Don't wait for your car to get repossessed.
For many people, a vehicle purchase is the largest purchase they ever make. Having a reliable vehicle is very important to the livelihood of American families, and the loss of that vehicle can have serious consequences for any household. Since the economy continues to go downhill, and unemployment rates continue to rise, it makes sense that many people are having difficulties paying their monthly payments on their car notes.
What do I do if I know I am going to have problems making my payment?
Do your research, know your options, and act before it is too late.
Virtually every resource out there has come to the same conclusion. 30-day and 60-day late payments are more common than a year ago. Repossession rates are also on the rise. In fact, this trend has been going on since 2006. The totals are staggering. Some projections for 2009 call for as many as 2-million repossessions in the US.
When you repossess a vehicle, the creditor usually takes it to an auction where dealers and other car buyers bid on the car and determine its market value. Whatever the difference is between what the balance was on the loan (including repossession and late fees) and what the car sells for, you still owe. Even though debtors are responsible for the deficiency balance, it is estimated that creditors have a loss of $8,000 for each repossession. In many cases, there is not even that much in potential interest to be paid on the auto loan contract. Because of the huge losses, lenders only want to issue an order to repossess a car a s a last resort.
How do customers that have financial hardship, and lenders who need the money find a solution to the problem?
Case-by-case basis
Auto lenders all deal with delinquent loans in their own way. Some will negotiate, some won’t. Some will be nice to you, some won’t. Each of these lenders will look at the loan differently. Each lender looks at each loan and grade it on its individual merits. The lender will consider the vehicle the money is lent on. The lender will factor in what they would be able to sell the car for at auction. They will also factor in what they think your chances are of making the payments from here until the end of the loan. The lender may even try to custom fit a solution for you based on your hardship.
These are some possible solutions to help you if you think you will be facing repossession:
- Refinance your auto loan – Rates are at historical lows, if you have not done too much damage to your credit score there is a chance you may qualify for an auto loan refinance.
- Modify your auto loan terms — The lender may be willing to negotiate changes to your auto loan term or interest rate which will lower your payment. This will cost you more money in the long run, but may keep you from losing your car.
- Change your payment due date- If you get paid every month on the 20th, but your payment is due on the 10th, you are already behind. Sure, you may have a grace period, but trust us when we say it is a bad idea to use your grace period on a regular basis. Changing your due date to correspond with when you get paid is a good way to set yourself up for success.
- Defer your auto loan payment – If you are always one payment behind, try asking your lender to defer a payment. Your lender may let you skip one auto loan payment and add it on to the back of your loan contract – so that a 72-month loan actually takes you 73 months to pay off.
- Extending payments – If your troubles are a one time problem, the lender may agree to give you an extension on the due date to make the payment.
- Waiving late charges – Sometimes, the accumulation of late charges can be the difference in whether or not you can make a car loan current. Lenders do not want to repossess your car (remember they lose about $8000 every time they do it) and if you can show them that you are really a good payer, then they may be willing to let the late fees slide.
No matter what modifications or changes you and the lender agree to. MAKE SURE YOU GET IT IN WRITING. Even an email or fax is great. Over the years I have had many customers say that the lender had agreed to defer a late payment, but when we look at the credit bureau, the loan shows 30-days late for the last year or so. Just do yourself a favor and insist on some form of communication that you can keep as proof that they are willing to help you with your auto loan.
