Owning a car is great – and oftentimes necessary – but it can get expensive. What should you do if you can’t pay your car loan?
If you find yourself struggling financially, you may feel like you can’t afford it anymore. Take a closer look at your finances and develop a plan – there are several ways you can dig yourself out of a tricky situation and to make car ownership more manageable.
Payment history has the largest impact on credit scores, especially on large loans and installment loans. Car loans are considered to be both. A late payment has the potential to knock down a good credit score by 100 points or more. It may take three years for a credit score to recover. Three years as a result of one late payment is a big consequence!
If you miss some payments, it can affect all future loans you may seek in the future. Lenders will be reluctant to take a chance on you – even when your troubles aren’t your fault. Even if you do end up securing a loan, your rate will probably be higher, meaning it will cost you more to borrow.
Your car being repossessed is the worst-case scenario. Car repossessions can affect your credit score and stay on your record for seven years. Getting your car returned to you is a major undertaking and can cost a lot of money.
This is the first thing you should do. Seek refinancing if possible; your lender may be amenable to extending the duration of our loan or reducing the rate you pay. Lowering your monthly payment could be possible, but keep in mind that you’ll be extending the duration of your loan.
The potential of losing your car is a big deal. If you are only experiencing a temporary problem, try asking your lender for a deferral on your payment. This is a short-term solution only; it would only apply for a month or two.
Do you have payment protection insurance? PPI is provided by your bank or credit provider. If you lose your job, have an illness or some other hardship, your PPI may help with your debts. To find out if you have PPI, check your loan paperwork or ask your lender.
If your problem is going to be long-term (with no other resolution in sight), consider trading in your vehicle. Although it’s surely not a desired outcome, it is better in the long run, in terms of your credit score and maintaining your ability to get a loan in the future.