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

Missing a car payment can initiate a cascade of financial consequences, impacting your immediate budget and long-term financial standing. Understanding these potential outcomes is important for any car owner.

Initial Consequences of a Missed Payment

The immediate aftermath of a missed car payment involves late fees. These fees are detailed in your loan agreement and vary, often as a flat fee ($5-$30) or a percentage of the overdue payment (1.5%-15%). The amount and application depend on your lender’s policies and state laws.

A missed payment also affects your credit score. Lenders typically report payments that are 30 days or more past due to major credit bureaus. This negative mark on your payment history can cause a noticeable drop in your credit score. Even a single late payment can make it more challenging to secure future credit or loans at favorable rates.

Lender Actions and Loan Agreement Terms

Lenders often provide a grace period after the payment due date before applying fees. This period typically ranges from 10 to 15 days, allowing a penalty-free payment window. Review your loan agreement to confirm if a grace period applies.

Once a payment is overdue, lenders will communicate through calls, emails, or letters. These serve as reminders, outline the amount due including any accumulated late fees, and indicate next steps if delinquency continues. Your loan agreement details clauses related to late payments, default, and acceleration. An acceleration clause allows the lender to demand the entire remaining loan balance immediately if you default on the agreement.

The Repossession Process

If car payments continue to be missed, lenders can repossess the vehicle, as it serves as collateral. Repossession can legally occur after even a single missed payment, though some lenders may wait 30 to 90 days, depending on the loan agreement and state regulations. Repossession can happen without prior notice.

Third-party agencies often carry out repossession. These agents can take the vehicle from various locations, including your home, workplace, or public spaces. They can seize the car from your driveway or an open garage but cannot “breach the peace” by entering a closed garage or using force.

Outcomes After Repossession

Following repossession, the lender typically sells the vehicle to recover the outstanding debt. This sale often occurs at auction, where the vehicle may sell for less than its market value or remaining loan balance. Sale proceeds are applied to the loan, but often do not cover the full amount owed.

The difference between the outstanding loan balance (plus repossession and sale costs) and the sale amount is a “deficiency balance.” The borrower is responsible for paying this deficiency balance. If this balance is not paid, the lender may pursue legal action to collect the debt. A repossession will appear on your credit report, impacting your credit score, and can remain on your report for approximately seven years from the date of the original delinquency.

Addressing a Late Payment

If you are late on a car payment or anticipate being late, contact your lender immediately. Lenders may work with borrowers to explore options and avoid repossession.

Lenders offer options depending on your circumstances and policies. Options include payment deferral or forbearance, allowing postponement for a short period, often with deferred amounts added to the end of your loan term. Another option is a revised payment plan for smaller, temporary payments. Understand your rights by seeking information on consumer protection laws related to car loans and repossessions.