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. The Federal Reserve’s consumer credit data shows that Americans collectively owe more than $1.6 trillion in auto loan debt as of early 2026, underscoring just how common — and consequential — these payment struggles can be.

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:

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 such as Chase Auto and TD Auto Finance have formal hardship programs that borrowers can apply for directly through their online portals. The key is to reach out before the account becomes delinquent, because once a lender reports a missed payment to Experian, Equifax, or TransUnion, the damage to your credit report begins immediately.

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. The CFPB advises borrowers to request any modification agreement in writing and to confirm how deferred payments will be reported to the credit bureaus before signing anything.

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. As of March 2026, the average auto loan refinance rate for borrowers with a FICO Score above 720 sits near 6.4% APR, according to Bankrate’s current rate data.

There are numerous online sites that allow you to shop anonymously for lenders. Pay close attention to the terms when comparing rates. Avoid applying for a loan until you are sure of the terms and decide on a lender. Applying to multiple lenders can lower your credit score. Online lenders such as SoFi and LightStream allow borrowers to check their rate with only a soft credit inquiry, which does not affect their FICO Score. When you submit a formal application, lenders perform a hard inquiry, which can temporarily reduce your score by a few points. The good news is that credit scoring models from FICO treat multiple auto loan inquiries made within a 14- to 45-day window as a single inquiry, so rate shopping within that window minimizes the impact.

Keep in mind that your debt-to-income ratio (DTI) will also factor into any refinancing decision. Most lenders prefer a DTI below 43%. If your DTI is too high, paying down other revolving debt before applying for a refinance can improve your chances of approval and the rate you receive.

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. Under a typical forbearance plan, the lender pauses or reduces required payments for one to three months, then adds the deferred amount to the end of the loan term or requires a lump-sum catch-up payment.

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. The FDIC encourages consumers to document every conversation with their lender during hardship negotiations, including the date, the name of the representative, and the substance of any agreement discussed.

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. Loan assumption is relatively rare in the auto lending market — most standard retail installment contracts issued by lenders such as Ally Financial or Capital One Auto Finance include due-on-sale clauses that prevent assumption without lender approval. However, it is always worth asking your lender directly, particularly if your loan carries an interest rate well below the current market average.

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. Before listing the vehicle, check its current market value through resources such as Kelley Blue Book or the Edmunds True Market Value tool to understand whether you are likely to be above or below water on the loan. If the outstanding loan balance exceeds the vehicle’s market value, you are considered “upside down” or in a negative equity position.

Understanding the Full Consequences of Missed Payments

The most important thing to understand when you fall behind on a car loan is that the consequences compound quickly. A single missed payment triggers a late fee — typically between $25 and $50 — and may be reported to the credit bureaus after 30 days. By the time a payment is 60 to 90 days past due, most lenders will begin the repossession process.

According to myFICO, a repossession can reduce a borrower’s FICO Score by 100 points or more, depending on their credit profile. The repossession notation remains on the credit report for seven years from the original delinquency date. This can affect your ability to rent an apartment, qualify for a mortgage, and even obtain certain types of employment.

Beyond the credit impact, voluntary repossession — where you return the vehicle to the lender rather than having it seized — does not eliminate the deficiency balance. If the lender auctions the car for less than the outstanding loan balance, you are still legally responsible for the difference. Many states allow lenders to pursue a deficiency judgment through the courts, which can result in wage garnishment. The CFPB’s guide on deficiency balances explains your rights and what to expect in this scenario.

How Your Credit Score Affects Your Options

Your FICO Score plays a central role in determining which of the options above are available to you. Borrowers with scores above 660 generally have access to refinancing through mainstream lenders. Those with scores below 580 — classified as “poor” credit by Experian — will find refinancing difficult and may need to focus primarily on negotiating directly with their existing lender.

APR averages sourced from Experian’s State of the Automotive Finance Market, Q4 2025.

When Bankruptcy May Be an Option

If your financial difficulties extend beyond your car loan — covering credit cards, medical debt, and other obligations — bankruptcy may provide broader relief. Under a Chapter 13 bankruptcy filing, borrowers can sometimes restructure their auto loan balance through a process called a “cram-down,” reducing the principal owed to the current market value of the vehicle if the loan is more than 910 days old. A Chapter 7 filing may allow you to discharge unsecured debt and either surrender the vehicle or reaffirm the loan and keep the car.

Bankruptcy has serious long-term consequences for your credit — a Chapter 7 stays on your credit report for 10 years and a Chapter 13 for 7 years — but for some borrowers it may be the most realistic path to financial stability. Consult a licensed bankruptcy attorney or a nonprofit credit counselor through the National Foundation for Credit Counseling (NFCC) before making this decision.

Nonprofit Credit Counseling as a Resource

Before exhausting all other options, consider reaching out to a nonprofit credit counseling agency. These agencies, many of which are accredited by the NFCC or the Financial Counseling Association of America (FCAA), can help you review your full financial picture, negotiate with creditors on your behalf, and develop a realistic budget. Many offer free or low-cost consultations. The CFPB maintains a directory of approved counseling agencies that can be filtered by state and service type.

Frequently Asked Questions

What happens if I stop making car loan payments?

If you stop making car loan payments, your lender can begin the repossession process as soon as you are in default — which under most loan agreements occurs after one missed payment. Most lenders wait 60 to 90 days before repossessing, but they are not legally required to. A repossession will be reported to Experian, Equifax, and TransUnion and can lower your FICO Score by 100 points or more. You may also still owe a deficiency balance if the vehicle sells for less than your outstanding loan amount.

Can I negotiate with my lender to lower my car payment?

Yes. Most lenders, including large banks such as Chase and Wells Fargo, as well as auto-specific lenders like Ally Financial, have hardship programs that allow for loan modifications, payment deferrals, or forbearance agreements. The best time to negotiate is before you miss a payment. Contacting your lender’s hardship or loss mitigation department directly and explaining your situation in writing gives you the strongest starting position.

Will refinancing my car loan hurt my credit score?

Refinancing involves a hard credit inquiry, which can temporarily lower your FICO Score by a few points — typically fewer than five. However, FICO’s scoring model treats multiple auto loan inquiries made within a 14- to 45-day window as a single inquiry, so rate shopping within that period minimizes the impact. Over time, successfully refinancing to a lower payment that you can consistently make will benefit your credit score far more than the short-term dip from the inquiry.

How long does a repossession stay on my credit report?

A repossession stays on your credit report for seven years from the original delinquency date, according to the Fair Credit Reporting Act (FCRA). During that time it can significantly impact your ability to qualify for new credit, rent housing, or in some cases, secure employment. Voluntary repossession is treated the same as an involuntary repossession by the credit bureaus.

What is the difference between a car loan deferral and a forbearance?

A deferral typically means the lender allows you to skip one or two payments and moves those payments to the end of your loan term, extending the loan duration. A forbearance is a broader agreement — often used when a borrower is already delinquent — in which the lender agrees to temporarily suspend collection activity and work out a repayment plan. Both options typically allow interest to continue accruing during the pause period. Always confirm the specific terms in writing with your lender before agreeing to either arrangement.

Can I sell my car if I still owe money on the loan?

Yes. You can sell a vehicle that still has an outstanding loan, but you must pay off the lender’s lien before the title can be transferred to the new owner. If the sale price covers the full loan balance, the process is straightforward. If the sale price is less than the balance owed — meaning you are upside down on the loan — you will need to pay the difference out of pocket or negotiate a short payoff with your lender before completing the sale.

What is a deficiency balance after repossession?

A deficiency balance is the amount you still owe on your auto loan after the lender repossesses and sells your vehicle. For example, if you owe $14,000 and the lender auctions the car for $10,000, you have a $4,000 deficiency balance. Most states allow lenders to pursue this balance through collections or a court judgment. The CFPB provides guidance on your rights regarding deficiency balances and what lenders are required to disclose before pursuing collection.

Does voluntarily surrendering my car hurt my credit less than a repossession?

A voluntary surrender is typically reported to the credit bureaus in a similar manner to an involuntary repossession and has a comparable negative impact on your FICO Score. The primary advantage of voluntary surrender is that it avoids the repossession fees — towing, storage, and auction costs — that the lender may otherwise add to your deficiency balance. Communicating proactively with your lender before surrendering the vehicle may give you a better chance of negotiating waived fees or a reduced deficiency balance.

What credit score do I need to refinance a car loan?

Most mainstream lenders require a minimum FICO Score of approximately 620 to 660 to qualify for auto loan refinancing. Lenders such as SoFi and LightStream typically require scores of 680 or higher to offer competitive rates. Borrowers with scores below 580 will find refinancing options limited and may be better served by negotiating directly with their existing lender or seeking assistance from a nonprofit credit counselor through the NFCC.

How many payments can I miss before my car gets repossessed?

Technically, a lender can begin repossession proceedings after just one missed payment in most states, because default is typically defined as any breach of the loan agreement. In practice, most lenders wait until an account is 60 to 90 days past due before taking action, though this varies by lender and state law. Some states require the lender to send a right-to-cure notice giving you a specific window — often 20 to 30 days — to bring the account current before repossession can proceed. The CFPB recommends reviewing your state’s repossession laws and your loan contract carefully.