Avoid Missing Car Payments, Avoid Financial Domino Effect
Missing and late car payments can have a disastrous impact on your credit, make it harder to purchase a future vehicle, and even lead to repossession. Avoid the financial domino effect of missing and late car payments by knowing the risks and how you can reduce them. If you do, you’ll have a far less bumpy road ahead.
Avoid Missing Car Payments: Risk Reduction
Prioritize Your Bills. If you can’t afford to pay all your bills, you need to make sure your auto loan payment is one of your top priorities. Even if your lender seems friendly and understanding, they will inevitably report you to the credit bureaus if they don’t get their money. And even one late payment can lower your credit score significantly.
Stay in Touch. If you can’t make your payment by the due date, contact your lender and explain the situation. They may simply extend the term of your loan without a big penalty, although they will likely increase your interest rate. Explain the difficulty you’re facing and let them know what you can do. Then, see what they can do for you.
Deferments and Refinancing. Communicating with your lender about your situation will open the door to other options. You might be granted a deferment, in which case you will not have to make payments for a certain period of time. A deferment helps if you are unemployed and will not affect your credit score too much. Another option is to see if you can have the vehicle refinanced at a lower interest rate.
Missing Car Payments: Consequences
Credit Score Penalties. Your credit score is based on four factors: late payments, account balances, credit history and the type of credit. Late payments make up a little over one-third of your score. One late payment can lower your score as much as 100 points, while a series of late payments can be devastating. How long will a single late payment remain on your credit report? Sadly… seven long years.
Repossession. Another reason why your auto loan payment should be a priority is so that you can stay behind the wheel. Your financial institution can repossess your vehicle when you fail to keep current on your payments. Then they can resell it at a lower amount than what’s owed and bill you for the difference. A lenient lender might give you an extra month or maybe longer if you plead your case. The takeaway? Pay that loan and avoid the repo man.
Higher Fees. Even if you are just slightly late and you already have bad credit, your fees can increase dramatically. The longer you wait to make a payment, the worse impact it will have on your credit score. And late or missed payments can make it very difficult for you to qualify for future loans.
The Bottom Line
When it comes to paying your car loan, don’t take chances that could have huge financial consequences for years to come. Stay in contact with your lender. Ask about refinancing options, waiving fees, modifying the due date or payment, or granting an extension. But most importantly — pay that loan on time!