When you take out a car loan, you are agreeing to make all monthly payments on time through the terms listed on your contract. If you end up struggling to make your monthly payment and miss several payments, you could end up having your vehicle repossessed. Not only will you lose your car, truck or motorcycle, but your missed payments will show up on your credit report and severely hurt your credit score. Your account will be in “default” and the bank or financial institution you got the car loan from will have the right to seize your vehicle.
Here are few ways to avoid repossession of your vehicle:
1. Trade for a cheaper vehicle.
If you think you can afford a certain monthly payment, consider trading down to a cheaper car so to reduce your monthly payment. Talk to your dealer about your options in trading down and determine what your new monthly payment would be. Keep in mind that this strategy will only work if you don’t owe more on the loan than the car is worth.
2. Refinance your loan at a credit union.
Refinancing isn’t always the most cost-effective option when you want to reduce your monthly payment, but it can work for some people. Instead of working with your current bank or their competitor, consider seeking out a refinancing loan package from a credit union. Credit unions are usually easier to work with and may help you get the best possible interest rate for your new loan.
3. Contact your bank or loan provider about any financial troubles.
If you know you just can’t make your monthly payments anymore – and probably won’t be able to pay that loan in the near future – contact your bank or loan provider to find out what options you do have. Don’t wait for your lender to contact the repo company! Some lenders may be a little flexible when you’re direct and honest about your situation, and they could offer you some alternative payment plans or a different loan package.
Download: How To Negotiate With Your Lenders
4. Consider a lease transfer.
If you are leasing your vehicle and can’t afford to make payments, consider a lease transfer, or a lease assumption. You will need to find a suitable person to take over your lease and complete the lease transfer paperwork. This is a fairly simple and straightforward process, and can prevent you from paying the high fees associated with terminating your lease early.
5. Sell the car.
If you can get a decent price for your car in its current condition, consider selling it and using the proceeds to pay off a good portion of the loan. Even though you will still have a loan balance, you can continue making very small payments going forward and avoid the negative effects of repossession altogether. Of course, this might be a last resort for most people. You may still need to purchase another car, and will need to either save up enough money to make a cash purchase or get a new loan that you can actually afford.