Categories:   Auto Loans & Financing
11 Ways to Avoid Missing Your Car Loan Repayments
Car loan defaulting has severe consequences. If you fail to repay your car loan for two or three consecutive sessions, you risk vehicle repossession by your lender, which may hurt your credit score.
Car loan defaulting has severe consequences. If you fail to repay your car loan for two or three consecutive sessions, you risk vehicle repossession by your lender, which may hurt your credit score. Furthermore, some lenders use advanced technology to disable your vehicle remotely after only one missed payment.
Auto loans require extra tender loving care; otherwise, it’s very easy to fall behind. So, how do you avoid missing auto loan repayments, given the dire consequences? Here are some tips on how to avoid missing your auto loan repayments and ensure you stay ahead of the loan.
1. Review your monthly budget
First, you must determine how much loan balance you have left, the loan term, and your interest rate. Then check to see if you have any missed or late payments. Knowing every detail about your loan can help with budgeting.
Once you have your present loan details, review your budget. Check to see whether it is possible to reduce some expenses so you can use the reduced amount to pay off your loan. If you do not have a monthly budget, create one. This budget will help you manage your finances better.
2. Stay in touch with your lending institution
Make sure to keep the lending institution up to date with your overall finances, ability to repay the loan, and your current situation. If you are in a situation where you cannot raise the necessary funds to cover the auto loan, contact the lender immediately.
Remember, communication with lenders is the key to a good relationship. Some lenders can agree to create a simplified payment plan instead of repossession. A simplified payment plan will help you avoid missing out on loan repayments. Therefore, communicate with your lender before you receive a repossession notice.
3. Ask the lender whether you can change the due date of your payments
Most lenders are not unreasonable. Thus, if you know you cannot make auto loan repayment by a specific date but can on another date, talk to your lender. Your lending institution may agree to a date change of your auto loan payment, especially if you have proof of incoming income during that date.
Therefore, you can make your payments after you get paid. Talking to your lender can help you avoid late fees due to missed payments.
4. Seek auto loan deferment
Missed auto loan repayments make you risk car repossession and your credit score. To avoid the troubles that come with missed payments, ask your lender for a car loan deferment. Some lenders allow deferred payments, so you will not need to make monthly payments. However, the due amount will be delayed until your car loan term ends.
One thing to note is that not all lenders have similar policies. Some lenders may need you to pay the monthly interest only, while others require you to pay the principal amount. Deferred payments reduce your monthly loan repayments, ensuring you can avoid missing out on your payments.
5. Explore the auto loan refinancing option
If you cannot afford to pay monthly, consider refinancing your auto loan. Refinancing your loan means you will need a new auto loan to pay off your current loan balance. One thing to note is that your lender will still use the car as security.
Refinancing is an excellent option if you are struggling to make monthly payments. However, avoid it if you are about to pay off your loan or when the fees for the new loan are very high. You can use your current lending institution or consider getting a new one when refinancing.
6. Sell the vehicle
As stated above, missing monthly auto payments can impact your credit score. If your credit score is affected, you may have trouble securing a loan in the future. Therefore, if you cannot afford to make your car loan repayments, consider selling the car instead of risking the consequences of missed loan payments.
Once you sell the vehicle, use the funds to repay the existing car loan. If you have some money left from the sale, you can use the funds to make a down payment for a more affordable vehicle. This could mean purchasing a car that doesn’t need a loan or borrowing a loan with better terms and rates.
7. Trade in your car for a cheaper one
If you can no longer afford to make car loan repayments because of changes in your financial situation, consider trading in your car with a much cheaper one. This strategy will prevent you from missing payments and stretching out your finances.
It also reduces the risk of repossession. When you trade in your car, your dealer may take over your present loan and clear it off on your behalf. This trading-in ensures you protect your credit score while having a cheaper car that you can afford to pay for.
8. Round up your monthly auto loan repayments
Consider rounding up your monthly car loan repayments to the nearest $100, $50, or even $10. Go for any amount that makes you comfortable. Rounding up your payments provides one of the best ways to stay ahead of your auto loan repayments.
If you ever experience a slow month where you are in a financially tight spot, the rounded-up figure can help give you some breathing space. It will reduce the amount you need to repay on that specific slow month.
9. Match your income to your loan repayments
Your main goal should be to make car loan payments as stress-free as possible. You can accomplish these stress-free auto loan payments by matching your income to your loan repayments. This matching will ensure that loan repayments are very smooth.
10. Surrender your vehicle before repossession
If you cannot afford to make payments and selling the car is not an option, consider surrendering the vehicle. Giving the vehicle back to the lending institution is referred to as a voluntary surrender or voluntary repossession.
It means that the borrower knows they cannot afford to repay auto loans and would like to return the vehicle. Voluntary surrender will prevent late fee payment and repossession.
However, that doesn’t mean the payments will stop immediately. The lender will start the process of selling your car once you have contacted them and scheduled a return date. If the money they get from selling your car is less than what you owe, you will still be required to repay the balance, known as the deficiency balance.
11. Look for a debt coach
Most people take an auto loan with the assurance that they can make payments. However, life changes, and making car loan repayments may be overwhelming. In such a situation, a debt coach may come in handy.
A debt coach will provide you with advice on how to handle your financial issues. They will help you address specific financial obstacles and needs, such as how to make auto loan payments effectively. These coaches can help you learn how to free up funds for car payments.
The bottom line
Failure to make on-time auto loan payments risks your credit score and repossession. Vehicle repossession can stay on your credit history for an extended period, making it challenging to get a new vehicle loan. Therefore, it is important that you avoid missing your auto loan repayments by using any of the above tips.