Falling behind on your auto loan? Consider these solutions.
With rising prices, it’s easier than ever to buy more car than you can afford – and fall behind on your monthly payments. If you’re facing this situation, be sure to educate yourself on how you can turn things around and stabilize your finances.
Do You Have Positive or Negative Equity?
If you can’t make your monthly payments, it’s crucial to get a clear picture of your situation. Do you have positive or negative equity in your car? Positive equity means your car is worth more than you owe on the loan, which gives you more options to get back on track. Negative equity means you owe more than your car is worth, which limits your options and requires more effort to find solutions.
Work with Your Lender
No matter your situation, it’s wise to contact your lender as soon as possible if you're struggling with payments. Your lender might allow you to miss a payment or temporarily reduce what you owe each month. If you’re only facing short-term difficulties, this can help you get back on track. If your situation isn’t likely to improve soon, working with your lender can buy you time to come up with a longer-term solution.
Sell or Trade In Your Vehicle
If you have positive equity, consider selling or trading in your vehicle. Trading it in is generally more convenient, but selling it yourself might get you more money. Either way, you can preserve your credit, pay off your loan, and find transportation that better fits your budget. Even if you have negative equity, this option is still available, but you'll need to secure a small loan or pay cash to cover the difference between what you owe and the car’s worth.
Refinance Your Auto Loan
If you’d prefer to keep your vehicle, refinancing your auto loan might be a good option. Refinancing can either lower your interest rate or extend the loan term, which could reduce your monthly payments. Lenders may be more willing to offer refinancing if you have good credit and positive equity, but it’s worth exploring even with negative equity.
What Not to Do
If you’re stuck with a car payment you can’t afford, avoid a few key mistakes. First, don’t miss payments. If you have to skip one, let your lender know ahead of time and work with them to find a solution. Missing multiple payments can damage your credit, make it harder to catch up, and increase the chance of repossession. Lastly, don’t voluntarily surrender your car unless all other options are exhausted – this will hurt your credit as badly as repossession.
If you're struggling to make your car payments, don’t wait. Take action now to prevent long-term financial issues.
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