Is Missing One Car Payment a Big Deal? Here’s the Truth

Owning a car often means taking out a car loan, which requires regular monthly payments. However, life can be unpredictable, and missing a payment can happen. If you find yourself in a situation where you’ve missed a car payment or are at risk of missing one, it’s essential to understand the potential consequences and available options. See what happens if you miss a car payment, the repercussions of prolonged non-payment, and the steps you can take to address the issue.

What happens if you stop paying my car loan?

Stopping car loan payments entirely has severe and far-reaching consequences. If you stop making payments, the lender will eventually repossess the vehicle and may still require you to pay the remaining loan balance, known as the deficiency balance. The shortfall balance is the difference between the loan balance and the amount the lender recovers from selling the repossessed car.

For example, if you owe $15,000 on your loan and the lender sells the car for $10,000, you are still responsible for the $5,000 deficiency balance. Failure to pay this sum may result in further legal action and a decrease in your credit score.

Immediate Consequences of Missing a Car Payment

Here are some consequences that will happen when you miss a car payment:

• Late Fees: When you miss a car payment, the first immediate consequence is a late fee. Most lenders impose a late fee if you do not pay within the grace period, usually 10-15 days after the due date. The late fee amount varies, but it is usually a percentage of your monthly payment.
• Negative Impact on Credit Score: Missing a payment might harm your credit score. Lenders typically record late payments to credit bureaus after 30 days. A single missed payment might damage your credit score, making it more difficult to acquire credit later. Consistently missed payments can further damage your credit rating.
• Contact from Lender: If you miss a payment, your lender will likely contact you to remind you of your obligation. This contact can come through phone calls, emails, or letters. Lenders often want to work with you to get your payments back on track.

Long-Term Consequences of Missing Multiple Payments

If you’ve missed more than one car payment, the repercussions can become more severe and complex. Understanding the potential long-term repercussions is critical for taking preventative measures.

• Increased Risk of Repossession: Repossession is one of the most serious repercussions of failing to make numerous car payments. If you’re wondering how many car payments you can miss before repo, the answer varies by lender and state laws. However, after two or three missing payments, your lender may initiate the repossession process. Some lenders may act sooner, especially if they believe there is little chance you will catch up on payments.
• Additional Fees and Charges: Beyond late fees, missing multiple payments can lead to additional charges. These can include repossession, storage, and legal fees if the lender takes you to court to recover the loan balance. These additional expenses can soon build up, making it much more difficult to repay your debt.
• Difficulty Obtaining Future Loans: Repeated missed payments and repossessions can significantly damage your credit score. This damage makes it more difficult to obtain loans in the future. If you qualify for a loan, expect higher interest rates and fewer favorable terms.
• Legal Action: If you stop paying your car loan, the lender may take legal action to recover the remaining balance. This legal procedure may end in a court judgment against you, requiring wage garnishments or bank account levies to recover the debt.

Steps to Take If You Miss a Car Payment

Missing a car payment can be a stressful experience, but it’s important to take immediate action to mitigate the consequences. Here are some practical steps you can take if you miss a car payment:

1. Contact Your Lender

The first and most crucial step is to contact your lender as soon as you realize you’ve missed a payment. Many lenders are prepared to cooperate with borrowers who proactively contact them and explain their position. By communicating with your lender, you can explore options such as:

• Payment Extension: Some lenders may offer a temporary extension, allowing you to make the missed payment later.
• Deferment: Deferment will enable you to pause your payments for a short period of time. Missed payments are often added to the end of the loan term.
• Modified Payment Plan: Your lender might agree to a modified payment plan that adjusts the monthly payment to a more manageable amount.

2. Review Your Budget

Examine your financial circumstances to see where you may reduce spending and allocate more money toward your car payment. A thorough budget will assist you in understanding your financial flow and prioritizing necessary expenses. Here are some steps to consider:

• Track Your Spending: Monitor your spending habits to see what non-essential expenses you may cut or eliminate.
• Adjust Your Lifestyle: Small changes, such as dining out less or reducing entertainment costs, can free up additional funds.
• Set Financial Goals: To stay motivated and focused, establish clear financial goals, such as catching up on car payments.

3. Consider Refinancing

If high monthly payments are causing financial strain, refinancing your car loan might be worth exploring. Refinancing may lower your interest rate and lengthen the loan term, resulting in cheaper monthly payments. Keep in mind that extending the loan term means paying more in interest throughout the loan. To refinance:

• Check Your Credit Score: A higher credit score will help you qualify for more favorable refinancing conditions.
• Compare Lenders: Shop around and compare offers from multiple lenders to find the best refinancing rate.
• Calculate Savings: Use a refinance calculator to see if the potential savings outweigh the expenditures.

4. Seek Financial Counseling

If you have difficulty with debt and missing payments, consulting a financial counselor can be beneficial. Financial counselors can guide you through managing your debt, creating a budget, and developing a plan to avoid future missed payments. They may also negotiate with your lender on their part. To find a reputable financial counselor:

• Check Certifications: Look for certified financial counselors from reputable organizations like the National Foundation for Credit Counseling (NFCC).
• Ask for Recommendations: Seek for suggestions from friends, relatives, and online reviews.
• Schedule a Consultation: Meet with a counselor to discuss your financial situation and explore your options.

5. Sell the Car

If your financial situation is dire and you cannot afford the payments, selling the car might be a practical option. Selling the car can help you repay the debt and avoid the negative consequences of repossession. Here’s how to go about it:

• Determine the Car’s Value: Use online tools or consult with dealerships to find out the current market value of your car.
• Pay Off the Loan: Ensure that the sale price covers the remaining loan balance to avoid owing a deficiency balance.
• Transfer Ownership: Complete the necessary paperwork to transfer ownership to the buyer.

6. Explore Loan Modification

If you haven’t paid your car note in six months or longer, you might wonder about your options. One potential solution is loan modification. Some lenders may agree to modify your loan terms to make the payments more manageable. This change may involve extending the loan term, lowering the interest rate, or adding missed payments to the loan total.

7. Understand Your Rights

It’s essential to understand your rights when dealing with car loan issues. Each state has different laws regarding repossession and deficiency balances. Knowing your rights can help you navigate the process and make better judgments. Here are some general rights to be aware of:

• Right to Redeem: In many states, you can redeem your vehicle by paying the full amount owed before it is sold at auction.
• Notice Requirements: Lenders often must provide you with notice before repossessing your car.
• Deficiency Balance: If you believe the deficit balance is inaccurate, you may be able to argue its amount.

8. Voluntary Repossession

If you know you cannot continue making payments and want to avoid the lender repossessing your car, you can opt for voluntary repossession. This means that you voluntarily return the vehicle to the lender. While this doesn’t eliminate your debt, it may reduce additional charges associated with involuntary repossession. To proceed with voluntary repossession:

• Contact Your Lender: Inform your lender of your intention to return the car.
• Arrange for Return: Coordinate with your lender to return the vehicle at an agreed location and time.
• Understand the Consequences: You may still owe the deficiency balance after selling the car.

Be Responsible Enough & Don’t Miss Your Car Payments

Missing a car payment can be daunting, but taking proactive steps can help you manage the situation effectively. By contacting your lender, reviewing your budget, considering refinancing, seeking financial counseling, and exploring options like selling the car or loan modification, you can find a solution that works for your financial situation.

Remember, communicating with your lender to explore options immediately is key to managing missed car payments. You can navigate financial challenges and keep your car loan on track by staying informed and proactive.