Most consumers rely on cars to function in their everyday lives: commuting to jobs and school, visiting family and friends, and carrying out daily errands and tasks. Sometimes the unexpected happens that puts a strain on your wallet. A temporary financial burden—such as a job loss, medical emergency, or car repair—could cause you to fall behind on your auto loan payments. Missing payments can have significant impact on your finances, including negative credit reporting, increased fees on your loan, and repossession of your vehicle.
If this happens to you, your lender may have several options to avoid falling behind in the midst of a financial hardship.
How to work with your lender to avoid falling behind
If you think you may fall behind on your auto loan, call your lender and explain your situation. The sooner you contact your lender, the more choices the lender may be able to offer you. And since it’s often more expensive for a lender to repossess your car than to work with you, your lender may be able to offer options that help you make your payments. Working with your lender also demonstrates a good-faith effort on your part to repay your debt.
You should know that there may be extra costs to the payment options that your lender offers. For example, all of the options discussed below will increase the amount of interest you pay over the life of the loan to varying degrees; some options may increase your payment amount or the number of payments you owe. Learn more about the pros and cons of some of the options that may be available to you so that you can determine the best way to keep your car and not fall behind on your loan.
Option 1: Ask to change the date your payment is due
If you are current on your payments, but an unexpected hardship causes you to struggle to make your monthly payments—such as a change in the date you receive your paycheck—your lender may be able to adjust the date that your payment is due. If you believe your payment due date isn’t in sync with when you receive you monthly income, call your lender and request a due date change to help you get back on track. Because interest accrues daily, per most contracts, the amount of interest you owe between payments can change if there is a change of your payment date.
Option 2: Request a payment plan
If you’ve already fallen behind in your payments, your lender may be able to offer you a payment plan to help you catch up and repay missed payments. The downside to payment plans is that, once the plan period ends and you must start making payments again, you may be required to make your monthly payment as well as a portion of the payments you missed. Because interest accrues daily, per most contracts, the amount of interest you owe between payments can change when you request a payment plan.
Option 3: Ask for a payment extension/deferral
If you are experiencing hardship that’s going to last longer than what can be helped by a payment due date change but may not necessarily rise to the level needing a payment plan or are current and are proactively searching for hardship assistance, payment extensions may be an option for you. Payment extension plans vary by lender, and every lender has different criteria for evaluating your account. Some may limit the number of times you can defer payments. Some may not consider you qualified for an extension if you are behind on your payments. Reach out to your lender and ask questions until you understand their requirements.
In general, a payment extension allows you to defer a certain number of monthly payments—usually one or two—until a later date, providing a brief break for borrowers suffering unexpected financial hardships or a natural disaster. In some cases, a lender may allow you to temporarily defer entire payments, while other lenders may only allow you to defer the principal portion of your monthly payment, but still require you to pay the interest each month during the payment extension.
Although a payment extension can help during a short-term hardship, your loan will still accrue interest during the extension. The contract with your lender is typically a simple interest loan, which means the loan accrues interest daily based on your payoff balance. The lender calculates the interest you owe every time you make a payment. If you are granted an extension, the length of the extension will determine how much additional interest builds up. If you apply for an extension earlier in your loan when your payoff balance is higher, the interest accrued would be higher than if you apply for an extension later in your loan. A payment extension can significantly increase the amount of interest you owe and may also result in extra payments at the end of your loan term.
Option 4: Refinance your auto loan
Another option is to try to refinance through your auto lender or another lender. You might be able to get a lower interest rate which would reduce the size of your payment. You could also try a longer loan term. This would lower your monthly payments to a more affordable level; however, you may end up paying more for your car over time.
Lastly, think about whether your vehicle is still affordable. Sometimes your financial situation changes and a purchase you made is no longer affordable. If this has happened to you, consider trading in your current vehicle for a more affordable one. If you sell or trade in your current vehicle, its value and how much you still owe will be an important factor in your decision.
Talk with your lender about the benefits and costs of each option and determine which one works best for your situation.
When you speak with your lender, be sure to get the name of the representative, their ID number (if they have one), and any applicable case numbers associated with your request. It’s also a good idea to ask the lender to provide you with the agreement in writing.
If you are experiencing financial hardship that could impact your car ownership, be sure to check out the tools and answers to common questions we have on auto loans, including on the options discussed in this blog.
This blog is intended to educate and engage consumers on auto finance issues. If you've already tried reaching out to your lender and still have an issue, you can submit a complaint.