In a perfect world, things would always go as they should.
Sometimes that’s just not the case.
If you’ve found yourself in a bind or on the verge of falling behind on your payments. The best thing to do is contact your credit card, mortgage or auto loan companies and explain your situation.
If you have a car loan, you understand the importance of paying your loan on time. If you cannot make your payments on the exact due date.
You are granted a 30-day grace period to make a payment without having this late reported to the credit bureaus.
If you don’t think you’ll be able to make a payment before the 30-day grace period ends or foresee yourself being in a bind that will last longer than 30 days, there is something you should know.
Ignoring calls from your creditor is the wrong route to go.
*While you may feel embarrassed or reluctant to contact your creditor, you are not alone. Thousands of people fall behind on their payments due to financial hardships. The person on the other end of the phone is trained to handle these types of calls and will be more than willing to help you the best way they can.
What should you do?
Most car loans have a stipulation that allows you to defer your payments for a short amount of time while you get your finances situated. Other options besides deferment might be offered such as lower payments until you can make the full payment.
Your options will depend on your specific car loan and terms agreed upon at the time of sale.
If you are currently in good standing:
Call your creditor and explain that you’ve had some setbacks and ask about your options to defer your loan payment until you can make payments. This will usually give you about 2 months to catch up.
If you are currently not in good standing(late beyond 30 days):
Call your creditor back and explain that you’ve had some setbacks and would like to make a plan to catch up on your payments or defer a future payment. Ask about your options to defer your loan payment until you can make a payment. You will usually be asked to make your account at least current up to 30 days before a deferral can be granted.
How will this help you?
Car repossession doesn’t end well for anyone. Not you and certainly not your creditor. Once a car is repossessed, it is usually sold at an auction for a fraction of the cost. This is a lose-lose situation for everyone.
While your loan is in deferment you will not be reported late to the credit bureau as you have made an agreement with the company to pay at a later date.
The downside to this, of course, is that your loan agreement will be extended and you will end up paying more interest in the long run. This is, however, a better alternative to having your vehicle taken.
When can your car be repossessed?
It all depends on the specific car loan you have in place. You are usually considered in default of your loan agreement as soon as you miss a payment.
With that being said, you are granted a 30-day grace period. Some states allow cars to be repossessed after one missed payment. The longer you take to make your payment is one step closer to having your car taken and a serious ding on your credit report.
A repossession will remain on your credit for up to 7 years and hurt your chances of obtaining other car loans in the near future. Even after a repossession, you may still owe the difference between what you owed your lender and what your car was sold for. This is called a deficiency balance. A deficiency balance is usually the norm especially if you purchased a newer vehicle.
Please note that these options are for those experiencing temporary hardships. It is not recommended for long-term foreseeable situations.