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What To Do If You Can’t Make Your Car Payments | Car Commentary

A few years ago, letting a home go into foreclosure or having a vehicle repossessed was considered a major stigma.  However, as layoffs and business closures increase, more people are finding themselves forced into these previously-unimaginable situations.  If you find yourself in a position where you aren’t able to make your car payment, read on – you may have more options than you think:

Call your lender

As soon as you know you won’t be able to make your payment, give your lender a call.  I know this probably sounds like the last thing you want to do, but trust me – it will make your situation easier to deal with in the long run.  If you’ve been up-to-date on your past payments, your lender may be willing to allow you to defer payments for 30 days or more until your situation improves.  If you don’t anticipate your situation changing that quickly, your lender may be able to work with you to restructure the loan to a lower interest rate or a higher interest rate over a longer period of time – both of which will lower your monthly payments.

Sell the car

Of course, calling your lender isn’t going to make your problems go away.  If you can’t afford to make your payments, and don’t expect that situation to change any time soon, you need to try to sell the car.  Unfortunately, the number of cars on the market currently has lead to a softening in the demand for used cars, so you may find yourself in the unfortunate situation of being “under water” – owing more on the car than you can afford to sell it for.

If this is the case, you have a couple options:

Sell the car for less than it’s worth.  Sure – no one really wants to go this route.  Even if you do manage to sell your car, you’ll still have to come up with money to pay off the difference between the amount you sold the car for and the amount that’s left on the loan.  Unfortunately, if the alternative is repossession, it may be the smartest thing to do.  The upside?  Selling a car for less than market value is easier, since the market is already over-crowded with other desperate buyers trying to squeeze more value out of their cars.

Sell to a friend or family member.  Market conditions like these are the perfect opportunities for a little creative problem solving.  Say you have a car you need to get rid of and you have a friend who needs a car but can’t get a loan, and doesn’t have the money to buy a car outright.  If he can make the monthly payments on your loan, contact your lender to see if any loan transfer options exist.  If not, you can write up your own terms of sale that specifies who will pay whom and on what schedule.  Of course, it’s always best to consult a lawyer with this type of situation, should any conflict arise.

Let the car be repossessed.  Many people – frustrated with being unable to make their payments – simply throw their hands in the air and decide to stop paying altogether and let the car be repossessed.  However, even if this may be satisfying in the short-term, the black mark of repossession will stay on your credit report for as many as ten years.  Your credit score will drop significantly, which can make it harder for you to get credit when you really need it.  Furthermore, even if you do let the car be repossessed, you’ll still be required to pay the difference between the loan’s payoff amount and the amount the car brings in at auction.  Clearly, it’s in your best interest to do everything possible to avoid repossession.

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