5 Tips If You Can’t Make Your Car Loan Payments

If you have encountered financial difficulties and have a problem making your car lease or loan payments, understand that time is of the essence. Contact the lender’s customer service department and explain your situation. Remember, more than any other type of property, it is easy for a lender to repossess your automobile. According to the Consumer Financial Protection Bureau (CFPB), auto loan delinquencies have been rising steadily, making proactive communication with your lender more important than ever.

Lenders do not need a court order to take back a vehicle and most banks will act fast to reclaim a vehicle. The sooner the bank repossesses the car, and if necessary auctions off the vehicle at its highest value, the more money the lender recoups to pay towards the outstanding loan obligation. Data from the Federal Reserve’s G.19 Consumer Credit report shows that Americans collectively owe more than $1.6 trillion in outstanding auto loan debt as of early 2026, underscoring just how common this challenge has become.

If you can’t make your car loan payments, you can allow the lender to repossess the car or turn in the car keys. Here are some other options to ponder:

Understanding the Stakes: Auto Loan Delinquency in 2026

Before exploring your options, it helps to understand the current lending landscape. Auto loan delinquency rates — defined as payments more than 30 days past due — climbed to 8.0% for subprime borrowers in the fourth quarter of 2025, according to Experian’s State of the Automotive Finance Market. Even among prime borrowers, late payments increased year over year, reflecting broader household budget pressures.

The average monthly car payment on a new vehicle loan hit $742 in late 2025, according to Edmunds’ industry data, while the average used vehicle payment stood at $525. For many households, these figures represent a significant portion of take-home income, which is why missing even one payment can spiral quickly into a repossession situation if left unaddressed.

What Happens When a Lender Repossesses Your Car?

Repossession is the outcome every borrower wants to avoid. Under laws recognized across most states, a lender may begin the repossession process the moment a borrower is technically in default — which in many loan contracts occurs after just one missed payment. Unlike a mortgage foreclosure, which requires court proceedings, auto repossession typically requires no advance notice and no judicial order. A repo agent can legally take the vehicle from your driveway, a public street, or a parking lot.

Once the vehicle is repossessed, the lender is generally required by state law to notify you of the repossession and your right to redeem the vehicle by paying the full outstanding balance plus repossession costs. If you cannot redeem it, the lender will auction the vehicle — usually well below retail value — and you will remain responsible for any deficiency balance, which is the difference between what the car sold for and what you still owed on the loan.

The credit damage is substantial. A repossession notation on your credit file, combined with the preceding late payment entries, can reduce your FICO Score by 100 points or more according to myFICO. That damage persists for seven years from the date of the first missed payment that led to the repossession, making future borrowing — including mortgages, personal loans, and even new auto financing — more expensive and harder to obtain.

Modify the Loan Terms

Speak to the lender about a loan modification before you miss a car payment. Some banks will change the terms of the loan, reduce the payment for a period of time, allow you to miss a few payments, and add the deferred payments on the back end of the loan. Major lenders including Chase Auto and Ally Financial have formal hardship programs that allow eligible borrowers to defer up to three months of payments without an immediate negative credit reporting consequence, provided the agreement is documented in writing before the due date passes.

When you call, ask specifically for the lender’s hardship or loan modification department — not general customer service. Be prepared to provide documentation of your financial hardship, such as a termination letter, medical bills, or proof of a reduction in household income. The CFPB advises borrowers to get any agreed-upon modification terms in writing before making any payments under the new arrangement.

This solution works best for a person who experiences a temporary cash flow interruption. If you lost your job or other income source and face the possibility of long-term money problems, it may be best to consider other options.

Refinance the Car Loan

Borrowers with strong credit should investigate refinancing their car loans. You can lower your car payment by obtaining a lower interest rate or taking out the loan for a longer term. If you spread the loan amount over a longer period you may end up paying more in interest, but this alternative may beat other options. Online lenders such as SoFi and traditional institutions like credit unions affiliated with the National Credit Union Administration (NCUA) frequently offer refinance rates meaningfully below what dealership-arranged financing charges.

Your FICO Score plays a critical role in determining what refinance rate you qualify for. According to Experian, borrowers with scores above 720 (classified as “prime” or better) received average new auto loan rates of approximately 7.1% APR in early 2026, while subprime borrowers with scores below 600 faced rates exceeding 15.7% APR. If your score has improved since you took out your original loan — or if market rates have dropped — refinancing could generate meaningful monthly savings.

There are numerous online sites that allow you to shop anonymously for lenders. Pay close attention to the APR (Annual Percentage Rate), loan term, and any prepayment penalties when comparing rates. Avoid applying for a loan until you are sure of the terms and have decided on a lender. Applying to multiple lenders in rapid succession can lower your credit score, though most credit scoring models from FICO treat multiple auto loan inquiries within a 14–45 day window as a single inquiry to encourage rate shopping.

Also consider your debt-to-income ratio (DTI) before applying. Most lenders prefer a DTI below 43%, meaning your total monthly debt obligations — including the proposed new car payment — should not exceed 43% of your gross monthly income. Lenders like those surveyed by Bankrate typically require the vehicle to have fewer than 100,000 miles and be no more than 10 model years old to qualify for refinancing.

Request a Forbearance Agreement

If you have already fallen behind on your car payments and have a default notice from the lender, refinancing the car loan will probably not be a viable option. Try to work out a forbearance agreement with the car lender. Forbearance means the lender will agree to defer the delinquent loan payments and work out a repayment plan with you to bring the loan current within a specified time frame. The Federal Trade Commission (FTC) specifically recommends exploring forbearance as a first step once a payment has already been missed.

This approach may work if you lost your job, which caused you to fall behind on your payments, but found new employment. If you contacted the lender and apprised them of your situation before becoming delinquent, it increases the probability of getting them to agree to some sort of arrangement. Note that under a forbearance agreement, interest typically continues to accrue on the full unpaid balance during the deferral period, which means your total loan cost will increase modestly — but this trade-off is almost always preferable to the financial and credit consequences of repossession.

Some state-chartered lenders and credit unions regulated by the NCUA or the FDIC have additional guidelines governing how forbearance agreements must be structured, including maximum deferral periods and borrower notification requirements. Ask your lender specifically whether the deferred payments will be reported as current to the three major credit bureaus — Experian, Equifax, and TransUnion — during the forbearance window, as this varies by institution.

Loan Assumption

Car owners who have good vehicle loans, which carry a low interest rate, may be able to have a buyer take over the loan payments. Check your vehicle contract to find out if your lease or loan is assumable. If you have an assumable loan, expect the buyer to have to meet the lender’s credit and income requirements in order to take over your payment agreement. This option is particularly attractive in a higher-rate environment — if your existing loan carries a rate of 4.9% APR and current market rates are above 7%, a qualified buyer has a genuine incentive to assume your obligation rather than obtain new financing.

Loan assumptions are more commonly available on lease agreements than on traditional purchase loans. Several manufacturers’ captive finance arms — including those affiliated with major automakers — have established lease transfer programs that facilitate this process. Third-party marketplaces also exist that connect lessees looking to exit their leases with buyers who want to assume shorter-term commitments. Always confirm with your lender or lease servicer that a formal assumption agreement absolves you of any further liability on the account, since some contracts hold the original borrower responsible as a secondary obligor if the assuming party defaults.

Sell the Car

You can try to sell the vehicle to raise enough cash to pay off the loan balance. If you can’t bring in enough to satisfy the debt, you will have to pay the difference to the lender before you can transfer the vehicle’s title to the new owner. You can also try to get the bank to accept a lesser amount and credit you with “full payment” of the obligation — a process sometimes called a short payoff, which lenders may consider if the vehicle’s market value has declined significantly below the outstanding balance.

Before listing the vehicle, research its current market value using tools such as Kelley Blue Book (KBB) or Edmunds to understand whether you have equity or are “underwater” — owing more than the car is worth. According to Edmunds, approximately 24% of trade-ins in early 2026 carried negative equity, with the average underwater amount exceeding $6,000. If you are in this position, selling privately rather than trading in at a dealership typically yields a higher sale price and reduces the deficiency gap you need to cover.

Additional Options Worth Considering

Credit Counseling and Debt Management Plans

If your car loan payment problem is part of a broader financial struggle involving multiple debts, speaking with a nonprofit National Foundation for Credit Counseling (NFCC) member agency may be worthwhile. Certified credit counselors can review your full financial picture, help you prioritize which debts to address first, and in some cases negotiate directly with creditors on your behalf as part of a structured debt management plan (DMP). Their services are typically low-cost or free for consumers experiencing genuine hardship.

Bankruptcy as a Last Resort

In extreme cases where debt is unmanageable across multiple accounts, Chapter 7 or Chapter 13 bankruptcy may provide relief. Under Chapter 13 bankruptcy, borrowers can sometimes “cram down” the principal on a car loan to the vehicle’s current fair market value if the loan was taken out more than 910 days before filing, and restructure the remaining balance at a court-approved interest rate. This can be a powerful tool for severely underwater borrowers, but the process is complex and requires the guidance of a licensed bankruptcy attorney. The U.S. Courts bankruptcy portal provides official guidance on eligibility and process.

State-Level Consumer Protections

Several states have enacted additional consumer protections that go beyond federal minimums. For example, some states require lenders to provide a formal written cure notice — giving the borrower a specified number of days to bring the account current — before initiating repossession. Others limit the fees lenders can charge in connection with a repossession or require that any surplus auction proceeds be returned to the borrower. Check your state attorney general’s website or contact your state’s banking regulator to understand the protections available in your jurisdiction. The CFPB’s auto loan resource center also provides state-by-state guidance on repossession rules.

Frequently Asked Questions

How many car payments can I miss before repossession?

Technically, most auto loan contracts allow the lender to begin repossession after just one missed payment, because a single missed payment typically constitutes a default under the loan agreement. In practice, many lenders wait 60–90 days before initiating repossession proceedings, but this varies significantly by institution and state. Contact your lender immediately after missing a payment — do not wait for them to call you.

Will a loan modification hurt my credit score?

A loan modification agreed to before you miss any payments typically does not hurt your credit score. If the modification is arranged after a payment has already been missed, the late payment notation may already appear on your credit report, but preventing further delinquency will stop additional damage from accumulating. Always confirm with the lender how the modification will be reported to Experian, Equifax, and TransUnion before signing any agreement.

Can I refinance my car loan if I have bad credit?

Refinancing with poor credit is difficult but not impossible. Some lenders specialize in refinancing for borrowers with FICO Scores below 620, though the rate offered may not be significantly lower than your current loan. A better strategy may be to focus on improving your credit score first — by paying other bills on time and reducing credit card balances — and then refinancing once your score reaches a more favorable tier. The credit bureau Experian defines scores above 670 as “good,” which typically unlocks meaningfully better rates.

What is a deficiency balance and do I have to pay it?

A deficiency balance is the amount you still owe after a repossessed vehicle is sold at auction and the proceeds are applied to your outstanding loan balance. For example, if you owe $18,000 and the car sells for $12,000, your deficiency balance is $6,000. In most states, lenders can sue to collect deficiency balances. Some states have anti-deficiency statutes that limit or eliminate the lender’s right to collect, so check your state’s law through your state attorney general’s office or the CFPB’s resources.

Is voluntary repossession better than involuntary repossession?

Voluntary repossession — where you proactively return the vehicle to the lender — is generally better than waiting for the lender to send a repo agent. It typically results in lower repossession fees, which reduces your potential deficiency balance, and may be viewed more favorably by future lenders when they review your credit history. However, both types of repossession are reported negatively to credit bureaus and carry the same seven-year damage to your FICO Score, so voluntary repossession is still a last resort.

Can I get out of a car lease if I can’t afford the payments?

Yes, there are several ways to exit a car lease early. You can arrange a lease assumption through the manufacturer’s lease transfer program, return the vehicle early and pay an early termination fee (which typically equals the remaining payments plus fees), or — in some cases — negotiate a lease buyout and then sell the vehicle privately. Early lease termination fees can be substantial, often totaling several thousand dollars, so comparing all options carefully before proceeding is critical. The CFPB’s auto loan and lease guidance outlines your rights under most standard lease agreements.

How do forbearance and deferment differ for auto loans?

The terms are often used interchangeably in auto lending, but there is a subtle distinction. A deferment typically moves one or two specific missed or upcoming payments to the end of the loan term with minimal documentation required. A forbearance agreement is a more formal arrangement, usually involving a written contract, that may cover a longer period of reduced or suspended payments and includes a specific repayment plan for the deferred amount. Both options result in interest continuing to accrue during the deferral period. Always get the terms in writing regardless of which option your lender offers.

What should I say when I call my lender about payment problems?

Be direct and factual. Identify yourself, state your account number, explain the specific financial hardship (job loss, medical expense, reduction in income), and indicate when you expect the hardship to resolve if it is temporary. Ask specifically about hardship programs, loan modification options, and payment deferral. Keep a written record of every call, including the date, time, representative’s name, and what was discussed. If you reach an agreement, ask for written confirmation before the next payment due date.

Does refinancing my car loan extend the loan term automatically?

Not automatically — you choose the new loan term when you refinance. You can refinance into a shorter term (which increases monthly payments but reduces total interest paid) or a longer term (which lowers monthly payments but increases total interest paid). Most lenders offer terms ranging from 24 to 84 months on auto refinance products. Bankrate’s analysis shows that extending from a 48-month to a 72-month term on a $20,000 balance at similar rates can reduce the monthly payment by roughly $100 but add over $1,500 in total interest cost over the life of the loan.

Can a car lender garnish my wages if I have a deficiency balance?

Yes, in most states. After repossessing and selling your vehicle, if a deficiency balance remains, the lender can file a civil lawsuit against you to collect. If the lender wins a judgment, it may be able to garnish your wages, levy your bank account, or place a lien on other property, depending on your state’s laws. A handful of states have anti-deficiency statutes that restrict this, particularly for purchase-money loans on personal vehicles. Consulting with a consumer law attorney or a nonprofit credit counselor through the NFCC is advisable if you are facing a deficiency balance claim.