How COVID-19 Has Affected Your Car Loan
If you've been pushed out of your regular work and lost your income due to COVID-19, be aware that there are many programs in place to help you defer the payments. Should you know that you're not going to be able to meet the next payment requirement, take care to contact your lender immediately.
Purchases Vs. Leases
A loan deferment can be more of a challenge than a lease extension at this time. If you're buying the car and your payments are deferred, you may owe a large lump sum at a future date. Since your income has been cut off, a large payment down the line really won't help you very much. If possible, seek a loan extension or check into a refinance for longer terms. Many lenders are offering deferred payments for a set term of months.
If you're leasing a car and want to keep it, contact your leasing bank about extending the terms of the lease. There are also many leasing manufacturers and dealerships that are willing to assist you in terminating the lease early and turning the car back in. Check with your leaseholder about the requirements to take this step.
Contact Your Lender
If you don't contact your lender, you won't know how they can help or what they can offer. Your car is collateral on the loan. However, as many banks learned in 2008, it's much more cost effective to work with people who can't pay than to seize property. Your lender wants their money and it may be worth it to them to wait so they don't have to try to sell your car.
If you have to miss a payment and the lender is willing to work with you, both of you are ultimately benefitting from the working relationship. However, if your lender is unpleasant or threatening, make an appointment with a credit counselor and consider switching to another lender or a local credit union or bank. Don't pay interest to any entity that is abusive.
It's critical that you keep lines of communication open with your lender. There are federal protections for your home mortgage, and many states have put moratoriums on foreclosures and evictions. However, there are no federal protections in place to guard your car from repossession. If you're concerned that the car is going to be repossessed, make sure to get your possessions out of it and consider turning it in. You will be liable for any monies they have to spend to get the car picked up when the loan goes to collections.
State and Regional Options
Your State Attorney General or Governor may have put protections in place to allow you time to make your car payment. There may also be options available from your local consumer protection agency. You may need to do some digging, especially if your lender is threatening repossession as the only option.
Current legislation has made it possible to pull from your retirement account without penalty to cover debts caused by the COVID-19 epidemic. In addition, you can avoid paying taxes on these dollars if you pay them back within three years. Obviously, your risk of penalty and repayment options will be highly individualized, so take care to review them in detail before you pull money out of retirement.
Should you choose to access your retirement funds,
- try to wait until you're back to work
- only borrow enough to cover the income you lost, and
- set up a payment plan to pay yourself back.
Again, contact your lender to let them know that you're working hard to get back on your regular payment plan as soon as you can. Let them know that you may be at least a month late. Getting your retirement funds out will take time and may include an administrative fee unrelated to the amount you take out. Multiple withdrawals will just mean paying the fee more than once.
Because of the lack of federal protections for car loans, the pressure is on the borrower to communicate and keep everyone up to date about where your job situation is and what your plans are. Don't avoid these communications.