If you don’t pay your car loan as agreed, it can lower your credit score and even result in repossession of the vehicle. If that happens, you could still be on the hook for the outstanding balance owed on the loan after the car is sold at auction.
Talk to Your Lien Holder
If you can’t make a car loan payment, call your creditor and explain the situation. If you’ve been good about paying your loan on schedule in the past, your creditor might be willing to cut you some slack. You might be able to skip or defer a payment or even tag a payment or two onto the end of your loan.
Some loan companies charge a fee when they let you alter a payment schedule, so ask about extra costs you’ll be expected to pay. Get all agreements in writing to protect yourself.
When You’re in Trouble
Read your loan agreement. Some auto loan contracts give you a grace period for late payments, and others stipulate that you’re considered in default as soon as you miss even a single payment. That means the creditor can come and take your car at any time.
Even if it takes a few months for your lender to repossess your car, you'll still be charged late fees, and your delinquencies are still being reported to the credit bureaus.
Once your car is repossessed, you are likely to have a small window of opportunity to get your car back. Talk to your lender to identify your options. You might be able to make back payments and pay late fees and repo fines, or you might have to pay off the full outstanding loan balance to get the car back.
Paying Your Loan Overage
When lenders repossess vehicles, they generally sell them at auction to the highest bidder. If your car sells for less than what you owe, the lender will still come back to you to collect the outstanding balance. For example, if you owe $5,000 on your car and it sells at auction for $2,000, the lender will come after you for the remaining $3,000. This means you’ll be paying for a car you don’t even have any more.
Your creditor can't keep or sell personal belongings left in your car. Contact the lender to ask how to get your things back. If anything is missing, talk to a lawyer about getting compensated for your loss.
Dealing With Bad Credit
A repo does major damage to your credit. Negative marks for late or missed payments as well as the default on the loan appear on your credit history. This can seriously lower your credit score and make it hard to get a loan in the future.
As soon as you’re back on your financial feet, start repairing your credit with consistent on-time payments and a low debt-to-income ratio.