What Happens If I Miss a Car Payment?

Missing a car payment can be a significant concern during financial difficulties. Understanding the potential repercussions and available actions helps manage the impact on your financial standing.

Understanding Initial Consequences

After a missed car payment, late fees are typically assessed. Many auto loan agreements include a grace period, usually 10 to 15 days, to make a payment without a late fee. Once this period expires, lenders commonly charge a late fee, either a flat amount (e.g., $25-$50) or a percentage of the overdue payment. These fees increase the total amount owed.

If the payment remains unpaid for 30 days past its due date, lenders typically report it to major credit bureaus like Equifax, Experian, and TransUnion. This negatively affects your credit score, with the impact depending on your existing credit history. A single missed payment can remain on a credit report for up to seven years, influencing future borrowing.

During this initial period, lenders will contact borrowers with automated reminders, phone calls, or emails. These communications notify you of the missed payment and encourage prompt resolution. Ignoring them can lead to more serious actions.

Engaging with Your Lender

Proactive communication with your lender is crucial if you anticipate or have just missed a car payment. Reaching out early is beneficial, as lenders are often more willing to work with borrowers committed to resolving the issue. This engagement can help explore options and prevent severe consequences.

Before contacting the lender, gather your account number, a clear explanation of your financial hardship, and a proposed solution or payment plan. A realistic assessment of your situation helps the lender determine suitable assistance.

Lenders may offer options to manage your loan during financial strain. A common option is payment deferral or an extension, postponing payments to the end of the loan term. While temporary relief, interest usually accrues, potentially increasing the total loan cost. Loan modification is another possibility, where the lender alters terms like interest rate, monthly payment, or due date to align with your income.

Refinancing the auto loan, with your current or a new lender, is another option if eligible. This secures a new loan to pay off the existing one, potentially lowering the interest rate or extending the repayment period to reduce monthly payments. As a last resort, voluntary surrender allows you to return the vehicle to the lender, avoiding repossession. While this negatively impacts credit and can result in a deficiency balance, it may avoid some repossession fees.

The Repossession Process

If missed payments remain unresolved, the lender may initiate repossession. While repossession can legally occur after one missed payment, most lenders wait until a borrower is 30 to 90 days past due. Timing depends on the loan agreement and lender policies.

Many states do not require lenders to provide advance notice before repossessing a vehicle, meaning it can be taken without warning. However, some states may require a “Notice of Default” or “Right to Cure” notice, allowing a period to bring the account current before repossession.

A repossession agent hired by the lender usually carries out the physical act. A court order is generally not necessary for the lender to reclaim the vehicle. Some vehicles may have remote disabling technology preventing them from starting until payments are made. After repossession, borrowers typically have rights, such as redeeming the vehicle by paying the full outstanding loan amount (including fees) or receiving notice of the vehicle’s sale.

Post-Repossession Implications

After a vehicle repossession, borrowers face financial and credit consequences. A significant outcome is a deficiency balance. This occurs when the repossessed vehicle’s sale price (often at auction) is less than the remaining loan balance plus repossession costs like towing, storage, and sale fees. The borrower remains legally responsible for this outstanding balance.

Repossession has a severe, long-lasting negative impact on a credit report. It typically remains for seven years from the first missed payment that led to it. This derogatory mark can significantly lower a credit score.

Lenders may pursue collection of the deficiency balance by turning the debt over to collection agencies or initiating lawsuits. A successful lawsuit could lead to wage garnishment or bank account levies. Repossession on a credit report also makes it more difficult to obtain future loans, especially for vehicles, often at higher interest rates.