What Happens If You’re Late on a Car Payment?

Missing a car payment can lead to financial consequences. Understanding these potential outcomes is important for any vehicle owner. The repercussions range from immediate fees to significant, long-term impacts on one’s financial standing and access to future credit.

Immediate Consequences of a Missed Payment

When a car payment is missed, lenders typically initiate a series of actions. Most auto loans include a “grace period,” often 10 to 15 days after the due date, allowing a payment without a late fee. Once this grace period expires, a late fee, commonly $25 to $50, is usually assessed, depending on the lender and the loan agreement.

Beyond fees, a missed payment can quickly affect a borrower’s credit report. Lenders report payments as late to credit bureaus once 30 days past due. This can significantly lower a credit score, potentially exceeding 100 points, especially for those with a strong credit history. During this initial period, lenders will communicate with the borrower through automated reminders, phone calls, or letters, aiming to collect the overdue amount.

Understanding Repossession

Repossession is the legal process where a lender takes back a vehicle when a borrower defaults on their loan. While a single missed payment can trigger a default, most lenders wait 30 to 90 days past due before initiating repossession. This process often occurs without prior notice, meaning the vehicle can be taken at any time and from various locations, including private property, as long as the repossession agent does not “breach the peace” by using force or threats.

Once repossessed, the vehicle is moved to a storage facility. Personal belongings left inside, excluding affixed items, must be returned to the owner. Following repossession, the lender must send a written notice detailing rights, which often include the right to “redeem” the vehicle by paying the entire outstanding loan balance plus all associated fees, or to “reinstate” the loan by paying only the overdue amounts and fees. These rights are time-sensitive. If not exercised, the vehicle is typically sold at a public auction to recover the outstanding debt.

Navigating Options After Falling Behind

For borrowers facing difficulty making car payments, proactive communication with the lender is an important first step. Ignoring the situation can lead to more severe consequences. Many lenders offer solutions to help borrowers avoid default and potential repossession.

One common option is a payment deferral or forbearance, allowing a temporary pause or reduction in monthly payments. While providing short-term relief, interest often accrues during the deferral period, potentially increasing the total loan cost. Loan modification is another possibility, where a lender adjusts the loan terms, such as the interest rate or loan term, to make payments more manageable. Refinancing the loan, though more challenging with missed payments, could also lead to lower monthly payments or interest rates by securing a new loan with different terms.

As an alternative, borrowers may consider a “voluntary surrender” of the vehicle. This involves returning the car to the lender willingly, which might mitigate some repossession costs and could be viewed more favorably than an involuntary repossession, though it still impacts credit. If the vehicle’s market value exceeds the outstanding loan balance, selling the car independently can be a viable strategy to pay off the loan and avoid repossession.

Financial Repercussions Beyond Repossession

Even after repossession and sale, the borrower’s financial obligations may not end. A significant consequence is the “deficiency balance,” the difference between the amount owed on the loan (including repossession, storage, and sale costs) and the amount the lender receives from selling the vehicle at auction. Due to rapid depreciation and auction prices, vehicles often sell for less than the outstanding loan amount, leaving a remaining balance.

Lenders actively pursue these deficiency balances. This can involve selling the debt to a collection agency, which will attempt to collect the amount owed. If collection efforts are unsuccessful, the lender or collection agency may file a lawsuit for a “deficiency judgment.” A judgment allows the creditor to use legal means, such as wage garnishment or liens on other assets, to collect the debt. The repossession itself, along with any subsequent collection accounts or judgments, severely impacts the borrower’s credit report for up to seven years from the date of the first missed payment. This negative mark makes it considerably more difficult to secure future loans, credit cards, or even housing, often resulting in higher interest rates and less favorable terms if credit is extended. In extreme cases, bankruptcy may be considered, as it can potentially discharge a deficiency balance, though this also carries significant long-term credit implications.