What Can You Do If You Cannot Make Your Auto Payments?

By Jason Wilson Aguilar
Chapter 13 Trustee

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Most of us at one time or another have financial difficulties, but what should you do if you are unable to make your auto loan payments? The key is to be proactive, so try to address the problem before you miss a payment and are at risk of getting your auto repossessed. You are not necessarily out of options if you are already delinquent, but addressing the problem earlier is best.

 Either way, the first thing you should do is to contact the lender to let them know you are having difficulty making your payments. Generally, the lenders want to be paid and do not want to repossess your vehicle because that is a hassle for everyone involved. There is no guarantee the lender will assist you, but often they will if you show a willingness to pay the loan. There are many possible options the auto creditor can offer.

You may be able to defer a payment or payments to get you through a difficult period. If the lender knows you are trying and the disruption in payments will be short, they may agree to that to help you out. The lender could let you skip a payment or two and have you make-up the difference at the end of the loan. The lender may also be willing to set up a payment plan to get you back on track. For example, if you must miss two payments, the lender may have you pay extra for the next year to catch up on those missed payments. Another option is for the lender to re-write the loan terms, including reducing the payments and/or extending the loan term. The downside is that would result in you paying more interest and having to make payments on the loan for a longer period. You may want to consider refinancing the auto loan. Refinancing is basically paying off your current loan with a new loan. Refinancing may allow you a break in the payments, a reduction in the payments, a reduction in the interest rate and/or an extension of the loan term. Again, refinancing could result in payment of more interest and there could be costs associated with the refinance. Before refinancing, compare what you will pay under your current loan and what you would pay under the new loan to make sure refinancing is the right financial decision for you. If your auto is worth enough to pay off your loan, you may want to sell your auto. You would then have to figure out how to obtain a new auto, but at least this would allow you to get out of the loan entirely without a repossession or further negative reporting to your credit.
Another option to consider is credit counseling agencies to help you go over your budget to see if you can make the payments. If you are considering this option, you should be very careful to select a reputable credit counseling agent who will help you at a reasonable cost. The Federal Trade Commission’s website (www.ftc.gov) provides some helpful information about choosing a credit counseling agency, including the questions you should ask any credit counseling agency. (BFine.org Resources page may help you as well.)
Some people suggest that you can simply surrender your vehicle to the lender to solve the problem of not being able to make your auto payments. That is generally not good advice for several reasons. If you turn over your auto to the lender or the lender repossesses the auto, the lender will sell the auto asquickly as possible to avoid storage and other costs. Lenders often sell repossessed autos  at an auction where the price will be significantly lower than what you could sell the auto for. If the lender does not recover the entire loan balance from the sale, the lender will expect you to pay the difference (called a “deficiency balance”). That means you will not have an auto and you will still have to pay the deficiency balance. That is not a good outcome.
The bottom line is that there are potential options if you are going to fall behind on your auto payments. Be sure to consider all options based on your financial situation and be as proactive as possible.

A public education project of the National Association of Chapter Thirteen Trustees

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