A new study by VantageScore—a company that helps decide people’s credit scores—revealed that the number of Americans falling behind on car payments has increased over 50 percent in the past 15 years. To blame: increased interest rates, higher financing costs and higher car prices. VantageScore also notes this increase could be because most car owners owe more in loans than their car is worth.
“Auto loans have not followed the trends of other credit products, as delinquencies have been persistently trending up across all credit tiers and income groups over the past 15 years,” Dr. Rikard Bandebo, the chief strategy officer and chief economist at VantageScore, said in a statement. “Even after the industry tightened lending criteria three years ago, delinquencies have continued to rise.”
Below, financial experts share what to do if you can’t pay a car loan payment. Plus, practical steps to bounce back and protect your credit score.
What to know about missing a car payment
There are countless reasons for missing or falling behind on a car payment, including everything from not having enough money to pay the bill to simply forgetting to do so. And whether it happens once or several times, depending on the state of your finances it can trigger a chain of events that could potentially lead to the loss of your vehicle.
“When you miss a car payment, you are at risk for your car being repossessed,” says Melanie Musson, an insurance and finance expert at Quote.com. “States have different consumer protection laws and in some states, lenders have to wait until a borrower is 90 days behind before they can repossess the vehicle. In most cases, though, you have at least 30 days before your car will be repossessed.”
Does missing a car payment impact your credit score?
As with any other loan, even one missed payment can impact your credit score.
“It may sound dramatic, but missing a car payment often can trigger a chain reaction of effects beyond a late fee,” says Heather Courtney Quinn, a wealth management advisor at Northwestern Mutual. “A single late payment can impact your credit score, remaining on your credit report for years, which could cause you to receive higher interest rates the next time you need to borrow money. Protecting your credit protects your flexibility down the road for future expenses.”
The good news? “You can often act quickly to prevent a missed payment from hurting your credit,” she says.
“Most lenders don’t report a payment as late to the credit bureaus until it’s at least 30 days overdue,” she continued. “If you realize you’ve missed a due date, especially for the first time, contact your lender right away to explain your situation. They may be able to waive the late fee, offer a short-term extension or agree not to report the missed payment if you make the payment promptly.”
How to avoid missing a car payment
If you are looking to avoid missing a car payment, Quinn recommends setting up automated payments, keeping four to six months’ worth of expenses in an emergency fund and checking in with your lender if something changes—she says these moves can prevent a temporary cash crunch from turning into a long-term credit problem.
“Good financial habits aren’t about never making mistakes; they’re about building resilience so that one setback doesn’t derail your bigger goals,” she continues. “Many people miss a payment not because they’re reckless, but because life is unpredictable. From an unexpected bill to a job change, or even just a bad month, acknowledging that everyone makes mistakes can help you feel less shameful and more empowered to act.”
