Introduction
It is never enjoyable to miss a car loan payment and this is because you may not know what is in store for you. If you miss a payment it doesn’t mean the end of the world but it does mean that if the problem is not solved very soon then you could be in deep trouble. At Automatic Car Credit, we are aware that life is unpredictable and sometimes events that are beyond your control may lead to default on payments. In this guide, you will learn the consequences of missing a car loan payment and how you can reduce the effects.
Consequences of a Missed Car Loan Payment
If a car loan payment is missed the first effect may not appear very harsh but it starts a process which if not addressed, can worsen rapidly.
- Late Fees
The first penalty that you will receive when you fail to make your payment on time is a penalty fee. Most of the lenders allow the borrowers to make payment after the due date without charging them a penalty, which is given as a grace period of 10 to 15 days. After this grace period, the lender will definitely come up with a late fee which can be between $25 and $50 or a percentage of your monthly payment.
These late fees can accumulate if the missed payment is not resolved quickly, making it harder to catch up on subsequent payments.
- Damage to Your Credit Score
Perhaps the biggest effect that arises from failing to make a car loan payment is that it will lower your credit score. Creditors normally forward such information to credit reference agencies after 30 days of nonpayment. A credit score can decrease as much as 100 points if you fail to make a payment for a particular credit card or loan.
A poor credit score does not only limit your chances of borrowing in the future, but also increases the rate of interest on credit cards, mortgages, car insurance and many others. The effect of not making the payment is worse the longer you wait for making the payment to your credit report.
- Increased Interest Charges
Missing a payment may result in the accrual of additional interest. Many auto loans are structured with daily interest calculations, meaning the longer your balance goes unpaid, the more interest you’ll owe. Over time, this can significantly increase the total cost of your loan, especially if you’ve missed multiple payments.
Long-Term Consequences of Missed Car Payments
While the initial consequences of missing a payment are serious, the longer-term effects can be even more detrimental if you don’t take immediate action to correct the issue.
- Loan Default
If you miss multiple payments, your loan could go into default. This typically happens after 60 to 90 days of non-payment, though the timeline can vary depending on the lender. Once your loan is in default, the lender has the legal right to take further action, such as demanding full repayment of the loan or repossessing your vehicle.
Going into default will also cause significant damage to your credit score and may make it difficult to secure any type of credit in the future.
- Vehicle Repossession
One of the most serious outcomes of missing car payments is the risk of repossession. If you default on your loan, the lender may decide to repossess your vehicle to recover the loan amount. In most states, lenders are not required to give advance notice before repossessing your car.
Once your vehicle is repossessed, you’ll not only lose your mode of transportation but also face the challenge of paying the remaining balance on the loan. If the car is sold at auction for less than what you owe, you’ll be responsible for paying the difference, known as a deficiency balance.
- Legal Action
In some cases, lenders may take legal action to recover the amount owed on your car loan. This typically occurs when a deficiency balance remains after the car is repossessed and sold. If the lender wins the lawsuit, they may obtain a judgment that allows them to garnish your wages or seize other assets.
Steps to Take if You Miss a Car Loan Payment
If you’ve missed a car loan payment or are concerned about missing one in the future, there are several steps you can take to minimize the impact and get back on track.
- Contact Your Lender Immediately
The first step you should take after missing a payment is to contact your lender. Many lenders are willing to work with borrowers who are facing temporary financial difficulties. They may offer solutions such as:
- Payment Extensions:
Some lenders allow you to skip a payment or extend the due date without penalty. However, interest may still accrue during this time.
- Loan Modification:
In some cases, lenders may modify the terms of your loan to make it more manageable, such as extending the loan term or lowering the interest rate.
By contacting your lender as soon as possible, you can avoid more serious consequences such as default or repossession.
- Create a Budget
If you are having a hard time making your car payments, it might be time to re-do your budget. The first step is to write down all the income and the expenditure to identify areas that one can reduce on. Car loan, rent, utilities: make sure you are not late on the most important bills which you need to pay.
You might be able to come up with the money to pay off your car loan by cutting down your expenses.
- Consider Refinancing
In case you have faced some changes in your financial status and you are having problems with paying off your car loan, you may think about refinancing. Loan refinancing can also help you reduce you monthly payments through either an extension of the loan period or a lower interest rate.
However, one must understand that refinancing cannot be done if your credit score has already been lowered due to some missed payments.
- Sell the Vehicle
In case you have a number of pending payments and you do not know how to meet the balance, then you may consider selling your car. The car can be sold and the money gotten from the sale be used to clear the loan so that default or repossession does not occur. This option is particularly useful if the value of the car is higher than the amount you owe on the car.
- Seek Credit Counseling
If you are generally having a hard time in managing your money, it would be wise to approach a credit counseling agency. Credit counselors can assist you in making a budget, negotiating with your creditors and developing a plan to pay off the debt. These services are offered by nonprofit agencies and can be helpful for the borrowers who encounter some difficulties to pay back the loan.
BottoCar Loan Paymentm Line
Consequences of missing car loan payment There are, however, some things that you should know when you fail to make car loan payment. The negative effects of a missed payment can be eliminated or reduced if you take the right action and contact your lender. At Automatic Car Credit, borrowers are helped to find solutions that would best suit their financial needs so that they are not stressed unnecessarily on the road.