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Times are tough and many people find themselves out of work and struggling to pay the bills.  Faced with not being able to make the next payment on a car loan, you are concerned with how long it will be before the lender repossesses your vehicle and whether there are any other options.  What do you do?

1.  Inform Yourself
Find your loan agreement and read it carefully.  One of the clauses will detail exactly what happens if you miss a payment.  Your state's law may restrict how the contract is enforced.  For example, some states require a lender to send you a notice setting forth the number of days you have to bring the account current or you will be declared in default.  This warning must be issued before your vehicle is taken away.  Most lenders don't want to repossess vehicles, so if your payment history is good up until now, most will find a way to be flexible with your payment schedule during this period of unemployment

2Call Your Lender
In general, most lenders aren't going to send your loan to collections unless a payment is at least 5 days overdue and perhaps even 10 to 20 days before calling you. Be proactive and call the lender as soon as you think you're going to miss a payment. The lender may be able to offer you the following options:

  • Change your due date -- Your lender may be able to change your due date if, for example, it would be better for you to wait until the second paycheck of each month to make your car payment.
  • Deferment -- One or two missed payments may be tacked onto the back end of your loan. In other words, your delinquency may be temporarily forgiven and your loan extended by that length of time.
  • Relief through a government program -- Your lender may be aware of programs that help borrowers out during hard times. For example, military personnel can apply for a lower interest rate while on active duty thanks to the Soldiers and Sailors Civil Relief Act (SSCRA) or what is now called the Servicemembers Civil Relief Act (SCRA).

3Know What's Next
If your payments fall behind by 60 to 90 days, you can expect that the collections process will go from a few reminder calls to a couple of letters, then to a deficiency notification and, ultimately, repossession of your car.

In a deficiency notification, your lender will detail what you must do to retain your car, such as paying your balance in full or paying off the past-due amount and any feesIf you are unable to do either, then your car may be repossessedWhen that happens, it is often sold at an auction, but that doesn't mean you are completely free and clear.  If the auction doesn't bring enough to cover the outstanding loan balance, you are still responsible for the remaining amountThe lender will obtain a deficiency judgment against you which will reflect poorly on your credit report

If your car gets repossessed, it may be sold at auction to the highest bidder, but that doesn't necessarily get you off the hook. In most cases, if the lender doesn't recoup the remaining loan balance through the sale of the car, you are still responsible for the outstanding amount. The lender will most likely obtain a deficiency judgment against you, giving it the right to continue to collect on the debt. The deficiency judgment will be reflected as a bad mark on your credit report.

4Your Credit Rating 
Missed payments or having your car repossessed will damage your credit rating and impact your ability to take out loans in the futureEven a little late -- say, 30 days past due -- can impact your score since most lenders report borrower activity each monthOverdue payments of 60 to 90 days, repossession, or a deficiency judgment will be part of your credit rating for up to seven years

The good news is that once you are able to make timely payments, this will reflected in your credit report, too

To avoid missing car payments, follow these suggestions:

5If You Need Help
Contact the National Foundation for Credit Counseling (NFCC), by calling toll-free, 24 hours a day, 1-800-388-2227 or visit its web site at www.nfcc.org.

The NFCC is a nationwide non-profit financial counseling organization that can help should your debt load become overwhelming. A NFCC counselor will try to arrange a repayment plan that is acceptable to both you and your lender.