Many Americans are asking lately “What if I can’t pay my car loan?” First of all, you’re not alone in the struggle. If you’ve missed car payment or two recently – or worry you might miss one soon – you have options. Typically, missing a car payment will damageor even lead to your lender repossessing your vehicle. However, most lenders have some type of financial hardship program if you ask for help. You do have to ask though. And ask ahead of missing a payment, if at all possible. The worst thing you can do is to ignore the situation and hope it’ll work out on its own in time. Here’s a look at some options & resources that might help you deal with your car payment.
First, see what assistance your lender has to offer
Find out what kind of programs your bank, credit union or other auto loan lender has available. Also, get familiar with Mississippi Repossession Laws to know what can and cannot be done. Most of the automakers no longer advertise their payment relief programs. If you are facing missing a payment due to a job loss (from the pandemic or whatever other reason), the best thing to do is to contact your lender. Explain your situation, and hopefully they may be able to offer some short term assistance like a payment deferral, a partial payment option or a lease extension.
- The National Consumer Law Center, a legal services and consumer advocacy nonprofit, has an updated list of the various coronavirus-related protections against repossession passed by various states here.
- A broader list of all state coronavirus executive orders and laws is available here, compiled by the digital encyclopedia of American politics and elections website Ballotpedia.
- CNET sister site also details as well as incentive programs for new cars with a number of auto manufacturers.
Most lenders have programs that are pretty simple to apply for. Fill out a form, provide some documents (termination letter, layoff notice, etc.), send it to them and wait for approval. Be honest and realistic about how much time you’ll need to get back on your feet. They may only be able to provide a very short term option, but you have other options on your table if your lender can’t provide all the help you need.
You have other options as well
If you’re in this situation, you are probably at risk of having your vehicle repossessed. There are other options besides asking your lender for a deferment of payment (and other options you can use when the payment deferment period has run out). If you don’t want to keep the vehicle for whatever reason (you’re upside down on debt v value, have another cheaper vehicle, know that you simply cannot afford to keep it going forward, etc) you could do what’s called a “voluntary repossession,” where you contact your lender and let them know you desire to turn your vehicle over to them. Yes, your credit will take a hit (but it will hit after hit for each late payment) and you’ll be liable for any balance the lender fails to recover at auction, but the overall impact to your credit score and wallet will be less than if you wait for them to forcibly repo your car.
You can try to refinance your car for a longer loan term that would give you a lower monthly payment (either with the same lender or a different lender), but that will only work if you’re credit has not been hit hard already and you have paid off a good bit of the principal (you have equity in the vehicle). If its only been a year or so, you might still owe more than it’s worth making refinance almost impossible at this time.
You could try to sell your car, or trade it in for something less expensive, but you would need to sell at the payoff amount and if you trade in, you could get caught in a worse position long term even if the monthly payment is lower. Don’t agree to a horrible deal just because the financier can make the monthly payment affordable.
Finally, you have the constitutional right to file for Bankruptcy – and Bankruptcy is not something to fear. You do not lose everything. It was created to protect you and your property. Creditors and lenders go to long lengths to convince people that bankruptcy is a horrible thing. They don’t hesitate to use garnishment or repossession laws that benefit their interest, no matter the devastation these actions can cause. Bankruptcy puts YOU back in charge of your finances with government protections in place. Creditors and lenders don’t like that – so they don’t want you to know how powerful bankruptcy laws are regarding the protection of you, the consumer.
Bankruptcy Chapter 7 or Chapter 13 can help you with vehicle debt issues. Both delay and/or protect you from repossession and/or garnishment. A Chapter 13 can go the extra mile to making sure you can afford to keep your vehicle whether the lender wants to cooperate or not. If you have had your vehicle for more than 2.5 years (910 days), you have the write to do what is called a “cram down to value”. You would pay off your lender the current value of the vehicle and if you owe more, that amount would be written off. If you owe less, than you only pay what you owe. If you have had your vehicle less than 2.5 years (910 days), then you must pay the balance due to the lender. However – in both scenarios – you take the amount you have to pay, divide it by 5 years (60 months), and that becomes your new monthly note. And 9 times out of 10, it is a much more affordable note than what you are paying now.
This is only the tip of the iceberg when it comes to how bankruptcy can help you. There are way too many options to cover in one blog. Call us – we offer free consultations and are happy to go over everything with you in detail according to your specific situation. Strategies are best made when tailored to the specifics of a person’s need. We love what we do – which is help people recover from financial hardship and move forward in a prosperous direction.