Can You Skip a Car Payment? What Happens if You Do?

Unexpected financial challenges can make it difficult to keep up with car payments. Understanding how car loan agreements function and the potential outcomes when payments become difficult to manage is important for navigating these situations effectively.

Reviewing Your Loan Agreement

Understanding the terms of your original car loan agreement is the first step when facing payment difficulties. This document outlines the obligations and rights of both the borrower and the lender. It details the payment schedule, including the exact due dates for each installment.

The agreement also specifies any late payment penalties that may be applied if a payment is not received by its due date. These penalties often include a flat fee, which can range from $25 to $50, or a percentage of the overdue amount. Many agreements include a grace period, usually around 7 to 15 days, after the due date during which a payment can still be made without incurring a late fee.

The loan agreement defines what constitutes a “default.” This section outlines how many missed payments or days past due will trigger a default status, which commonly occurs after 30, 60, or 90 days of non-payment. The agreement also details the lender’s rights upon default, which may include the right to repossess the vehicle. Identifying the contact information for the lender’s customer service or hardship department within the agreement is beneficial for future communication.

Formal Options for Payment Relief

Lenders may offer several formal options for borrowers experiencing financial hardship, designed to provide temporary relief. A common arrangement is a payment deferral, also known as a payment extension. This option allows a borrower to temporarily pause or delay one or more car payments. The deferred payments are added to the end of the loan term, extending the overall repayment period.

Another possibility is a loan modification or hardship program, which alters the original loan terms. This could include a temporary reduction in the monthly payment, an adjustment to the interest rate, or an extension of the loan term to lower subsequent payments. These modifications are considered on a case-by-case basis, depending on the borrower’s financial situation and the lender’s policies.

Refinancing the car loan with the current lender or a new financial institution is another avenue for reducing monthly payments. This involves securing a new loan to pay off the existing one, often with a lower interest rate or a longer repayment period. While refinancing offers financial relief, it is not always a hardship option from the current lender and requires good credit.

If maintaining payments becomes impossible, voluntary surrender of the vehicle can be considered. This involves the borrower proactively returning the car to the lender to avoid the more severe consequences of repossession. However, voluntary surrender does not absolve the borrower of the entire loan obligation; the car is sold, and the borrower may still owe a “deficiency balance” if the sale proceeds do not cover the remaining loan amount and associated fees.

Outcomes of Unsanctioned Non-Payment

Failing to make car payments without a formal agreement with your lender can lead to several direct consequences. The most immediate outcome is the assessment of late fees and penalties, as stipulated in your loan agreement. These charges are applied once the payment due date and any grace period have passed, adding to the total amount owed.

A missed payment can also significantly impact your credit score, as lenders report payment activity to credit bureaus. Once a payment is 30 days or more overdue, it is reported as a delinquency, which can cause a drop in your credit score. Subsequent missed payments, especially at the 60- and 90-day marks, will further damage your creditworthiness, making it harder to obtain credit in the future.

If payments remain unmade, the account will eventually progress to a state of default, as defined by the loan agreement, often after 60 to 90 days of non-payment. At this point, the lender may initiate the repossession process. Repossession means the lender takes physical possession of the vehicle, usually without prior notice, once the account is in default.

Following repossession, the lender will sell the vehicle, often through an auction, to recover some of the outstanding debt. The sale price of the repossessed vehicle often does not cover the full amount owed on the loan, especially after factoring in repossession costs, storage fees, and sale expenses. The remaining amount, known as a “deficiency balance,” is still the borrower’s responsibility. Lenders may pursue legal action to collect this deficiency balance, potentially leading to wage garnishment or liens on other assets.

Engaging with Your Lender

Proactive communication with your lender is important when you anticipate or are experiencing difficulty making car payments. Contact them as soon as possible, ideally before you miss a payment, to discuss your situation. Before initiating contact, gather relevant information, including your loan account number, a clear explanation of your financial hardship, and details about your current income and expenses.

When you contact the lender, ask to speak with their hardship department or a representative who handles payment arrangements. Most lenders offer various communication channels, such as phone, online portals, or mail. Clearly explain your financial situation and be prepared to discuss your financial details transparently, as this information helps the lender assess your eligibility for assistance.

During the conversation, inquire about available options that may provide temporary relief for your specific circumstances. Be prepared to negotiate if necessary and understand that not all requests may be granted. Document every interaction, including the names of representatives, dates and times of calls, and a summary of what was discussed and agreed upon.

Once an agreement is reached, obtain the terms of this new arrangement in writing from the lender. This written confirmation, whether an email or a formal letter, serves as proof of the agreement and outlines the modified payment schedule or other terms. Review this written agreement carefully to ensure it accurately reflects what was discussed. Adhering to the new terms helps prevent further complications and maintain a positive standing with your lender.