Falling behind on your car payments can create a serious problem. Without an immediate plan, you risk having your vehicle being repossessed by your bank or lender. Getting assistance with your monthly car expenses can be a difficult proposition if you are looking through government or charitable donations. However, there is a better way.
When you run into a temporary hardship that causes you to miss a payment or two, then you risk having your vehicle seized by the lender. They do this to protect their investment, since the car is generally the collateral that was promised to secure the loan.
Lenders do not want your car though. They are in the business to finance loans and provide other services to consumers, not to sell automobiles. Therefore they are willing to make reasonable accommodations if it will enable you to fulfill your promise to repay the car loan plus all interest charges.
While a modification might sound like a big deal, it is actually a very simple process. Here is how it works.
- Contact your lender and advise them that you intend to honour your financial commitment, but that an unexpected crisis has created a hardship for you. Explain the nature of the crisis as well as the steps you are taking to recover from it. Your lender will want to see that the crisis has indeed created a bona fide hardship.
- Explain to them that the crisis is only temporary in nature, and that you would be reasonably able to resume your normal payments if you were given more time to pay or some type of abatement. Request a payment holiday if you believe it will allow you to recover from your hardship and allow you to resume paying the lender on time within 1-3 months. Most lenders will approve a break in your payments of about one month, and often two months. However a three month holiday is quite a stretch, and it would require special approval from a high level manager.
- Complete the document provided by your lender to grant you the payment holiday. This document is usually only one page, and it essentially modifies only the repayment schedule of your loan, not the interest rate, principal amount or any other terms. The amount that is “skipped” is then moved to the end of the loan, thereby extending your repayment period by an equal amount. Then, at the end of the term, a final bill will generally be generated to cover the additional interest that accrues during your payment holiday. Alternatively, the lender may slightly increase each monthly charge due from you in order to account for the extra interest.
Change Payment Schedule
A less intrusive option may be available if you normally have the cash to afford your car payment but are having trouble with the dates that you need to pay your monthly auto bill. This can be true if you are routinely getting paid on or after your due date.
Your financing company may, at their discretion, agree to alter your due date slightly in order to accommodate your schedule. They do this as a courtesy to you in order to ensure that the loan remains in good standing.
Make sure that you get written confirmation from your lender if they agree to change your due dates. You are responsible for making on-time payments and your collateral is at risk if you do not pay by the due dates.
Refinance the Loan
One often overlooked method for getting help with car payments is refinancing your current loan. This could help you lower payments and even allow you to draw out a small amount of cash. There are three common situations that could remove this as an option:
- A lack of documented income could cause problems in refinancing your car.
- Recent credit problems may cause your refinance loan application to be denied.
- Negative equity (balance owed exceeds the car’s value) could prevent you from refinancing.
If you do decide to take this approach, there is a chance that you could get a lower interest rate. Perhaps your years of consistent repayment on your account increased your credit score, thereby earning you a lower rate. If found to be qualified for this, it could reduce your monthly payments even if you stick with the same terms. If you decide to do this, also look into any options provided by a not-for-profit credit union.
Another option is to extend the loan term by several months. If you decide to do this, you could also lower your car payments. This may generally increase your overall finance costs, so you should exercise caution in considering an extension to your current loan term.
Positive equity may allow for you to retain a small cash withdrawal. Lenders typically do not like to do this, so it takes some finessing to make it happen. A refund could result if your lender receives the payoff check from the refinancing firm plus your latest car payment.
Sell the Car
One final consideration that can provide you with assistance on your payments is to of course eliminate them once and for all. While for many people this is not a realistic option, however the fact is that selling your car could relieve you of the stress of paying that bill on a monthly basis and it could allow you to focus on other debt payments.
Most automobile owners mistakenly believe that they cannot sell the car if it is worth less than the amount remaining on the loan balance. The reality is that many lenders will consent to a sale of the vehicle for less than the balance and allow you to repay the shortfall through a separate unsecured loan. That may be structured in such a way that your payments are reduced and spread out over many months or even a year or two. A top-up loan is often used for a seller with negative equity seeking to swap their car for another.
The most important aspect of getting help with car payments is to contact your lender first. Let them know right away when you are experiencing problems. You have the most options available to you before you fall behind.
Schemes for Transportation
There are national or local schemes that can help some individuals with their car payments or provide other forms of assistance, such as leasing programmes, low interest loans, free repairs and other aid. These schemes will be limited to people that meet a specific eligibility requirement and they will come with restrictions as well. The Motability Scheme for the disabled is one such service that is for households that have a resident with a disability or even their caretakers. If you are struggling with car payments and paying related transportation costs, be sure to explore all options.
Wheels to Work is another scheme in the UK that provides affordable transport to the unemployed or people seeking a job or attending training. It will not give them a new car, but the client will be loaned a scooter, moped, or even bicycle. There will be small payments needed from the person, but it will be affordable and based on their income as well. Read more Wheels to Work or Learning scheme.
Free Travel Cards can be provided to people seeking a job. They are usually issued on a discounted basis, but some government schemes may provide for free travel. This form of assistance can help anyone that does not have a car and this is struggling to pay for a train ticket, the bus, or other means of transportation. The individual applying needs to need transportation so they can commute to a job or interview. Read more details on the discounted travel card scheme.