I Can’t Pay My Car Loan: What do I do?

If you’re having trouble paying your car loan, welcome to the auto club. More than 6 million Americans are 90 days or more behind in their monthly car payments.

What can you do to get out of that traffic jam?

Here are your options:

  1. Make a deal with your lender
  2. Refinance
  3. Trade in on a cheaper model
  4. Sell the car, give it up and use public transit

Let’s examine these 4 options.

Talk to Your Lender

It’s in the lender’s best interest to keep you as a paying customer so they might be open to changing the terms of your loan. They might allow you to extend the length of your loan, which would lower your payment. They might let you make lower payments for a short period of time. They might let you skip a payment or two and tack them on to the end of the loan.

The drawback in each scenario is more interest will accrue, meaning you’re paying more for a car you’re already paying too much on. However, that beats the alternative, which is to do nothing, have your car repossessed and watch your credit score drive off a cliff.

So be prepared to plead your case and show you sincerely want to make your arrangement work.

If the lender doesn’t bite, don’t despair. There are other options when you can’t pay your car loan.

Refinance the Loan

Many loans are through auto dealerships that offer them only at the purchase. Since Nissan, Ford and the rest are not in the refinance business, you’ll need to find another lender if your loan is from a car maker.

As with every loan, the odds of getting a favorable rate depend on your credit score. If a bank or credit union turns you down, you can try peer-to-peer lending sites like Prosper, Driven Capital and Lending Club. Qualifying for an auto loan with poor credit can be challenging.

Just be aware that refinancing will likely extend the length of the loan, meaning you’ll pay more in the long run.

Is There Equity in Your Car?

If refinancing doesn’t appeal to you, there is another option. But before we get to it, you must find the answer to a critical question: Do you have equity in your car?

Equity means your car is worth more than you owe. It’s easy to find out what you owe. Simply contact the lender and ask.

Also inquire whether there are any penalties for paying off the loan ahead of schedule. If there is, add that figure in the amount you owe.

Determining the car’s actual value is a little trickier since that number can fluctuate from dealer to dealer. But it’s still relatively easy to get a ballpark figure by checking online appraisal tools like Kelly Blue Book, Auto Trader or CarMax.

If you crunch the numbers and find you owe more than your car is worth, you are underwater on the loan. If your car is worth more than you owe, the difference is the amount of equity you have.

Once you have that knowledge, you can consider your next option:

Sell, Trade or Try Transit

If you have equity, you can sell your car and pay off the loan. That will keep your credit score out of harm’s way, and you can use the balance you pocket as a down payment on another, less expensive, car.

You can also trade in your car for a cheaper model, although trade-in offers are usually less than what you’d receive if you sold the car on your own. Knowledge is the key here, so check appraisal sites to find out the trade-in value of your car.

Can I trade in my upside down car? Yes, you can.The salesperson may give you a song-and-dance that leaves the impression that debt will magically disappear.

It won’t.

The underwater portion will just be rolled into the new auto loan. So, do the math carefully and make sure you’re not just trading in one untenable loan for another.

If you do get rid of the car, and you live in a big enough city, the local transit system is a good choice for saving money.

Most transit systems offer monthly rates for commuter that probably amount to less than you spent on gas for your car. If you don’t like the idea of walking to bus stops or subway stations, find a low-end bicycle and ride to meet the transit system.

A year of taking transit not only should improve your financial situation, it should provide enough exercise to improve your health situation.

If none of that is appealing, it might be time to consider the next option.

Repossession or voluntary surrender

If you can’t make your car payments, these are the last resorts. Voluntary surrender means what the name implies – you simply turn in the keys and walk away.

Repossession means a person hired by the lender unlocks your car and drives it away. It’s a more dramatic ending than voluntarily surrendering the vehicle, but either option will be a black mark on your credit report.

If you’re determined not to let some stranger haul your car off in the dark of night, park it in a garage and close the door. Most states have laws that don’t allow cars to be repossessed if they’re parked in a private garage. Some states even prevent it if you are on site and protest.

But that is temporary relief. Even if you choose to play hardball, the lender is legally entitled to reclaim their property and eventually they’ll get it.

So how do you avoid such an unhappy ending? Here’s a final option well worth considering.

Get a Budget, Stick to It and Make Your Car Affordable

There are a lot of areas people could cut back on if they need an extra $50 or $100 a month to afford their car payment, but to identify them, you need a budget.

If that were easy, the millions of Americans in auto-loan jams wouldn’t be honking for help. The 6.3 million car owners more than 90 days late on payments is double the delinquencies since 2011 and 400,000 more than just a year ago, according to a November 2017 report from the New York Federal Reserve.

“Since 2011, the overall delinquency rate of loans originated by auto finance companies has significantly deteriorated,” the report said.

Many of the people who can’t pay their car loans have bad credit scores – though they may have bad credit scores because they can’t pay their car loan.

It’s a chicken-or-egg thing, but whichever comes first the end result is bad news. A defaulted loan can drop your credit score up to 100 points, according to Autos.com.

Lower credit scores mean you’ll pay higher interest rates on car loans and everything else you borrow. Millions of Americans have found relief through debt consolidation.

A nonprofit credit counseling company combines your monthly bills into a single, affordable monthly payment and works with lenders to lower interest rates. That one payment should be lower than the combined total of all those previous bills.

A certified counselor then works with clients to construct a budget that will get them out of debt. Or in this case, get them out of a jam.

The only thing worse than being stuck in a traffic jam is to be stuck in one while sitting in a car you can’t afford.

You May Also be Interested In:

I Can’t Pay My Car Insurance

The Truth about Used Car Prices


(Haughwout, A., Donghoon, L., Scally, J., van der Klaauw, W.) (November 2017). Just Released: Auto Lending Keeps Pace as Delinquencies Mount in Auto Finance Sector. Retrieved fromhttp://libertystreeteconomics.newyorkfed.org/2017/11/just-released-auto-lending-keeps-pace-as-delinquencies-mount-in-auto-finance-sector.html

(Long, H.)(November 2017). 6.3 Americans are 90 days late on their auto loan payments. Retrieved from http://www.latimes.com/business/la-fi-hy-auto-loans-20171116-story.html

(Delbridge, E.)(January 2018). What is a Peer to Peer Auto Loan? Retrieved fromhttps://www.thebalance.com/what-is-a-peer-to-peer-auto-loan-527003