What you can do about a car payment you cannot make

If you cannot afford your car payment, you have several paths forward, and they depend on how far behind you are and what you owe versus what the car is worth. You can contact your lender to ask about loan modification (extending the loan term to lower monthly payments), deferment (skipping one or more payments and adding them to the end), or forbearance (temporarily reducing payments). You can also sell the car and use the proceeds to pay down or eliminate the loan, refinance with a different lender at a lower rate, trade the car in at a dealership, or surrender the vehicle to the lender. Each option has different costs and consequences for your credit and your finances.

The sooner you contact your lender, the more options remain open. Once you miss a payment, your credit score drops when ready. After 30 days, the lender reports the miss to credit bureaus. After 120 days (four months), many lenders begin repossession proceedings. Acting before you miss a payment gives you access to options that disappear once the account is in default.

Key Takeaways

  • Contacting your lender before you miss a payment may allow you to modify the loan, defer payments, or reduce your monthly amount temporarily.
  • Selling the car yourself, refinancing with another lender, or trading it in at a dealership are ways to exit the loan if modification is not an option.
  • Surrendering the vehicle to the lender stops the payments but leaves you responsible for the difference between what the car sells for and what you owe, plus repossession fees.
  • Missing payments damages your credit score and triggers repossession risk after 120 days; acting before that point protects both your credit and your options.
  • Some lenders offer hardship programs for borrowers facing job loss, medical emergency, or other documented hardship; ask whether yours does.

Loan modification, deferment, and forbearance through your lender

Contact your lender's customer service line and ask to speak with someone in the hardship or loss mitigation department. Have your account number and a clear picture of your situation ready: whether you lost income, faced an unexpected expense, or expect your situation to improve in a specific timeframe. Lenders are more likely to work with borrowers who can explain what happened and when they expect to recover.

Loan modification extends the remaining loan term, which spreads your payments over more months and lowers the monthly amount. If you have 36 months left on a $15,000 loan at $417 per month, extending it to 60 months might lower your payment to $250. You pay more interest overall, but the monthly burden drops. This is permanent — you do not return to the original payment later.

Deferment lets you skip one or more payments (often one to three months) without penalty, and the lender adds those payments to the end of the loan. You still owe the full amount, but you get breathing room now. Interest continues to accrue during the deferred period, so you pay slightly more overall, but you avoid the when ready crisis of a missed payment.

Forbearance temporarily reduces your payment — sometimes to interest-only, sometimes to a smaller amount you can afford — for a set period (typically three to six months). After that period ends, your payment returns to the original amount or a modified amount. This works if your hardship is temporary and you expect your income to recover.

Not all lenders offer all three options, and approval depends on your account history and the lender's policies. Ask which programs are available to you and what documentation they need. Some lenders require a hardship letter; others ask for recent pay stubs or a letter from your employer explaining a layoff.

Refinancing with a different lender

If your credit score is still in reasonable shape (typically 620 or higher, though this varies by lender), you can refinance the loan with a bank, credit union, or online lender. Refinancing means taking out a new loan to pay off the old one, ideally at a lower interest rate or with a longer term that reduces your monthly payment.

To refinance, you will need the current payoff amount from your existing lender, proof of income, and a credit check. The new lender pays off the old loan, and you begin making payments to the new lender instead. The process typically takes one to two weeks. Refinancing works best if interest rates have dropped since you took out the original loan, or if your credit has improved and you now may have access to for a better rate.

Be aware that refinancing resets the loan term. If you refinance a loan with two years left into a new five-year loan, you extend your total time in debt even if your monthly payment drops. Calculate the total interest you will pay over the life of the new loan before you commit.

Selling the car yourself

If you sell the car privately, you keep any money above what you owe the lender. For example, if the car is worth $12,000 and you owe $10,000, you pocket $2,000 after paying off the loan. If you owe more than the car is worth (called being "underwater"), you must bring cash to the sale to pay the difference, or the lender will not release the title.

To sell a car with an outstanding loan, contact your lender and ask for the payoff amount — the exact sum needed to close the loan on a specific date. The lender will provide instructions for how the sale proceeds are handled. In most cases, the buyer's bank or your lender handles the title transfer directly, so the loan is paid off before you hand over the keys.

Selling privately takes time — typically two to eight weeks depending on demand for your car and your local market. List the car on Craigslist, Facebook Marketplace, Autotrader, or similar platforms. Be transparent about the loan: tell buyers the car has a lien and explain the process for handling it. Many buyers are comfortable with this arrangement.

Trading in the car at a dealership

A dealership will accept your car as a trade-in toward a new or used vehicle purchase, even if you owe money on it. The dealership appraises the car, deducts what you owe from the trade-in value, and applies the remainder to the price of the new car. If the trade-in value is less than what you owe, the dealership may roll the negative equity into the new loan — meaning you start the new loan already underwater.

Trading in is faster than selling privately (one to two days) but typically nets you less money. Dealerships buy at wholesale prices, which are lower than what a private buyer would pay. However, if you need to exit the loan quickly and cannot afford to carry two car payments, a trade-in may be your fastest option.

Before you trade in, know your payoff amount and the car's market value (check Kelley Blue Book or NADA Guides). This tells you whether you will have money left over or whether you will owe the difference. If you owe significantly more than the car is worth, trading in straightforward transfers that debt to a new loan.

Surrendering the vehicle to the lender

If you cannot sell the car, refinance, or modify the loan, you can voluntarily surrender it to the lender. This stops your monthly payments when ready, but it does not erase your debt. The lender sells the car at auction, and you are responsible for the difference between the auction price and what you owe, called a deficiency. You also pay the lender's repossession and auction fees, which typically range from $300 to $1,000.

For example, if you owe $12,000, the lender repossesses and auctions the car for $8,000, and charges $500 in fees, you owe $4,500 to the lender. The lender can pursue this debt through collection agencies or by suing you. Some states have laws limiting deficiency judgments, but not all do — check your state's rules before you surrender.

Voluntary surrender damages your credit score similarly to repossession, though some lenders report it more favorably because you cooperated. It remains on your credit report for seven years. Surrender makes sense only if you have no other option and the deficiency will be manageable or if your state prohibits deficiency judgments.

What happens if you stop paying without contacting the lender

If you straightforward stop making payments without reaching out to your lender, the account enters default. After 30 days, the lender reports the miss to credit bureaus, and your credit score drops 100 to 150 points. After 120 days (four months), most lenders begin repossession. A repossession agent locates your car and takes it without your permission, often without warning.

Repossession is expensive: the lender charges you for the tow, storage, and auction, on top of the deficiency you owe. Your credit is damaged more severely than with voluntary surrender. You also lose the car without having sold it or traded it in, so you have no transportation and still owe money.

The only advantage to letting it reach repossession is that you do not have to make the difficult decision yourself. The disadvantage is that you lose all control over the outcome and pay more in fees and interest.

Frequently Asked Questions

Can I modify my loan if I am already one or two months behind?

Yes, many lenders will still work with you if you are one to three months behind. Contact them when ready and explain your situation. The longer you wait, the fewer options remain. Once you reach 120 days behind, repossession becomes likely and modification becomes unlikely.

What if I owe more than the car is worth?

You are underwater on the loan. Selling the car yourself requires you to bring cash to cover the difference. Trading it in rolls the negative equity into a new loan. Refinancing does not solve this unless rates drop significantly. Loan modification or deferment may be your best option if you cannot afford the payment.

Does voluntary surrender hurt my credit less than repossession?

Voluntary surrender and repossession both damage your credit severely and remain on your report for seven years. Some lenders report voluntary surrender slightly more favorably, but the impact is similar. The main advantage of voluntary surrender is avoiding repossession fees and the deficiency judgment that often follows.

Can I refinance if my credit score dropped after missing a payment?

Refinancing becomes much harder after a missed payment. Most lenders require a credit score of 620 or higher; a missed payment typically drops your score below that threshold. Wait three to six months of on-time payments to rebuild your score before attempting to refinance, or explore loan modification with your current lender instead.

What if my state does not allow deficiency judgments?

Some states (including California, Nevada, and others) prohibit lenders from pursuing deficiency judgments on car loans. If you live in one of these states, surrendering the vehicle ends your obligation once the lender sells it, regardless of the sale price. Check your state's laws or ask a local legal aid organization whether deficiency judgments are allowed in your state.