How Far Behind Can You Get on a Car Payment?

Falling behind on car payments can lead to financial difficulties. A car loan is a secured debt, meaning the vehicle serves as collateral. This arrangement gives the lender specific rights if payments are not made as agreed, as detailed in the loan agreement. Understanding these terms helps borrowers anticipate potential consequences.

The Initial Missed Payment

When a car payment due date passes, consequences vary by loan agreement. Many lenders offer a grace period, typically 5 to 15 days, allowing payment without a late fee. The exact length is specified in the loan contract.

Once any grace period expires, a late fee is assessed. These fees can be a flat amount or a percentage of the monthly payment. A payment is not reported as late to major credit bureaus until it is at least 30 days past the original due date. This 30-day window provides an opportunity to bring the account current before a negative mark appears on a credit report. Lenders initiate communication, such as reminder calls or emails, shortly after a payment is missed.

Escalating Delinquency and Consequences

As a car payment becomes further past due, consequences increase, particularly for a borrower’s credit standing. If a payment is not made by the 30-day mark, it is reported to credit bureaus as delinquent. This reporting can significantly lower a credit score, with a single 30-day late payment causing a substantial drop.

The negative impact on a credit score compounds with each subsequent 30-day period of non-payment. A payment 60 days late further damages the credit score, and by 90 days past due, credit consequences become severe, making it difficult to obtain future credit. At this stage, the loan is considered in default, and lenders intensify collection efforts, sending notices of default or intent to repossess. Some loan agreements contain an acceleration clause, allowing the lender to demand the entire outstanding loan balance immediately once the loan is in default. Activation of this clause is at the lender’s discretion, signaling a heightened risk of repossession.

The Repossession Process

Repossession is the lender taking back the vehicle due to a borrower’s default on the loan agreement. This action can occur once a borrower is in default. In many jurisdictions, lenders do not require a court order to repossess a vehicle, and the process can occur without prior notice. Repossession agents may take the vehicle from a borrower’s property, provided they do so without breaching the peace. Any personal belongings left inside the repossessed vehicle are the borrower’s responsibility to retrieve.

Following repossession, the lender sells the vehicle, often at auction or private sale, to recover the outstanding debt. The borrower is sent a notice informing them of the intent to sell the vehicle, including sale details. Some states allow a limited period for the borrower to “redeem” the vehicle by paying the full outstanding loan balance, along with any repossession and associated costs. If the sale price does not cover the remaining loan balance plus all repossession and sale expenses, the borrower remains liable for the difference, known as a “deficiency balance.” Lenders can pursue legal action to collect this deficiency. Repossession has a negative impact on a credit report, remaining for seven years.

Proactive Steps to Address Payment Difficulties

For borrowers anticipating or experiencing difficulties with car payments, proactive communication with the lender is important. Contacting the lender before a payment is missed, or as soon as possible thereafter, can lead to solutions. Lenders are willing to work with borrowers who communicate their situation, as repossession is also a costly process for them.

Lenders may offer several options to help manage payment difficulties. These can include payment deferment or forbearance, which allows for a temporary pause in payments, with the missed payments often added to the end of the loan term. Another option is a loan modification, which involves changing the original terms of the loan, such as extending the loan term to reduce monthly payments, though this may result in more interest paid over time. Refinancing the loan to obtain a lower interest rate or a longer term is also a possibility, though this can be challenging with a damaged credit history.

As an alternative, borrowers might consider voluntary surrender, where they return the vehicle to the lender to avoid involuntary repossession. While this still negatively impacts credit and can result in a deficiency balance, it may be viewed as less negative than an involuntary repossession. Selling the vehicle privately or trading it in, if the market value exceeds the outstanding loan balance, can also be a way to avoid default and its consequences. Any agreements reached with the lender should always be obtained in writing to ensure clarity and protection.