Failed to make car loan payments? Here’s what to do.

Meet Joe

Joe was sitting in the passenger seat of his friend’s car August 2, 2013. As they approached a random Montgomery Illinois intersection, they chatted about sports and work. Neither of them had any inclination about what was going to happen next.

Their vehicle buckled from the impact as it swung around 180 degrees. Glass shattered around them as their bodies ricocheted around the car’s interior. A moment after the car came to a halt, Joe realized that they had just been violently t-boned by a pickup truck who ran a red light. He tried to move his legs but realized he could not.

Joe’s injuries, while not life threatening, were bad enough to keep him out of work for an extended period of time.  He would have to endure many months of rehabilitation to recover.

There would also be other financial consequences he would soon endure. Joe had an existing auto loan for $314 a month. Fearing he would have his car repossessed, Joe used savings to continue paying expenses for another six months. Eventually, his savings ran out, and it got to the point where he was not able to make any more payments.

The auto lender began calling Joe’s home relentlessly demanding payment. He pleaded with them and highlighted that he had been making on-time payments for two years before his accident. In the end, a repossession tow truck pulled up to Joe’s house. The driver hooked up his vehicle and drove off with those thousands of dollars Joe had invested over those two years.

If you have fallen behind on your car payments and face the looming specter of repossession, you are not alone. Every year, millions of drivers lose possession of their automobiles because they fell behind on their auto loan. But you don’t have to passively wait for the dealer or your bank to send out the repo truck. Taking proactive measures now, can allow you to maintain the option of driving where you need to go. Joe’s story is tragic but there are definitely some options he could have evaluated before letting the car go to repossession.

Contact Your Lender

Maybe your hours were cut back at work or someone in your family was seriously ill or injured. Unexpected situations happen to all of us, and lenders realize this. If you have maintained a good payment record in the past, your lender may be willing to work with you in a time of financial crisis. Your lender may allow you to skip a payment or two, or they may allow you to make lower monthly payments temporarily until you’re back on more financially stable ground.

The key here is to call your lender before they have to start calling you. If Joe had been a little more proactive in dealing with his lender, and been the one to initiate the communication, it may not have ended with him losing his car.

Refinance or Modify Your Loan

In some instances, you may be able to refinance your car note with your lender at a lower interest rate, resulting in lower monthly payments. You may also opt to change the length of your loan term, which will also result in lower monthly payments, but you’ll probably pay more in the end for your car.

Again, the key here is to be proactive and start taking steps toward a long term solution before things get out of control, like in Joe’s case. Make some phone calls to your lender to find out what options are available to you. You never know what they might say until you call.

Pay the Loan Off in Full

One sure way to prevent your car from being repossessed is to pay off your car note in full. Consider selling unwanted items or taking a second job to generate enough cash to buy your car outright. If you cannot raise the cash through additional income, consider taking a loan from an installment lender like LoanNow to cover the entire amount that you owe, along with paying off other bills such as high-interest credit cards. By taking a loan with an installment lender like LoanNow, you will not only remove the looming threat of repossession, but you’ll also have only one bill to deal with each month.

Get Rid of the Car

If you are hopelessly behind on your car note, you may be better off getting rid of it altogether, either to purchase a cheaper vehicle or go car free. If you’ve decided to get rid of the car, consider selling it yourself, especially if it is a newer model and in good condition, or if you have nearly paid off what you owe. If this is the case, you may be able to gain enough money from the sale to pay off your car loan and have a little money left over for another option to satisfy your transportation needs.

Yes, it is possible to sell a car even if you still have an outstanding loan balance. This just adds a step to the transaction: closing the loan with your lender.

If you can come up with the funds to pay off the balance, call your lender to determine the best way to close out the loan. Make sure to ask about obtaining a lien release, which states that there are no outstanding loan obligations on your car.

If you owe more than you can readily pay prior to a sale, it’s still possible to close the loan and transfer ownership at the same time by doing an escrow transaction. For example, Escrow.com can transfer your title and facilitate payment to the lien holder as part of an escrow transaction.

Another option is to conduct the sale at the bank or credit union that holds the title or lien on your car. Just pay off the loan balance with the sale proceeds and sign over the title to the new owner. Make sure to call the lending institution beforehand to facilitate this transaction.

Leased cars represent a different situation. If you want to transfer your current lease to a new owner, you’re better off using a lease-transfer service.

Any of these options are better than a repossession!

Declare Bankruptcy?

Under normal circumstances, filing Chapter 7 or Chapter 13 bankruptcy places an immediate halt to all collection activities, including repossession of your car. But bankruptcy may be only a temporary fix, especially if you file Chapter 7. The trustee may require you to surrender your car in order to satisfy your debts, unless you can claim the car as exempt property. Filing Chapter 13 bankruptcy usually allows you to keep your car, but you must set up a repayment plan to cover your debts.

While filing for bankruptcy may buy you a little extra time to get your finances in better order, you will ultimately end up with a bankruptcy record on your credit report that will follow you for at least 7-10 years into the future. This should be an absolute last resort strategy to keep your car. You should always consult with an attorney specializing in bankruptcy law before taking such a radical step.

Review Your Options Wisely

While it may be tempting to make hasty decisions in a time of financial hardship, these in fact are the times you should be reviewing all of your options closely. Take the time you need to really look into each option, knowing that it will be a big decision that will impact your future.

If you can work out a deal with your lender, then that may be the best way to go to avoid losing your car. If that is not an option though, your best bet may be to get a loan from a lender like LoanNow. LoanNow is here to help you get through this time of financial difficulty as well as help you get on a better track for your future.

In Joe’s case, if he would have taken the time to plan ahead a little better and look at all the options available to him, he would probably still be driving his car today.