What Happens If I Cannot Afford My Car Payment?

You want to take a look at what happens when you cannot afford your car payment anymore. If you think you will just give your car back to the bank and walk away from it...think again. It doesn't work that way. If you give it back to the bank, this is called a voluntary repossession (stays on your credit report for seven years - it's the same as a repo), they will take your car to the auction and take what ever they can get. If it sells for less than what you owe on it, the bank will come after you for the difference.

Your vehicle will eventually be repossessed if you can't make your car payments any longer. The repossession process is broken down into several stages and can be very painful, especially if you need your car to get back and forth to work.

In the Beginning

If you don't make your payment by the due date, the lender will charge you with a late fee. They may start the collection process by calling you frequently to talk about the late payment and when you are going to pay it.

30 Days Late

Once you are past the 30 day late period, the lender will report your late payment to the three major credit bureaus: Experian, Equifax and TransUnion. At this point you can expect more phone calls.

The Default Period Can Vary

The default period can be different from state to state and even different time frames on auto contracts. Usually when a loan reaches past the 90 days it is considered in default. The repossession process starts now.

Repossession - They Will Come and Take Your Car

Don't avoid the lenders phone calls at this point, it will only make matters worse. The lender will be making arrangements to repossess your car. A repo man (also known as a recovery man) is usually sent to pick the car up. He may tow your vehicle without you knowing about it. They can also get the police involved if you are unwilling to work with them.

Redemption Period - One Last Chance

Before your car goes to the sale, the lender will often offer a redemption where you can pay the back monies owed, late fees, interest and repo fees. If you pay the full amount due you can usually get your vehicle back. If you don't come up with the money they will sell your car.

If your car is sold and you owe more than what it sold for you will be held liable for the remaining balance. The lender can file a judgment against you for the balance owed, they don't always file but they have the legal right to do so.