I hear from listeners all the time who can no longer afford their car payments. Unfortunately, by the time they reach out to me, it is often too late.
Sometimes, especially with the pandemic, it is because the person lost his or her job, but often, it is because the person didn't think through his or her budget very well. I actually hear from people who want to trade their cars to lower their payments $50-$75 per month. Normally, this cannot be done because they owe more on their car than its true value.
Too often, people contact me just before they know their car is going to be repossessed, and that means they are usually two payments behind and another one coming up. By that point, it is usually too late. If you jump on this early, and not just "hope" it will go away, you have some options.
1. Do What You Can To Make Your Car Payments
I am one who believes in personal responsibility. If you signed your name to a legal, binding contract, I think you need to do everything possible to live up to that obligation. Generally, when I run into someone who is in a bind with his or her car note, I recommend looking for a part-time job to keep them in their current car. I occasionally get laughed at for that one, but the truth is, anybody who needs to make a couple hundred dollars per month extra, can. Seems like someone having his or her weekend off is more important than anything.
2. Contact Your Lender
Another thing you can do is contact your lender. If you communicate with them, often they will work with you by letting you defer a payment to give you some breathing room. It is important to understand, they do NOT want your car back, the lender will lose a lot of money. Communication early is the key, at some point, the first loss is their least loss. Talk to the collector when he or she calls, returning his or her calls goes a long way with the lender helping you save your credit.
Again, if you catch it early before your credit is harmed, there is a chance you can refinance the balance and lower the payment. Once you are more than one month past due, this is almost impossible. Again, getting on it early pays off.
3. Factor in Equity
If you are close to an equity position in your car, you can try to sell the car yourself, but often this is a long process and you may not have time for this. If your credit rating is not harmed, you can try to trade down to a cheaper car, and a cheaper payment. Not to sound like a broken record, but the earlier you do this, the better your chances. If you start early enough, you can try to consign the car to clear the payoff. I recommend Retail My Ride. They do a good job for my listeners.
4. Long-Term Credit Impacts
Last, if you let your car be repossessed, it will take many years to be able to buy a nice car. You will be banished to "tote the note" lots, high interest rates, and large down payments. Although many of these lots are fine, they often sell cars that won't last long.
Don't let anyone tell you that a voluntary repossession is better for your credit than if they come get the car. That is simply not true.
You should also know that just because you let your car go back, doesn't mean the obligation is over. It is common for a lender to send your car to auction, sell it, then sue you for the amount of money they lost. They can get a legal judgment against you, and eventually, you'll have to pay it if you ever want another loan or a mortgage.
5. Figure Out Where You Stand
It is very helpful to know two very important numbers: The amount of the payoff and how much your vehicle is truly worth. This is sometimes a shocker for people when they find out they are in really bad shape, and others find out they are not in bad shape.
I have an easy way to figure this out on my FAQ page, just click here.
It is best to use restraint before buying, but if you find yourself in this position, do anything you can to avoid losing your car.