A missed car payment may not seem like a big deal, but as soon as you miss one payment, depending on your lender and your state laws, your car can be repossessed. So if you think you are going to miss a payment, contact the lender as soon as possible to make a plan. To understand general lender policies and repossession laws, this article discusses the details about car repossession and what you can do if you miss a car loan payment.
Depending on your state’s laws and your loan agreement, the repossession process can begin after you miss just one car payment, which is when you’re considered delinquent.
While one delinquent payment may not trigger a repossession, contacting the lender to resolve the situation early can help you to avoid these negative impacts on your finances and credit:
Your account can be considered delinquent as soon as you miss one payment. Default refers to missing payments anywhere from 30 days and beyond, although lenders may have different timelines before they consider your account in default — some may wait 90 days, others may wait longer, but others may wait less than 90 days. Missed payments can negatively affect your credit and may make it more difficult to get approved for future credit.
If you do miss a car payment, don’t panic. Take these steps to see if you can get back on track.
Check the terms of your loan if you aren’t familiar with them. Dig up whatever paperwork you got from the lender and look for information on late fees, grace periods and the total loan balance. If you can’t find your lender’s policy regarding late fees and when they get added to your balance, call your lender and ask for the details about how late payments affect your loan terms.
Consider whether you’ve been late with payments previously. If this is a rare occurrence, you can follow the next step, but if you continue making late payments or not paying at all, you might evaluate whether the car loan matches your financial situation. If the car loan is hampering your finances, it might be time to consider other options with your lender.
Budgeting can help you not only take care of the overdue loan payment but also make adjustments so that you can make on-time payments until the end of the loan. Create a budget that makes up for the missed payment, cutting expenses where you need to.
Then readjust future budgets to ensure that the next loan payment doesn’t fall through the cracks. Financial experts generally recommend allocating between 10% to 15% of your gross income to car payments, which includes principal, interest, fuel and car insurance.
If you still find yourself unable to make your payments — even if it’s the first time you will miss — reach out to your lender. Be proactive by discussing the situation and asking about the possibility of longer-term options, such as refinancing your car loan for a longer term to lower your payment. Although you will pay a higher interest rate and more interest overall, changing the term of the loan may help you afford the payments. This may work better if you think you may miss a payment but haven’t missed it yet.
You might even be able to ask the lender to change the date of your payment so that it will sync with the same date you get paid. This step may make it easier to stay on top of payments.
You can discuss these additional options with your lender if you start missing payments:
Late car payments may negatively impact your credit score. The more late payments you have and the longer they’re late, the bigger impact to your credit score. Furthermore, repossessions can stay on your credit report for seven years.
Your car generally will get repossessed when you default on the loan, and your loan agreement states how this could happen, such as not making payments on time. The lender can take your car without notice or a court order, and they may even use electronic disabling devices to prevent the car from starting at all. Then the lender will try to sell the car to pay off the remainder of the loan.
However, while the lender may have a right to take your vehicle, you have rights as well. Rules dictate what a lender can and can’t do when it comes to repossessions, according to the Consumer Financial Protection Bureau.
The lender/servicer can:
The lender/servicer can’t:
Even if your car is repossessed, you can buy back the car in one of two ways:
Once you’ve settled the missed payment, you’ve only solved half the problem. The best way to avoid a repo in the future is to fix the issue with a long-term solution. First, determine if you even need a car or whether you could take the bus or carpool, or perhaps you could consider leasing instead. If you still feel like you need to own one, take the following steps during the car-buying process to help you stay on top of payments and avoid repossession:
Missing a car payment is nerve-wracking, but it’s not the end of the world. If you take action now, you can mitigate the damage and learn some important financial lessons along the way. Self has great tools to help you become the master of your budget and build credit, which may help you improve your credit so that you can get better loan terms in the future.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
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