Falling behind on your car payment? Here are some tips.

An article recently appeared on ReadyForZero and LifeHacker about what to do if you fall behind on your car payments.

Car buyers experience both up’s and down’s when going through the car buying process. Picking out the new car, test driving, sitting all day in a dealership, a slight feeling of buyers remorse, the excitement of showing off your new ride. Those are just a few of the up’s and down’s. The excitement of driving off the lot in a new car is the all time high of buying a car. The all time low is losing a job, a reduction in pay, or increased financial burden’s that put a car buyer in a position that they have to fall behind on their car payment. Hitting a financial stress with your car loan can be remedied if you are pro-active and try some of these steps.

If your financial burdens are only temporary, reach out to your lender. It is like having a credit card. Lenders can be negotiated with, but remember to speak kindly to the person on the other end of the phone/computer.

  • Ask for a 30 day deferral (or longer even)
  • See if you can pay less per month by extending the life of your loan
  • Renegotiate to lower your interest rate

“While these solutions are helpful, it’s important to know that they could cost you more money in the long run. Anytime you skip a loan payment or opt to pay longer on a loan (even with a lower interest rate), you could find that you’ll pay more in interest over the life of the loan. But if you’re in a bind, this might not be the most important thing to consider. Once you get back on track with your finances, you can start paying more on your car again to avoid paying too much more on interest.”

That is only for short term financial issues. If you know that your finances will be tied up for some time, there are some options to look into to help you with your car loan.

  • Refinance
    • If you have a good or excellent credit score, refinancing is definitely an option. The idea behind doing a refinance is to lower your interest rate which will also lower your payment. This can be done through the current car loan lender or through a new lender.
  • Trade for a cheaper car
    • Yes, sometimes we buy way more car that we really need. The fancy gadgets are very appealing. Perhaps you can take your car into the dealer and trade down. Keep in mind that the trade-in value of your car may be less than the balance of your loan, which means you could still have payments leftover on the original loan – in addition to any payments on the new vehicle. Downsizing your car may save you money in the long run.
  • Find someone to take over payments
    • I had never heard of this option, but ReadyForZero says, “If you can bear to live without your car, you could consider having someone take over (or “assume”) your payments. Before you can do this, you will need to make sure your lender allows it. If they do, ask someone you know or create an online listing on Craigslist to find someone who might be interested in your car. Once you find someone to take over your payments, your lender will check their credit and decide if you can move forward with a transfer. Make sure their name replaces yours on the loan documents to avoid any future liability for the debt.”
  • Sell the car.

 You may be horribly upside-down in your car and there are a few options for that as well.

  • Trade It In and Roll the Difference Over to the New Loan“If you need to have a car, one option is to trade your underwater car in and roll the remaining amount onto a new loan on a cheaper car. Before you sign any paperwork though, do the math. One possibility is that the payments will be lower, making this option affordable but also meaning you’ll pay more over the life of the loan. Another possibility is that your payments end up being just as high by the time you combine the amount due with the new loan, in which case this would have been pointless and costly.”
  • Get a Loan to Pay Off the DifferenceIf you’re upside-down on your car loan but your credit score is “good” or “excellent”, you may be able to get a loan to pay off the difference of what you owe. This will then free you up to sell the car, trade it in, or have the car loan assumed by someone else. “Peer to peer lenders can help you obtain a loan with lower interest rates than many traditional lenders.”
  • Voluntarily Surrender Your Car  “If you really are in dire straights, your last resort before a reposession is to voluntarily surrender your car back to the lender. This will have deep impact on  your credit score and will leave you without a car. However, it is a better options than actually having your car repossessed because you will avoid being charged for the cost of repo’ing the vehicle. One thing to REALLY keep in mind, if you or when you do this, the lender can then sell the car and sue you for the “deficiency”, or the remaining balance owed after the sale. Be prepared for this possibility. We HIGHLY suggest not resorting to this option.

Having a car is sometimes a necessary evil because the area you live in is not equipped with public transit and commuting is a must. First step in buying a car would be to not buy more car than you can afford in the first place. However, if you do get into a struggle financially with a car loan, know that there are options to help you keep your car. When speaking with the dealership or the financial institute, keep a calm demeanor and speak with someone and explain your situation throuroughly. There is always a way.

 

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