What to Do If You're Behind on Your Car Payments

Your auto loan payments are one of the most important of your monthly payments. Missing loan payments can have serious consequences for your credit and put you at risk of losing your only source of transportation.

After three missed payments, many auto lenders will declare your loan in default and at that point they may begin the repossession process. In repossession, the lender takes possession of your car – they don’t have to ask or warn you - and sell it. If the sales price is less than the balance on the loan, you'll owe the balance. That means you'll be left without a vehicle and still have to pay the bank.

It doesn’t have to happen that way. Here are some steps to take if (and preferably before) you fall behind on your car payments.

Don’t try to hide your car from the repo man. They are experts at their job and will eventually catch you, no matter how well you think you're hiding your vehicle. Depending on the laws in your state, the creditor can go just about anywhere on your property or public property to take possession of your car. They may talk to your neighbors or family members to figure out where your car is located or to get more information on your comings and goings. Not only does this help the repo man find you, it also creates an embarrassing situation with your neighbors and loved ones knowing the extend if your financial trouble.

Talk to your creditors. If you’re behind on your car payments, start by communicating with your lender to try to work out a solution for getting caught up. You may be able to ask for more time to make up your payment or negotiate a payment arrangement to catch up on your past due balance and bring your account back current again.

Try to refinance your loan. You may be able to refinance the loan (essentially pay off the old loan with a new loan with better terms). Ideally, you’ll end up with a lower monthly payment than what you had before. Keep in mind, however, that any missed payments on your credit report will affect your ability to refinance the loan.

Borrow the past due balance. A friend, relative, or another lender may be willing to give you a loan to catch up on your past due balance. You can clear up your arrears and the creditor will call off the repo man. The downside to this is that you’ll now have to repay your auto loan and the money you borrowed to get caught up again.

Sell the car and pay off the loan. This is a tough decision to make and sometimes the least desirable option because it means sacrificing your vehicle and going with less expensive transportation. It may, however, be the best option if you can't afford your payments, can't refinance, and can't work out a solution with your lender. If you simply cannot afford the car, it’s better to get rid of it (the right way) than to continue struggling to make the monthly payments and possibly dealing with a repossession anyway. You may still be left with a small balance if you sell your vehicle for a less than what you owe on your loan. Consider paying this off with a personal loan or a loan from a family member or friend.

Don't rule out any options. If you can cut back spending else where or create extra income with a second job or overtime work, you can use the extra money to get caught up again. Act sooner rather than later to eliminate the risk of having your vehicle repossessed.