It happens to the best of us. Maybe it’s due to a family emergency or loss of income. Perhaps you simply forgot. It’s not the end of the world, but if you miss a car payment, there are likely to be consequences. So, let’s take a look at what happens, what you can do, and how to prevent missing future payments.
What Happens When You Miss a Car Payment
The longer you wait to address a late car payment, the worse the consequences will be. That said, every lender (and every contract) is different. Check your loan terms to determine what your lender expects of you—and what will happen if you don’t comply.
1 to 30 Days Late
Grace Period. Most lenders offer a grace period (typically 10 to 15 days) before considering your payment late. Check your written agreement and act quickly if you are still within the grace period.
Late Fee. Depending on your written agreement, a missed payment could trigger a late fee. Late fees vary by state, lender, and loan but are usually a percentage of your monthly payment or remaining balance.
Extra Interest. If you have a loan with daily simple interest, your amortization schedule assumes on-time payments. If your payments lapse, more interest accrues as more days pass between payments. As a result, you may pay more interest over the life of the loan.
30+ Days Late
Credit Score Impact. Payments more than 30 days late are typically considered “delinquent” and reported to the three major credit bureaus (Equifax, Experian, and TransUnion). This can significantly impact your credit score and the longer the delay, the greater the impact. Even one missed car payment could lower your score dramatically. What’s more, that negative mark will stay on your credit report for 7 years.
Collection Attempts. Each payment you miss has a negative impact and pretty soon, your lender will contact you via phone, email, or mail to collect the overdue payment. Ongoing missed payments can escalate to more aggressive collection efforts.
Default. If you are more than 30 to 90 days late on your auto loan payments, your lender may declare your loan in default. Essentially, this means you have broken the contract that was set between you and the lender.
90+ Days Late
Repossession. If the situation persists (typically after 90 days or more of non-payment), the lender may initiate a repossession of your vehicle. This means the lender takes away your car, sells it, and applies the proceeds to the loan. Unfortunately, you’ll still be on the hook for the delinquent amount, the cost of repossession, interest, charges, and fees. It’s a worst-case scenario. Not only does a repossession leave you without a car, it also costs you more and severely damages your credit.
What to Do if You Miss a Payment
1. Contact Your Lender
Communication is key. Inform your lender about your situation as soon as possible. They might offer solutions like a payment plan, deferral, or loan modification.
2. Review Your Budget
Assess your finances to determine if you can make a payment arrangement with your current lender. Cutting non-essential expenses can free up funds.
3. Seek Financial Assistance
If you’re facing temporary financial hardship, look for assistance programs in your community or consider borrowing from friends or family.
4. Consider Refinancing
If your credit score is still relatively good, refinancing your car loan to lower your monthly payments might be an option.
5. Sell the Car
As a last resort, selling the car and using the proceeds to repay the loan could prevent repossession and further credit damage.
How to Avoid Missing Future Car Loan Payments
- Create a Budget. Ensure you have a clear budget that includes your car payment as a priority expense. Track your spending to avoid unnecessary expenditures.
- Set Up Automatic Payments. Enroll in automatic payments to ensure you never miss a due date. Many lenders offer this service.
- Build an Emergency Fund. Aim to save 3-6 months’ worth of expenses to cover unexpected financial setbacks without missing loan payments.
- Keep an Eye on Your Finances. Regularly monitor your bank accounts and credit reports to stay aware of your financial health.
- Communicate with Your Lender. If you anticipate difficulty in making a payment, contact your lender proactively to discuss potential solutions.
By understanding what happens when you miss a car payment and taking proactive steps to prevent it, you can protect your credit score and avoid unnecessary costs. Remember, communication and planning are key. If you need help managing or refinancing your loan, let us know. We’ll help you find the best tools to manage your payments and build a stronger financial future.