You don’t have to wait for a missed payment to ask for help. If your car payment is too high, your next move depends on whether you need a short break or a lasting reduction in your transportation costs.
This guide compares lender hardship plans, refinancing, selling, and voluntary surrender, plus when bankruptcy advice may help. We checked guidance from the Consumer Financial Protection Bureau and Federal Trade Commission to explain the costs, credit report consequences, and questions to ask before you choose.
What to Do First If You Can’t Afford Your Car Payment
Check your payment due date, the amount you can afford each month, and when you expect your income to recover. Include insurance, fuel, and maintenance in your transportation budget so you can see whether a smaller loan payment would actually solve the problem.
Use your situation to narrow down the next step. You can compare more than one option before you commit.
| Your Situation | Option to Explore First | What to Check |
|---|---|---|
| Your paycheck arrives after the payment due date | Due date change | Whether a different due date solves the timing problem |
| You expect your income to recover soon | Payment extension or hardship plan | Extra interest and what you’ll owe when payments resume |
| You can consistently afford a smaller payment | Refinancing or loan modification | Approval requirements and total remaining cost |
| The car costs too much for your budget | Sale or cheaper transportation | Loan payoff, car value, and replacement costs |
| Several debts have become unmanageable | Bankruptcy consultation | Whether you should get legal advice before surrendering the car |
If you need the car for work or childcare, price your replacement transportation before you give it up. A cheaper vehicle won’t help if repair bills or unreliable transportation create another financial problem.
Ask Your Lender About Auto Loan Hardship Options
Contact the lender or loan servicer that receives your payments. Explain what changed, how much you can pay, and whether you expect the problem to be temporary.
The CFPB recommends contacting your lender promptly and getting any new agreement in writing. Ask about these options, but don’t assume every lender offers each one:
- Due date change: Moves your payment to a different day of the month. This can help if your paycheck and due date don’t line up, but it won’t reduce the payment itself.
- Payment extension or deferral: Postpones one or more payments. Interest usually continues, and some arrangements still require interest payments during the break.
- Catch-up plan: Sets a schedule to repay missed payments. Check whether you’ll need to make your regular payment plus an extra amount each month.
- Loan modification: Changes the terms of your existing loan. Ask whether the lender can adjust the interest rate, repayment period, or payment schedule.
Before you accept, confirm the fees, added interest, next due date, and payment amount after relief ends. Ask how the lender will handle your credit report and whether the agreement will stop any repossession action. Keep the written terms and the representative’s name with your loan records.
A hardship agreement doesn’t automatically remove earlier late payments from your credit report. Continue to follow your existing payment obligations until the lender approves a change, and avoid companies that charge upfront fees to arrange relief you can request yourself.
What to Do If You’re Already Behind on Car Payments
Call your lender even if you’ve already missed a payment. Ask for the exact amount needed to bring the account current and whether repossession has been ordered.
A late fee, a late payment on your credit report, and repossession follow different rules. A missed payment generally can appear on your credit report once it’s at least 30 days past due. Your contract may permit a late fee sooner, and repossession rights depend on your contract and state law.
Don’t assume you can safely miss two or three payments. In some states, default on a car loan can allow repossession after a single missed payment. A grace period for late fees doesn’t necessarily protect you from repossession.
A partial payment or hardship application doesn’t automatically stop that process. Get written confirmation of what payment or agreement will bring your account current or suspend repossession. If the lender takes your car despite an agreement, contact the lender immediately and seek help from your state consumer protection office or a legal aid attorney.
Refinance Your Car Loan to Lower Your Payment
Refinancing your car loan replaces your existing loan with a new one. It may reduce your payment through a lower interest rate, a longer repayment period, or both.
Your credit score matters, but lenders may also check your income, payment history, vehicle’s age and mileage, and how much you owe compared with the car’s value. Late payments or substantial negative equity can limit your choices. Some lenders also won’t refinance loans they already hold.
Compare the new payment with the interest and fees you’d pay from this point forward under each loan. A longer term can cost more overall even if the interest rate drops.
Suppose you owe $18,000 at a fixed 10% interest rate with 36 monthly payments left. Here’s how a refinance at 8% over 60 months would compare:
| Loan Choice | Interest Rate | Months Left | Monthly Payment | Remaining Interest |
|---|---|---|---|---|
| Keep the current loan | 10% | 36 | $581 | $2,909 |
| Refinance for five years | 8% | 60 | $365 | $3,899 |
The refinance lowers the monthly payment by about $216 but adds about $990 in interest. These estimates assume regular monthly payments and no refinancing fees; amounts are rounded.
If refinancing fits your budget, compare offers from banks, credit unions, and the best auto refinance companies. Keep paying your existing lender until you confirm that the old loan has been paid off.
Sell Your Car or Switch to a Cheaper Vehicle
Selling may make sense if the car’s ongoing costs exceed what you can afford. Before you list it or accept a trade-in offer, find out what it would take to pay off the loan and replace your transportation.
You can sell a financed car, but the lender’s lien must be handled as part of the transaction. Follow these steps:
- Request a payoff quote: Ask your lender for the amount needed to close the loan by a specific date. Check for any early payoff penalty.
- Compare purchase offers: Get more than one offer and compare those amounts with a realistic private-sale price.
- Calculate the difference: Subtract the payoff amount from the expected sale price. A negative result means you need a way to cover the gap.
- Confirm the payment and title process: Ask your lender how the buyer should pay and how the title or lien release will reach the new owner.
If your payoff is $20,000 and the car sells for $16,000, you have a $4,000 shortfall. That’s what it means to be upside down on your car loan. You’ll generally need to cover that difference to complete a sale and release the lien.
A personal loan might cover the gap, but it creates another payment. Compare its interest rate and fees with your replacement transportation costs before you borrow. If a dealer adds the shortfall to your next auto loan, you’ll pay interest on that old debt too.
A buyer who gets their own financing can use it to pay off your loan. Don’t rely on a friend or relative’s informal promise to make your payments; you remain responsible unless your lender formally releases you.
If you lease rather than own the car, ask whether the leasing company permits a transfer. Review the fees and whether you’d remain liable afterward. Our guide to getting out of a car lease early explains the other options.
What Voluntary Repossession Means for Your Debt and Credit Report
Voluntary repossession means you arrange to return the car to your lender. It may reduce some repossession expenses, but it can still damage your credit score and appear on your credit report.
Returning the car doesn’t automatically cancel the loan. If the lender sells it for less than your debt plus permitted expenses, you may owe a deficiency balance. Suppose you owe $18,000, the sale brings in $13,000, and permitted expenses add $500. The remaining debt would be $5,500.
The FTC’s repossession guidance explains that lenders may pursue unpaid deficiencies through collection or a lawsuit, subject to state law. Before you surrender the car, ask how the sale and expenses will be handled and whether the lender will consider a payment plan or settlement for any remaining debt.
Get any settlement in writing. It should say whether you’re released from the rest of the balance. A settlement for less than the full amount can also have credit report consequences.
When Bankruptcy May Help With an Unaffordable Car Loan
If your car loan is one of several debts you can’t repay, a bankruptcy consultation may help you assess your options. You don’t have to surrender the car before you ask an attorney what bankruptcy would change.
Chapter 7 can discharge personal responsibility for qualifying debts, but it generally doesn’t remove the lender’s lien on the car. You can’t assume that the debt will disappear while you keep the vehicle without further payment.
Chapter 13 may let you repay past-due amounts and change how certain secured debts are repaid through a court-approved plan. You’ll need enough income to support the required payments, and keeping the car isn’t guaranteed.
Bankruptcy can remain on your credit report for up to 10 years. Ask a bankruptcy attorney whether you could keep the vehicle, what payments would remain, and how your other debts affect the decision. The answer depends on your loan, finances, and applicable law.
Frequently Asked Questions
Does GAP insurance cover missed car payments?
No. GAP insurance generally addresses the difference between your auto loan balance and an insurer’s payment after a covered theft or total loss. It doesn’t cover ordinary missed payments because your income dropped or your budget is tight.
Will missed car payments affect my co-signer’s credit report?
Yes, late payments can appear on your co-signer’s credit report and hurt their credit score. Your co-signer is also responsible for repayment if you don’t pay. Tell them about the payment problem early so they can discuss possible solutions with you.
Can unemployment or disability coverage help with my car payment?
It may help if you already purchased credit insurance or a debt cancellation or suspension product that covers your situation. Check the contract for exclusions, waiting periods, claim deadlines, and benefit limits. Ask the provider whether benefits cancel payments or only postpone them, and don’t assume a pending claim excuses a payment.
