What Is It Called When You Skip a Car Payment?

When financial circumstances become challenging, individuals may find themselves in a position where they cannot make their scheduled car loan payment. This often stems from unexpected expenses, changes in income, or other personal financial shifts. Understanding the terms associated with missing a car payment and the general implications that follow can help borrowers navigate such difficulties. This article clarifies what these situations are called and outlines the typical progression of events when a car payment is not made on time.

Terminology and Immediate Consequences

When a car payment is not submitted by its due date, it is generally termed a “missed payment” or a “late payment.” If the payment remains unpaid for an extended period, the loan transitions into “delinquency.” Lenders often provide a grace period, which is a short window, typically ranging from 7 to 15 days, after the due date during which a payment can still be made without incurring a late fee.

Once this grace period expires, late fees are usually applied to the account. These fees are commonly calculated either as a fixed amount, such as $25 to $50, or as a percentage of the overdue payment, often around 5%. A payment is typically considered “late” for credit reporting purposes once it reaches 30 days past its original due date.

Lender Communication and Delinquency Stages

After a payment is missed and the grace period passes, lenders typically communicate with the borrower. Communication includes phone calls, emails, and physical letters, reminding of the overdue payment and inquiring into the borrower’s situation. Lenders aim to re-establish contact and understand why the payment was missed.

As the delinquency continues, the loan progresses through recognized stages, commonly categorized by the number of days the payment is past due. These stages typically include 30, 60, 90, and 120 or more days past due. Each successive stage of delinquency usually triggers more urgent communication from the lender and can lead to internal account flagging. Lenders may initially offer general guidance or direct the borrower to their customer service department to discuss potential solutions.

Credit Reporting and Repossession Process

Late payments are reported to major credit bureaus (Equifax, Experian, and TransUnion). Once a payment reaches 30 days past due, it is reported as a negative mark on the borrower’s credit report. The negative impact increases with delinquency duration; 60-day late payments are worse than 30-day, and 90-day even more detrimental. This derogatory mark typically remains on the credit report for approximately seven years from the original date of delinquency.

If a loan reaches significant delinquency (often 90 or 120 days past due), lenders may repossess. Notice requirements vary by jurisdiction; some require written notice, others allow immediate action upon default. An authorized agent typically carries out repossession. After repossession, the lender sells the vehicle (often via auction) to recover the loan balance. If sale proceeds do not cover the full loan amount plus expenses, the borrower may still owe a “deficiency balance.”

Working with Your Lender

Proactive communication with your lender is important if you anticipate or have already missed a car payment. Reaching out as soon as financial difficulties arise, ideally before a payment is even due, can open doors to potential solutions. Lenders are often willing to work with borrowers to prevent further delinquency and avoid the costs associated with repossession.

Several options might be available, depending on the lender’s policies and the borrower’s payment history.

• Payment deferral or extension: Allows a borrower to skip one or more payments, adding them to the end of the loan term, effectively extending the repayment period.
• Loan modification: Involves adjusting the original terms of the loan, which could result in a lower monthly payment, a longer repayment period, or a temporary reduction in the interest rate.
• Forbearance: Offers a temporary suspension or reduction of payments for a defined period, providing relief during short-term financial hardship.
• Refinancing: Involves obtaining a new loan, potentially from a different lender, to pay off the existing car loan, which could result in a lower interest rate or a more manageable monthly payment due to an extended term.

It is important to carefully review all terms and conditions of any proposed agreement before accepting it, ensuring a full understanding of how it will impact the loan.