Coping with Financial Challenges
What to Do if You Can’t Make Your Car Payments
Having a car provides many conveniences, but for those experiencing financial problems, having to pay a car loan can make owning a car seem more like a burden. If you are behind with payments, or worried you will be soon, assessing your financial situation and actively pursuing your options can help you make the best of a difficult situation.
What happens if you stop making car payments?
If you miss enough payments, the car will likely be repossessed. Once a car is repossessed, it is usually sold through an auction. If your car sells for less than your loan balance, you will owe the lender the difference, called the “deficiency balance”.
Assess why you are struggling.
Are you facing a temporary hardship, or is the car just not affordable? You will be better able to determine an appropriate course of action if you know why you are struggling.
What are your options?
Options that provide temporary assistance include loan extensions and repayment plans. In a loan extension the lender takes the payments you missed or are asking to skip and adds them to the end of the loan. In a repayment plan the lender collects a partial extra payment on top of your regular monthly payment until you have repaid the full delinquent amount.
Refinancing is another option. Refinancing provides a way to become current without making extra payments and lower your payments if you have already paid down a significant portion of your loan. However, if your credit score is low, you may not be able to refinance.
If you do not feel that you can afford to keep the car, it is better to sell it than to let it get repossessed. Selling a car is fairly straightforward if you can get at least enough for it to pay off your loan. However, if you can only sell it for less, you will have to talk to your lender about how you can repay the remaining balance.
If you are struggling, help is available. As a benefit of your Redwood Credit Union membership, you have access to BALANCE, a free financial education and counseling service. A counselor at BALANCE can assess your current financial situation, suggest possible budgetary adjustments you can make, and discuss options for handling your car loan. Call them toll free at 1 (888) 456-2227, or visit www.balancepro.net for more information.
