While missing just one payment may not do severe damage to you as long as you are able to contact your lender and cover the late charge. You still want to avoid missing due payments at all costs.
How many car payments can you miss before repossession happens? When finances are tight, a few of the first things that may fade into the background are your debt payments. Expenses like your credit card bills or your car loan payments may slip your mind when you are concerned with making your rent on the first of the month or ensuring you have enough cash to cover groceries for each week.
If you’ve missed your car payment, you might be concerned about whether there is a risk of your car being repossessed. To avoid any negative impacts such as car repossession or harm to your credit, it’s crucial to get a handle on the situation as soon as possible.
How Auto Loans Work
To better understand how to avoid repossession, it’s a good idea to know how auto loans work from top to bottom. You want to know precisely what you are getting into before signing loan documents. Many people don’t think thoroughly before making a big financial decision like buying a vehicle. While others might hit financial hiccups that there could have been no way to anticipate.
When you don’t have the cash to pay for a car outright, you can get an automobile loan to purchase the vehicle through regular monthly installments. Not many people have enough money saved up to buy a car in one lump sum. A car loan allows individuals to drive off in the car they want to buy after making a down payment and signing a loan contract to pay off the price of the vehicle along with interest through monthly payments.
The agreement you make with the financial institution you are obtaining the car loan from is a legally binding contract that stipulates a set interest rate, monthly payment, and term length anywhere between 24 and 84 months. If these monthly installments are missed, the loan contract is at risk of being breached.
Struggling To Afford Your Car Payment?
If you are finding it hard to afford your monthly car payments, it can be nerve-wracking not to know what could happen if you have missed auto payments. Everyone goes through tough times once in a while. According to Cox Automotive, the average loan default rate in 2022 was approximately 2.28%.1
Below is a breakdown of how missing car loan payments can work:
| Number of Missed Payments | Consequence |
| 1st Payment Missed | Late fee charged, lender may contact you, slight drop in credit score. |
| 2nd Payment Missed | Additional late fee, more significant drop in credit score, lender may send a “Notice to Cure.” |
| 3rd Payment Missed | Additional late fees, severe drop in credit score, risk of repossession increases. |
| 4th Payment Missed | Additional late fees, credit score continues to drop, repossession is likely. |
| After Repossession | Severe drop in credit score, additional fees (repossession, storage, auction), deficiency balance may be owed. |
Before purchasing a new car, you will want to ensure that the monthly payments will be affordable for your budget. A basic rule of thumb is not to buy an expensive car unless you can genuinely afford it. That said, we cannot always anticipate a change in our finances.
Before resigning yourself to a late or missed payment, analyze your budget closely to see if there are any areas you can cut back. Skipping subscriptions for a month or taking a break from eating out could give you enough room in your budget to avoid late car payments.
Car Repossession
Auto payments should be considered a necessary expense in your budget. It would be wiser to prioritize your auto loan over most other expenses. Transportation is in the same category as housing, groceries, and medical expenses.
If you stop paying your vehicle loan, you could risk car repossession. The lender will start the repossession process when the grace period has passed and you have missed multiple payments. The lender will send out a warning of repossession, and if the consecutive missed payments are not brought up to date, the loan will be labeled in default.
Generally speaking, once your loan has gone into default, the lender has the right to repossess your car through the use of a tow truck or an electronic disabling device. Even if you can stop the repossession before it is completed by paying the remaining balance, the start of the process alone can negatively affect your credit score.
How Many Missed Payments on Your Car Loan Before Repossession?
How many payments you can miss before you can expect car repossession depends entirely on your lender and their leniency. Most lenders won’t begin repossession until you’ve missed three or more payments. Although there usually is a grace period between 60 and 90 days, a more staunch lender has the right to give notice of repossession for even one missed payment.
Having clear communication with your lender will make all the difference in maintaining a positive working relationship with them. If you know you will be missing a payment, call your lender ahead of time and ask if they offer loan deferment before you get to the point where you’ve accumulated three consecutive missed payments.
You can also notify them when you will have the money to complete the late payment. Doing this will assure the lender that you will make the payment despite your difficult circumstances. A late payment is far better than a missed auto payment. The lender will be far less likely to act quickly when the payment is not made by the due date because they know the date they will have it by.
Lenders don’t want to repossess your car. They would much rather the loan installments be completed as that will save them money on the repossession agency and repossession fees. Many lenders would prefer to work with you for a mutually beneficial solution rather than have the car be repossessed.
How Your Credit Is Affected
The lender who provided you with your vehicle loan reports all relevant details about your account to the credit bureaus that compile your credit report. Making your automobile loan payments on time will reflect positively on your credit, boosting your FICO score. However, every late and missed payment on your loan will result in a negative impact on your credit file.
Default, a notice of repossession, and actual repossession will be reported as derogatory marks on your credit and seriously damage your credit score. While these marks will eventually fall off your credit report, they will remain for several years and could harm your ability to get a loan in the future. All of this can be avoided by making each car payment on time or properly communicating with your lender if you need to reschedule your payment.
Steps You Can Take To Avoid Repossession
When you miss a car payment, what steps should you take to prevent that one missed payment from turning into a repossession?
We will walk you through the actions you need to take to get the late payments on your car loan under control and get back on track with your loan term. You are not the only one who has been in a position like this, and your lender may be able to work with you.
Step One: Find Out What You Owe and What You Can Afford
If you are unable to make a payment and have not simply forgotten, take a moment to sit down and go over the details of your loan, everything from the loan term to the loan balance. Check your statement to see if you have incurred any late fees. Determine how much you currently owe to the lender to get up to date on your auto loan.
After you’ve figured out how much you owe to be in good standing after your missed payment, determine how much you can actually afford to pay. Go the extra mile to see if you can scrounge up more money by cutting down on additional expenses.
Step Two: Learn What Options You Have
Once you understand your situation better, you can break down what options are available to you with your current resources. If this one payment was late because of a particularly rough month but not a recurring problem, you might be able to get by on a tight budget, complete the payment, and move on. You may also consider a debt consolidation personal loan.
However, if this might be a long-lasting issue because of life circumstances or because the loan is unaffordable, you might need to explore what further options are available to you. First, you will need to deal with the possibility of repossession if you’ve missed two or three consecutive payments, and then you can determine how best to proceed to avoid another missed payment.
Step Three: Contact Your Lender Directly
Call your lender directly and explain your current situation. Now that you are equipped with the knowledge of precisely what you can afford at this time, you can state the cash you have for payment and ask what solutions might be available for future affordability.
If you can clearly and courteously describe the context of your missed installment and what you are doing to resolve it, your lender may be far more likely to work with you to find a solution. Expressing confidence in your ability to repay the loan will cause lenders to have more confidence in you as well.
Some options that may provide a suitable solution include a car loan deferment or refinancing to get longer terms with more affordable payments. Before making any significant financial decisions, be sure you understand the new terms and conditions.
Fortify Your Finances To Stay On Top of Your Bills
The last thing you want after a repossession scare is to have anything like that happen ever again. So, what can you do to ensure you are sailing on safer financial waters? The best way to avoid future pitfalls is to stop living paycheck to paycheck by fortifying your financial foundation.
These are a few tips for getting back on your feet:
Budget Monthly Expenses
If you are budgeting money with a low income, you may find the 50/30/20 budgeting method useful. Use the 50/30/20 monthly budgeting method to be sure you are never overspending on unnecessary expenses to the detriment of your bills. The 50/30/20 budget designates 50% of your income for necessities such as housing, food, transportation, and healthcare. The remaining half of your monthly income is divided as 30% for wants and 20% for savings and paying off debt.
This can be an excellent outline to follow if you find it difficult to budget the more minute expenses. Proper budgeting will prevent you from taking on expenses that you cannot afford. Doing this will make it far less likely that you will fall behind on your bills. The cushion of a savings will also ensure you are no longer spending all your paycheck before you get the next.
Rebuild Your Credit
If your credit has been harmed through the threat of repossession, loan default, or late payments, it is crucial that you do what you can to rebuild it. Improving your credit score after negative marks will take a fair bit of patience, but it’s necessary for optimal financial health.
A poor credit score will limit your loan options to bad credit loans or no credit check loans, and could make it more challenging to be approved for credit cards and apartments. To rebuild your credit, pay off some of your debt, and decrease your credit utilization ratio.
Get an Emergency Fund
One of the quickest ways to lose control of your finances is to have them derailed by a surprise emergency expense. If you don’t have any savings, a single unexpected expense can mean you get behind on a bunch of your bills. The best way to prevent any of life’s curveballs from affecting your overall financial well-being is to build an emergency fund. Starting an emergency fund is also a great way to build credit if you are a millennial.
A good starter emergency fund is $1,000, but you can work your way up to a more hefty savings. Your emergency fund will have your back when expenses outside your typical budget come out of nowhere. These emergencies could be anything from medical expenses to car or home repairs. An emergency fund is one of the best ways to fortify your finances.
Without an emergency fund, you will need to dip into the cash from your income that you’ve already budgeted for your standard monthly expenses like your auto payments. When you don’t have money set aside for emergencies, you will be far more likely to fall behind on essential bills that could have major consequences.
Repossession and Missed Car Payments FAQ
Missing auto payments can lead to late fees, increased interest rates, and negative marks on your credit report. If you continue to miss payments, your lender may eventually decide to repossess your vehicle.
The first payment missed can result in a late fee as specified in your loan agreement. It may also negatively impact your credit score. If you don’t catch up on your payment, your lender may take further action, such as initiating repossession.
Yes, missed auto payments can negatively impact your credit score, making it harder for you to get credit in the future. It can also lead to higher interest rates on future loans.
Multiple missed payments can lead to your car being repossessed by the lender. This will significantly impact your credit score and could make it difficult for you to secure loans in the future.
If you’re unable to make your payment towards your auto loan, it’s important to communicate with your lender as soon as possible. They may be able to work out a payment plan or loan modification. Also, make sure to remove any personal property from your vehicle if repossession becomes imminent.
After the first missed payment, you should contact your lender to discuss your situation. They may be able to help you with a payment plan, loan modification, or a temporary payment delay.
If you’re struggling with keeping up with your auto payments, contact your lender to discuss your options. They may be willing to modify your loan terms, such as extending the loan period to lower your monthly payments, or temporarily reducing or pausing your payments.
A Word From CreditNinja
CreditNinja knows that having your vehicle repossessed is the last thing any car owner wants. Instead of wondering how many payments can you miss before your vehicle is taken away, do your best to rectify the situation before it comes to that. CreditNinja suggests reaching out to your lender as soon as you feel your loan payment starts to become an issue. They may have solutions available for you such as car refinancing tips, or reworking your loan!
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