What to Do If You Cannot Afford Car Payments
Falling behind on car payments is stressful, particularly when a vehicle is essential for getting to work or caring for your family. The good news is that there are steps you can take early to reduce the risk of repossession. This page explains your general options—it is general information only, not financial or legal advice.
Contact the lender as early as possible
If you are struggling to make payments, contact your lender before you miss one. Many lenders have hardship programmes that include: payment deferral (moving one or more payments to the end of the loan), a temporary payment reduction, or a loan extension (adding months to the loan term to lower the monthly amount). These programmes are more readily available to borrowers who reach out before falling behind.
Document everything
Keep written records of all communications with your lender. Note who you spoke to, the date, and what was agreed. If you reach an agreement, ask for it in writing before stopping or reducing payments.
Voluntary surrender vs repossession
If you cannot maintain the payments and no hardship option is available, you may consider voluntarily surrendering the vehicle. Voluntary surrender and repossession both have significant consequences, including a negative mark on your credit history. Importantly, both can result in a “deficiency balance”—if the lender sells the vehicle for less than the remaining loan balance, you may still owe the difference.
What is a deficiency balance?
If a repossessed or surrendered vehicle is sold at auction for $8,000 and your remaining loan balance is $12,000, the lender may pursue you for the $4,000 deficiency. State laws vary on how and whether lenders can collect a deficiency. This is another reason to contact a free credit or debt counsellor before surrendering a vehicle.
State law matters
Repossession rules, deficiency balance rules, and required notices vary significantly by state. Getting local advice is important. The NFCC can refer you to a nonprofit credit counsellor near you.