Financial stability is a crucial aspect of personal well-being, and missing a car payment can be a significant source of stress. A missed payment introduces a range of financial and emotional consequences that can ripple through your credit score, increase financial strain, and even lead to legal complications — all of which contribute to a heightened sense of anxiety.
This guide covers what happens if you miss a car payment with steps to help recover and advice on preventing missed payments moving forward.
Understanding the Immediate Consequences
Missed car payments can lead to a variety of consequences. Facing these challenges can significantly impact your daily life and long-term financial stability.
Late Fees
The late fee structure for missing a car payment can vary. Many auto loans offer a grace period, usually 10 to 15 days past the due date, during which you won’t incur a late fee. This allows a small buffer for accidental delays.
You will likely face a late fee if you do not pay within this grace period. This fee can vary by lender but often ranges from $25 to $50. Some lenders may have a flat fee, while others might charge a percentage of the missed payments.
If the payment remains unpaid, additional fees may accrue monthly. Some lenders may charge a similar late fee each month the payment is overdue. Repeatedly missing payments might lead to higher fees or other penalties and could also affect your credit score and loan terms.
It is important to review your loan agreement to understand the specific late fee structure and potential penalties from your lender.
Credit Score Impact
Late car payments can significantly impact your credit score in several ways. When you miss a payment, the lender may report it to the credit bureaus, marking it as a late payment on your credit report. This can lower your credit score and remain on your report for several years, depending on the severity and frequency of the late payments.
A lower credit score can affect your ability to secure new credit, lead to higher interest rates, and even impact your insurance premiums. Over time, a history of late payments can signal financial instability to creditors, further complicating your situation.
- 30 Days Late: A payment missed by one billing cycle is reported as 30 days late. This can cause a drop in your credit score and can be noted in your credit report. Though the impact may be somewhat less severe, it can still impact your creditworthiness.
- 60 Days Late: If the payment remains unpaid for 60 days, the negative impact to your credit score worsens. The longer you are late, the more significant the impact, and creditors may view you as a high-risk borrower.
- 90 Days Late: At 90 days past due, the missed payment is considered severely delinquent. This can result in a serious negative impact on your credit score and can lead to collection efforts, potentially even repossession. The negative effect on your score can remain on your credit report for years.
Car Repossession Risks and How to Avoid Them
If you find yourself unable to make payments, you need to immediately discuss a plan with a loan officer or lender, or else you could face repossession. Typically, vehicles won’t be repossessed until they are 90 days in default.
According to Consumer Finance, lenders may repossess vehicles without warning or court order. However, you have certain rights and protections in this matter. Auto loan servicers have to prove that a repossession is lawful. You are entitled to submit a complaint or pursue legal action if necessary.
Getting your car back once it has been seized is extremely difficult. While it varies by state, you may be able to reinstate your car loan — allowing you to have a few days, up to a week, to pay fees the lender has imposed, as well as the missed payments.
According to the Dodd-Frank Act, you are protected from repossession if:
- Your loan is current, no matter prior delinquencies
- You agree with your lender to extend the loan
- You have filed for bankruptcy
- The lender unlawfully charged you fees.
If your vehicle does face repossession, you are still allowed to obtain personal property from the vehicle. They are also not allowed to damage your car or any personal property during repossession.
If you are an active-duty service member, lenders are required to get a court order before repossessing a vehicle.
Long-Term Financial Implications of Missing a Car Payment
Missing payments can have several negative effects on future loan terms. This can lead to higher interest rates, reduced loan amounts, stricter approval criteria, and increased fees with lower credit limits.
- Higher Interest Rates: A history of missed payments can lead lenders to view you as a higher risk, potentially resulting in higher interest rates on future loans or credit cards.
- Reduced Loan Amounts: Lenders might offer lower loan amounts due to perceived financial instability, making it harder to secure the full amount you need.
- Stricter Approval Criteria: After a missed payment, your future loan applications may face
- Increased Fees: Future loans may come with higher origination fees or other costs to compensate for the increased risk.
- Lower Credit Limits: For credit cards and lines of credit, missed payments can result in lower credit limits, potentially impacting your borrowing flexibility.
Potential Legal Consequences
After repossession, you may still owe the lender money on the contract — this is known as a deficiency balance. The lender will usually sell your car through a private sale or auction to recoup what you owe. However, in many cases, the sale profits are not enough to cover the remaining loan balance, plus the additional fees of the repossession. If this happens, you can owe the difference of what is left. Some states restrict this access from lenders, so investigate what applies to your situation.
The lender can also sue you if you fail to pay deficiency balances after repossession. However, you have options to remedy the deficiency. Examples of these solutions include:
- Paying the deficiency in full
- Payment arrangements with the lender
- Negotiate a settlement
- Declare bankruptcy.
Exploring Debt Management Solutions
A debt management plan is an arrangement to help consolidate your debt. This plan could help reduce interest rates and provide affordable monthly payments depending on your financial situation and budget. These plans are in place to offer financial and stress relief, reduce fees and rates, and minimize remaining balances. They are typically offered through a credit coaching. A credit coach works directly with consumers to determine what type of debt relief solution best fits their needs.
Credit & Debt financial coaches can help you create a personalized debt management plan to help you recover from missed car payments or other forms of debt.
Alternatives to Repossession and Default
Voluntary repossession occurs when you have notified the lender that you can no longer make the payments and have agreed to give the car back. This can result in less fees and costs, and you will not be left without a vehicle unexpectedly.
Involuntary repossession is when you are unaware that the repossession is going to happen. You can be charged fees by the lender and the repossession company. If you are struggling, do not be afraid to talk to a financial coach for expert advice. You can also talk to your lender. Communicating as soon as you recognize there could be an issue could allow you to work out an arrangement to catch up before it is too late.
Taking Action Before It’s Too Late
Strategies such as detailed budgeting, building an emergency fund, and monitoring your expenses can help you avoid missed car payments.
Budgeting is essential for avoiding missed car payments and maintaining financial stability. Begin by listing all your sources of income and monthly expenses, including fixed costs like car payments, insurance, and utilities. Track your spending to identify areas where you can cut back and allocate those savings to ensure your car payment is covered.
Establishing an emergency fund can also provide a financial cushion for unexpected expenses, reducing the likelihood of missing payments. Regularly review and adjust your budget to help yourself stay on top of all financial obligations and avoid payment issues.
Working with a financial coach can provide valuable insights and strategies to help you secure a stable financial future. They will help you set realistic, actionable goals based on your specific financial situation, and help you work towards achieving those goals. It is important to track your progress and adjust your plan as necessary.
You Have More Options Than You Think
Preventing missed car payments and repossession requires a proactive approach involving careful financial planning, timely communication with lenders, and responsible budgeting. Steps like creating a detailed budget, setting up automatic payments, and seeking financial advice when necessary, can help you avoid the consequences of missed payments and repossession.
Additionally, maintaining an open dialogue with lenders during financial difficulties can often help lead to solutions like modified payment plans.
You don’t have to face personal finance challenges alone. Credit & Debt financial coaches can answer questions and provide personalized support and guidance to help you reach your financial goals and avoid setbacks like missed car payments. Get started with Credit & Debt today to take the next step toward financial freedom.
