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What Happens to Your Credit If You Miss a Car Payment?

What Happens to Your Credit If You Miss a Car Payment?

Illness, losing your job, or having another expensive emergency come up can all result in lacking the funds needed to make your car payment. Before you panic and assume that your car will be repossessed, know that you have some options available that can help you keep your car without damaging your credit, depending on your payment history and credit score.

Before Your First Missed Payment

The worst thing you can do is ignore your problem.

No matter what, you must call to discuss that matter with your lender. The sooner you call the more options you’ll have. Repossession is the last thing you and your lender want – it’s a lose-lose for you both. So just know up front that your lender wants to help you, so let them.

So when you crunch your numbers and realize you won’t be able to make your monthly car payment, call your lender first thing. They may allow you a grace period, called forbearance, that allows you to skip your payment for a few months. This means they’ll usually just extend your loan period and tack on the missed periods at the end.

You may also be able to refinance your loan to lower your monthly payment, but you’ll need to have a pretty good credit score to refinance.

If You Have Already Missed a Payment

If you missed your payment completely, you can expect a call from the lender inquiring as to what happened. Then they’ll probably begin discussing your options, as mentioned above, but are more likely to charge you a late fee.

The good news at this point – they probably won’t report just a single missed payment to the credit bureaus, so you may have time to get your situation under control before you credit is affected.

But if you’re 30 days or later on your payment and haven’t tried to resolve the issue, they’ll probably report your payment as delinquent, and you’ll be receiving more and more calls.

Once the 90-day mark rolls around, you may be declared in default and your loan will be sold to a debt collector. This is when repossession occurs. And even then, your car will be sold at auction and you’ll still owe the balance between what it sold for and the balance of your loan. If you surrender your car before this happens, you’ll avoid the repo and attorney fees, but still owe the difference. By this point, your credit score will have taken a significant hit.

If You Won’t Be Able to Make Any More Payments

If you find yourself in a situation that will prevent you from making any more payments on your car, again it’s best to call your lender as soon as possible. Your best option in this situation are to sell your car, pay off the balance, and use what’s leftover to pay cash for a less-expensive car. You can also trade in your car for a less-expensive one or one you can afford outright.

Before you purchase a car in the first place, consider your buying options, and how to keep your credit in good shape.

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