Falling Behind on Your Car Payments? Here Are Your Options

What should you do if you can’t make your car payments?

With inflation and gas prices at an all-time high, the average American will be paying close to $4,100 more in necessities and gas this year. Prices are expected to remain high, which can make it tough to keep up with your car payments. According to Equifax, car loan and lease delinquencies hit a record 8.8% in February. If you are falling behind on your car payments, here are some options you can take.

Talk to your lender

Defaulting on a loan can damage your credit score, making it more difficult to qualify for loans or better rates in the future. One of the biggest mistakes people make is not letting the lender know they are having trouble making payments. Financial institutions want to keep you as a customer so they are more willing to negotiate than many borrowers realize. Many will be willing to accommodate you based on your circumstances. Here are some options you can work out with your lender:

• Ask for a deferment. An auto loan deferment is when your lender agrees to let you pay your loan typically one or two months later. This can give you the break needed to get your finances in order. Your interest will continue to accrue during this time period.
• Extend the life of your loan. You can lower your monthly payment by stretching your loan term out.
• Renegotiate a lower interest rate. A lower interest rate can reduce your monthly payment. 

Refinance your auto loan

If you have good credit then you can talk to your lender or shop around to refinance your car. The goal is to refinance your existing auto loan to lower your monthly payment and get a better interest rate. 

Trade-in your car

Consider selling or trading in your car for a lower-priced car. This may be based on your specific needs, but getting a car with better gas mileage can help save money at the pump. You will generally get a lower price by trading-in your car at a dealer compared to selling it to a private party. However, selling your car may be more complicated than trading it in. Do your research and shop around to get the best price for your car.

Sell your car

Ask yourself if you really need a car. Does your family have two cars and can downgrade to one? Can you take public transportation, carpool, or bike to work? Look at alternative transportation options so you can avoid a car payment altogether. Selling your car can save you money on gas, insurance, maintenance, and other costs such as annual registration fees.

Falling behind on your payments can have serious consequences. Payment history makes up 35% of your credit score and a loan default will remain on your credit report for up to seven years. Avoiding the problem will only make it worse. Lenders don’t want the hassle of repossessing your car and are willing to negotiate to help you. Be honest with your situation so you can look at the best options to get your finances in order.