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What to Do If You Can’t Afford Your Car Payments
Falling behind on your auto loan? Consider these solutions.

Thanks to rising prices, it’s easier than ever to buy more car than you can afford — and fall behind on your monthly payments. If you’re facing this risky situation, be sure to educate yourself on how you can turn things around and rescue your finances.

Do you have positive or negative equity?

If you can’t make your monthly payments, it’s crucial to get a clear picture of your situation. Do you have positive or negative equity in your car? Positive equity means that your car is worth more than you owe on the loan. If this is the case, you have a wider range of options for getting back on track. Negative equity means that you owe more on the loan than your car is worth. It also limits your options, meaning you’ll have to work harder to find solutions that stabilize your finances.

Work with your lender

Regardless of your situation’s specifics, it’s wise to contact your lender right away if you’re struggling with car payments. Writing for The Balance, Miriam Caldwell points out that your lender may allow you to miss a payment or temporarily reduce what you owe each month. If you’re only facing short-term difficulties, this can help you get back on track. If your situation isn’t likely to improve soon, working with your lender will give you extra time to come up with a longer-term solution.

Sell or trade in your vehicle

If you have positive equity, consider selling or trading in your vehicle. According to Caldwell, trading a vehicle in is generally more convenient, but selling it yourself may net you more money. Either way, you’ll be able to preserve your credit, pay off your loan and find new transportation that’s a better fit for your budget. Sean Pyles of NerdWallet notes that this option is also available if you have negative equity. First, though, you’ll need to secure a small loan or pay cash to cover the difference between what you owe and what the car is worth.

Refinance your auto loan

If you’d prefer to keep your current vehicle, you might be able to refinance the loan. With refinancing, you can either get a lower interest rate or extend the loan term and lower your monthly payments. Lenders are generally more willing to offer refinancing if you have good credit and positive equity, but it’s an option worth investigating even if you have negative equity.

What not to do

If you’re stuck with a car payment you can’t afford, there are a few things you should strive to avoid. First, do your best not to miss any payments. If you do have to skip payments, let your lender know ahead of time so you can work together to find a solution. Second, if you do miss a payment, don’t let yourself get any farther behind. Caldwell warns that multiple missed payments will severely hurt your credit, make it much harder to catch up and increase the likelihood that your car will be repossessed. Finally, make sure all your other options are exhausted before voluntarily surrendering your car to the lender — doing this will damage your credit as badly as a repossession.

If you find yourself struggling to make your monthly car payments, don’t delay — take action now to avoid falling behind and suffering a major financial blow.



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