower not try to hide financial changes from the creditor. If you have lost your job or had other major financial obligations come into play, you should go immediately to the creditor to explain the change in your finances. This will not only allow the lender to be aware that there may be missed payments, but will invite him to offer solutions to the problem, so as to prevent missed payments from occurring.
In short, if you find yourself behind on payments or suspect you soon will be, talk to a trusted financial advisor for greater clarity on what can done to avoid defaulting. The ramifications of a defaulted loan will linger for years afterwards. Handling this difficult financial situation properly can keep the present from affecting the future unnecessarily.
Interested in more finance and frugality tips? Subscribe to our newsletter, it's free: