We would always have sufficient income to pay all our bills every single month in a perfect world. Unfortunately, the Federal Reserve Bank of New York indicated in November 2019 that 2.34% of auto loans in the U.S. were at least 90 days delinquent, and Debt.org says this figure includes some seven million American consumers. Lending Tree puts 30-day delinquencies at about 7%.
It goes without saying that 90 days is far worse than missing or being late with a single car payment, and you might get away with barely a slap on the wrist if you’ve had the loan for a while and have an excellent payment record (Ref 1). Otherwise, you should expect some fallout.
What Will It Cost You?
Presumably, you weren’t just so super-busy that you overlooked your car payment due date. You didn’t have enough cash on hand to remit the payment to the lender on time. The problem here is that the situation is going to snowball.
You owed a principal-and-interest payment on the due date. Some days later, you’ll owe principal, interest, and most likely a late fee, too (Ref 1). Some lenders charge as much as 10% of your original principal-and-interest payment, but it can vary by lender and state law. The good news is that there’s almost always a grace period before these punitive measures kick in, as much as 15 days, so you should have a little time to catch up (Refs 7, 8).
In any case, you now owe more on your loan than you did before. This isn’t the end of the world if it’s a one-time event, but it can add up if you’re repeatedly late (Ref 5). You could end up with a higher interest rate, too, if the situation occurs multiple times. Your lender is going to start getting cranky eventually.
One missed car payment is probably not going to result in repossession…but it could. Some states allow lenders to repossess as soon as a borrower defaults (Ref 3), but a more likely scenario is that your lender won’t consider repossession unless you’ve missed several payments, and you’ll almost certainly hear from them first.
You’ll probably receive phone calls and maybe snail-mails asking you about your plans for bringing the loan current (Refs 3, 4, 5). Technically, however, lenders don’t have to wave a red flag and tell you that they’re going to take your vehicle. They can just do it. Your lender should send you written notice after repossession, telling you that it’s going to sell your vehicle at auction, how much you owe and how long you have to pay up before the car is sold to someone else.
Read More: How Does Auto Repossession Process Work?
Be warned, however: Other fees will be tacked on here as well, including the cost of the repossession and any subsequent storage fees (Ref 3). And you’ll most likely be responsible for paying any “deficiency” if the car doesn’t ultimately sell for the total of what you owed on the loan. You’ll be legally on the hook for the difference (Refs 3, 4).
Obviously, you’ll want to make up that missed payment as soon as possible, hopefully before the next due date rolls around. But you might have some other alternatives if your financial situation isn’t likely to resolve that quickly.
The lender really doesn’t want your car. It doesn’t want to go to the cost and hassle of hiring a repo man to come get it, then selling it at auction. Your lender just wants you to pay up somehow, and most lenders are open to negotiation, so get on the phone. The sooner you call, the better (Refs 2, 5).
Solutions can include refinancing the loan (Ref 4), changing your due date, or – a more common fix – deferring your payments. This involves moving one or more of your payments to the end of the loan term (Refs 2, 3, 5, 6).
Read More: What Is the Purpose of Refinancing?
The downside to a payment deferral is that interest will continue to accrue on your balance during the hiatus, so the amount you owe overall will increase (Refs 2, 4, 5). You might even be required to pay interest only while the principal portion of your payments is suspended (Refs 5, 6). But that could be preferable to ongoing late fees, possible repossession, and a nasty hit to your credit score. Just protect yourself and get your agreement in writing, no matter what type of solution you’re able to work out (Ref 3).
The Effect on Your Credit Score
Perhaps the only way your credit history might come out of this unscathed is if you contact your lender and make other arrangements before you miss a payment. Otherwise, a late payment on any loan obligation remains on your credit report for up to seven years (Ref 1). And if it’s on your credit report, it affects your credit score.
How much of a ding you’ll take depends on how good your score was in the first place. Ironically, a single 30-day-late payment will hurt you more if you previously had a high score. It can subtract up to 160 points, according to Advantage Credit Counseling Services. If there’s any good news here at all, it’s that you might have as many as 30 days before the lender reports your payment as late (Ref 11).
On the other hand, deferring one or more payments to the end of your loan probably won’t affect your credit score at all. You’ve effectively renegotiated your loan terms so your account will continue to appear in good standing as long as you perform and begin making payments again when you’re supposed to (Ref 6).
Again, your best option might be to contact your lender as quickly as possible to work something out.
- Auto Simple: What Happens If I Miss a Car Loan Payment?
- Autotrader: Missed Car Payments Don’t Have to Lead to Repossession
- ConsumersLaw: Will My Car Be Repossessed If I Miss One Payment?
- Debt.org: Help! I Can’t Make My Car Payment!
- Credit.org: Know Your Options – How to Skip or Defer a Car Payment
- Experian: What Happens If You Defer a Car Payment?
- ESL: Late Fees
- Consumer Financial Protection Bureau: When Are Late Fees Charged on an Auto Loan?
- Federal Reserve Bank of New York: Household Debt Continues to Climb in Third Quarter as Mortgage and Auto Loan Originations Grow
- Lending Tree: Auto Loan Statistics 2020
- Advantage Credit Counseling Services: How Many Points Does Your Credit Score Drop If You’re Late on a Payment?