What Happens If I Don’t Make My Car Payment?

Missing car payments can severely impact your financial stability and credit. Understanding these repercussions is important for anyone struggling with their auto loan.

Initial Consequences of Missing a Payment

When a car payment is missed, borrowers encounter late fees. Most auto loans include a grace period, typically 10 to 15 days, before penalties apply. After this, lenders charge a late fee, ranging from $25 to $50 or more, adding to the balance.

In addition to fees, a missed payment over 30 days late significantly impacts credit scores. Lenders report delinquencies to major credit bureaus. A late payment negatively affects future borrowing and interest rates. Extended delinquency causes more severe credit damage.

Lenders communicate once a payment is missed. Borrowers can expect calls, letters, or emails reminding them of the overdue amount. This informs them of their default status and potential escalating actions if the issue is not resolved.

Understanding Repossession

Repossession occurs when a borrower defaults on their loan after missed payments. While some contracts allow repossession after one missed payment, most lenders wait until payments are 30 to 90 days past due. The loan agreement outlines the timeline and conditions.

Repossession often happens without prior notice in many jurisdictions. Lenders are not required to obtain a court order if they can repossess without a “breach of the peace” (no force, threats, or breaking into locked areas). Agents can take the vehicle from public spaces, driveways, or other accessible areas.

Borrowers have rights during and after repossession. They are entitled to retrieve personal belongings left inside the vehicle, as the lender only claims the vehicle, not its contents. Lenders must provide a reasonable opportunity to collect these items and cannot charge a fee unless retrieval is significantly delayed.

Financial Responsibilities After Repossession

Even after repossession, a borrower’s financial obligations do not end. The lender will sell the repossessed car, typically at auction, to recover the outstanding loan. However, sale proceeds often do not cover the full balance owed, especially after factoring in repossession, storage, and auction costs.

The difference between the total amount owed (including loan balance, fees, and costs) and sale proceeds is a deficiency balance. The borrower is responsible for paying this deficiency. For example, if a borrower owes $15,000 and the car sells for $8,000, they could still owe $7,000 plus fees.

Lenders will pursue collection of this deficiency, which may involve collection agencies or lawsuits. Repossession, along with any deficiency judgment or charge-off, severely impacts credit history. This negative mark can remain on credit reports for up to seven years from the first missed payment, making new credit or favorable loan rates difficult to obtain.

Options for Addressing Payment Difficulties

Proactive communication with the lender is important for borrowers facing payment difficulties. Contacting the lender as soon as challenges arise, even before a payment is missed, can open doors to solutions. Lenders often prefer to work with borrowers to avoid repossession, as it is costly for them.

Lenders may offer solutions to help manage payments. Options include deferment (temporary pause), a payment extension (adding missed payments to loan term end), or a loan modification (adjusting interest rate or extending loan period to lower monthly payments). Any agreed-upon changes should be obtained in writing to prevent misunderstandings.

Voluntary surrender is another option, where the borrower returns the vehicle by choice. While this still results in a repossession mark on the credit report and leaves the borrower responsible for a deficiency balance, it can help avoid some fees associated with involuntary repossession (e.g., towing and storage). It may also provide more control over the timing and conditions of the vehicle’s return.