Life’s never been about assurances. Your financial status could change in an instant and then you realize, you are unable to make this month’s car payment and possibly the next one after that. In times when a setback clouds over your ability to repay your loan and you fall behind on your car payments, what steps should you take? Is repossession an inevitable end or are there options that produce better outcomes?
How “far behind” are you on your car payments?
Your loan agreement with the lender will set forth the events that constitute a loan default and the actions the lender can take to remedy the default. You could miss a payment for 30 days, 60 days or 90 days or until such time the lender deems fit to repossess your vehicle.
For instance, one lender repossessed a car after a borrower failed to make the first payment and avoided any lender contact thereafter. There’s your credit to think of as it will get hit by a default, bankruptcy or repossession.
If it’s your first time to miss a payment and you think the dry spell would likely continue for a few months, don’t wait until your wading deep in “default” status and lose your car to the repo man. Consider the following actions.
How to remedy the situation?
1. Face your lender.
Call your lender right away to speak about your trouble meeting your car payments. Avoiding notices and phone calls and skipping town with your car would only prolong the process and won’t shed a light on your situation.
By speaking with your lender, you might be able to negotiate or work out a feasible solution to your loan.
2. Ask for a modification or a refinance.
You can ask your lender to refinance your car loan so you can lower your rate and thus your payment. Or, you could request to extend the loan term so you can afford the lower payments.
It’s up to the lender to agree to a loan modification or a refinance with the latter depending on your equity. But it’s worth a try.
3. Pay the loan off in full
Repaying your car loan might be unthinkable if you are in the midst of a financial crisis. But it can be done.
You can raise cash by selling some stuff that could be of value, take on a second job for another income source, and give up unnecessary expense if it means living beneath your means. If your cash falls short, the rest may be covered by a personal loan.
4. Sell your car.
You can also sell the car and make up the difference between the sales price and the outstanding loan balance. Consider selling if you think that the situation is not improving and you’re better off without a car, at least for now.
5. Surrender the car.
Instead of the lender towing your car for repossession, you can voluntarily turn the keys of the vehicle in. You are still liable for any shortfall in the event the repo car did not sell to cover the loan balance at the auction. Your best bet is to negotiate with the lender for a way of minimizing the balance to be paid.
Bankruptcy and Repossession
If worse comes to worst, a bankruptcy may be your last resort. And there are two types of bankruptcy filings with varying outcomes. If you file for Chapter 7, you might have to surrender the car to satisfy your outstanding debt. Under Chapter 13, you may keep the car subject to a repayment plan detailing how you will deal with your debts.
Repossession is a process, your lender will not be able to seize your vehicle right away but it could if you neglect to act on notices and at the first opportunity to resolve your loan problem. Always coordinate with your lender.