I Can’t Afford My Car Payment—What are My Options?

Life is full of uncertainties. A job loss, unexpected bills, health issues or a household emergency can all wreak havoc on your finances. If you’re experiencing a decrease in income, an increase in costs, or both, keeping up with your bills may seem nearly impossible. For example, you may find it difficult to make your monthly car payments.

Can’t make your car payments? This article can provide the guidance you need. Below is a look at eight options you can consider if you can’t make your car payment.

What to do if you can’t make your car payments

1. Request a loan deferment

If your financial difficulties are temporary, you may be able to request a pause on your car loan payments. For example, if you lost your job and need time to find a new one or were off work for a medical emergency, your lender may be willing to work with you.

If you’re interested in requesting a loan deferment, it’s crucial that you contact your lender as quickly as possible and before you miss a payment. Many car loan lenders require that your account be in good standing to qualify for a deferment.

Your lender may require you to submit a hardship letter that explains why you’re requesting a deferment on your car loan. Be sure to include your name and account information, a detailed explanation of your situation, and what remedy you’re seeking, such as skipping one monthly car payment.

Keep in mind that a deferment doesn’t eliminate the need for you to make this monthly payment. Instead, any months skipped due to a deferment are added to the end of your loan.

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2. Refinance your auto loan

It may also be time to consider refinancing your auto loan. Depending on your current credit and how many car loan payments you’ve already made, you may qualify. Refinancing can help reduce your monthly car payments to make it more affordable to meet your financial obligations.

Let’s imagine you bought your car for $20,000 two years ago. Your original 60-month auto loan came with a 5.5% interest rate, and your monthly payments are $382.02. Your current loan balance is $12,600.

If you refinance this loan into a new five-year auto loan, your monthly payments could drop to $241. You’ll have $141 more money each month—but you’ll pay more in interest over the life of your loan, plus you’ll have to make payments longer.

3. Trade in your car

If your car payments are too high and no longer fit your budget, you could consider trading your car in for a more affordable option. Doing this would also give you a chance to choose a car that’s more economical to operate and maintain, which could help you get lower car payments as well as lower insurance premiums and gas costs.

If you owe more on your car loan than the car’s current value, this extra amount could be added to your new car loan. Be sure to find out exactly what your new monthly payments will be before entering into a new contract. It’s also recommended to get quotes from several dealerships before making a final decision.

4. Find someone to take over your car payments

Another option is to find someone else to take over your car payments. This also means relinquishing your car to this person. However, if you still owe a good bit on your auto loan, it could be a good option.

Most car loans aren’t “assumable,” or able to be transferred to another party. It’s best to contact your lender directly to determine if this is a viable option for your specific situation.

5. Sell your vehicle

If you have other means of transportation, such as a second car or access to public transportation, you might consider just selling your vehicle. You can use these funds to pay off your car loan and skip this monthly payment and all other related costs, including maintenance, gas, and insurance.

This option will only work if the value of your car is higher than the loan amount you still owe. If you can’t pay off your entire loan, you’ll be unable to sell it because the lender maintains the title for the car.

6. Give your car back

Can you give your car back to your lender? Yes, you can, but not without consequences. This step is referred to as a voluntary surrender of your vehicle.

Once you return your car, the lender will treat it like a regular repossession. It’s likely the lender will sell your vehicle at an auto auction. You’ll still be responsible for paying any difference between the sale price of your car and the amount you still owe on your loan.

However, by voluntarily giving your car back, you can avoid the embarrassment of a regular repossession and some of the fees associated with this process. Keep in mind that even a voluntary repossession will show up on your credit report.

If this sounds like the right option for you, contact your lender as soon as possible. They’ll walk you through all the steps you need to take.

7. Allow your car to be repossessed

If you don’t want to voluntarily surrender your car, you can wait until the lender comes to repossess the vehicle. This can be a very stressful process. Because you never know when they’ll show up to take your car, it could be towed away at any time, leaving you stranded. Repossession of your car should be your last option. It’s better to take proactive steps when possible.

8. File for bankruptcy

If your debt has gotten out of control and you owe on multiple accounts, you may want to consider bankruptcy. Because filing for bankruptcy can affect your credit score for up to 10 years, it should only be considered when all other options fail. If you feel that this is the right option, seek out the help of an experienced bankruptcy attorney who can explain your options.

If you can’t make your car payments, be sure to carefully explore your alternatives. Your first step should be to check your current credit health to determine if you’re eligible for refinancing or trading in your car for a more affordable one.

No matter which option you choose, it’s important to track your credit to see what, if any, impact it had on your credit. You can use Credit.com’s Free Credit Report Card to see your current credit score and our ExtraCredit® credit monitoring subscription to continue tracking your credit.