What To Do When You Can’t Afford Your Car Payment
by Mr Credit CardOne of our readers, Maggie, had this question for us:
I am finding myself unable to keep paying my car which is a considerably high monthly payment. When I took the loan, I was earning more money than now, but since it is happening more and more everywhere, my income has been drastically reduce, so it is paying my house or paying my car and I’d rather walk.
How does this affect my credit score? I know it is good at the moment since I have been struggling to keep payments on time, but it is not longer a reality.
Thanks
Thanks for your question Maggie. I am sorry to hear that you are in this position, but you do still have options – especially since your credit is good right now.
The best advice I can give you is to protect your credit rating at all cost. If you allow non-payment of your car loan to show up on your credit report, with an eventual repossession it is going to ruin your credit. One or two late payments, and your credit score can recover. But if you have non-payments and a repossession on your credit score, it will take you four or 5 years (at a minimum) to recover your credit score from that. You knew that though – it’s why you asked, right? So what to do about it!
The first thing you will want to do if you know you can no longer afford to make your payments, is to call the bank that loaned you money for your car. Tell them you are having trouble making your payments, and ask them if they can help you.
There may be nothing they can do, but if you are pro-active about it, you may be able to have the interest on your loan reduced, your payments temporarily suspended or reduced, or any number of other things. Any time you fall behind on your bills – any bills whether it’s a credit card, house payment, or car payment – the best thing you can do is to call your lender as quickly as possible.
Most lenders have programs and procedures for people who need to pay late or make different arrangements. Just be sure you check out your options first because this will help you protect your credit rating. If things do go badly for you with this loan, at least take every step you can to minimize the damage. That way the next time you need to get loan you will still qualify for good terms, and you won’t have to pay higher than normal interest rates over the next five years.
Here’s another option if your lender can’t help you – sell your car as quickly as possible. Do not sell it to a dealership because you won’t get as much money for it. List your car for sale in your local paper, and on Craig’s List. It is likely that you will not get as much money for your car as it is worth, or enough to fully pay off your loan – but it will allow you to pay off a chunk of what you owe.
Since your credit is good, you can always consider getting a bank loan for the rest of the amount that you owe on the car, and make smaller payments on the debt that remains.
If you have excellent credit you could also consider putting a portion of your auto loan onto a credit card. Just make sure that it’s a zero percent interest credit card, or a low interest credit card. That would give you a little more time to pay off your car loan.
As far as not having a car after that, I would check Craig’s List for a used one as well. Something that you can buy outright with no payments, even if it’s not a very nice car. Just something to get you through.
As a last thought – consider grabbing temporary second job (I don’t know your situation, so I don’t know if this is possible for you). But if you can, it might be enough to tide you over for a while and get you caught up on your payments.
Thanks again for your question Maggie, I hope this helps. If not, leave me a comment below and I will do my best to address any other concern you have.
Have a question for us? Leave a comment below!
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January 4th, 2009 at 21:51
How can you sell your car if the loan isn’t paid in full?
January 23rd, 2009 at 03:58
Robin,
I was thinking the same thing. If she attempts to sell the car to a private party, wouldn’t she have to sign over the deed. Naturally, she would not have access to it because she has not paid off the loan, so technically, the car isn’t hers to sell. With that said and as Mr. Credit Card suggested, honesty is the best policy. Simply talk to the lein holder.
Your situation reminds me of “me”. My car got repossessed about 11 years ago, and it was the best thing that EVER happened to me. Yes, I had to pay back the $2,000 that remained after it was re-sold, but I started using public transportation and my bicycle to get to work and school, so I got in shape and dropped a lot of pounds, lol. Also, because I didn’t have that huge expense anymore, I was able to save and put myself through grad school. I’m still carless, and I love it.
January 24th, 2009 at 23:12
Apparently Mr Credit Card who answered this posting doesn’t have a clue as to how bad the economy is. If it was that easy to put your vehicle up for sale and actually have someone buy it, that would be great……there are not a lot of people who can afford to buy anything right now. Getting a second job…..there aren’t even enough jobs around for everyone who needs one to get one, let alone 2 jobs.
The advice that was offered here mean nothing in this economy. Most lenders for auto loans won’t even work with you….I’ve tried that route. It sure would be nice if someone could offer help to those who are now making half or less of what they were making last year.
March 4th, 2009 at 17:11
I am in the same boat…I lost my job and had to take one making 80% less than I used to…my car payment is $600 a month and I can’t afford it anymore. I have spent all my savings paying for it…going to go talk to a bankrupcy attorney…should have long ago. I guess this is my only option. Anyone have a similar situation?
March 27th, 2009 at 12:32
Sell the car is also what I would suggest! Price will drop if you wait longer…
August 5th, 2009 at 20:25
Does anybody know if your able to trade in a car you owe on for a car much less in value???
November 23rd, 2009 at 17:30
You might as well do your best to inform the loan company that you are in a tight spot financially, ask for their help with a payment reduction or a skip a payment offer for a one or two month time frame. This may not help in the long run, but at least you are saving the cost now and a better situation may lie in the upcoming month or two ahead. Let’s face it you and your family need to come first and as long as you do the best you can by informing the loan company of the potential problem, offering an alternate lowered amount for affordable payments(ultimately extending your loan pay off period time line and increasing interest cost) or whatever possible solution you and they can work out you are doing your do diligence and should have a clear conscience that you did everything you could to soften the economic blow we all are suffering. In the end if you owe the loan, have a voluntary repossession, are issued wage garnishment,or forced into a lawsuit eventually when the economy is up and you are prosperous again I feel that the lenders for car, home, etc.. will look back at this time period and write it off as a “sign of the times.” If they do not and decide to hold all people accountable, dredge the bottom of the social performance standards, etc.. then they too will be out of a job because statistically 60% of the population of the US are in foreclosure, repossession, credit card default etc.. and with the previous stated loan mentality no one will get a loan and without lending money, banks do not make money.
Hope this helps….
November 29th, 2009 at 22:28
Hello there, I tried all above: Salary decrease, so I ended with two jobs in which took away my family time and was not enough to pay the late and interest fees of all my monthly debts. Spoke with bank to refinance my car for lower payments with 800+credit score;the only option given was to skip 2 car payments. In the meantime posted my car in Craiglist for sale and tried trade In;Didnt work, not even in the same car dealer I bought it because of the debt. I voluntary repossesed my car and was told by the bank I will have to pay the difference after they resell my car. In other words my credit score would drop off anyway and on top of that I would have to pay more than $3,000 for the car that is not mine and have to use public transportation. I filled Bankrupcy chapter 7 and my lawyer got my car back to me with a $170 monthly payment at market value with no interest,no credit cards debt and still paying my mortgage. Quit the nite job and got back my family time. In other words Free Debt, Free Depression.