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Tips for those struggling to make car payments
Drivers falling behind on car payments have reached the highest level in 30 years. High car prices and high interest rates have been driving many borrowers deep in debt.
HOUSTON - Drivers falling behind on car payments have reached the highest level in 30 years. High car prices and high interest rates have been driving many borrowers deep in debt.
The Federal Reserve of New York reports nearly 5% of Texans are more than three months behind on car payments.
We talked with a credit counselor, who specializes in auto loan debt, who said borrowers have options to avoid repossession.
Car prices have finally started to pump the brakes from their pandemic peak, but are still pricing many drivers out of the market.
"I have two vehicles that are paid off, and I’m going to stay that way," said one driver we talked to named Diane.
Others have had to make the purchase and pay the price.
"Interest rates on cars are high. I just bought her a car at 10% interest," said another driver named David, speaking of his wife's car.
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PYMNTS.com reports borrowers who are more than three months late on payments have climbed from 3% to over 4% nationwide, and as high as 6% for those with subprime loans.
Cox Automotive expects repossessions to jump from 1.2 million to 1.5 million this year.
But GreenPath Financial Wellness credit counselor Andy Manthei says borrowers have more options than they realize.
"Having an open, candid conversation with the lender, they have options. Sometimes they can modify the loan. Sometimes they can lower the interest rate and the payment. If it's due to something like a temporary layoff, they can even do something like a skip a payment or a temporary hold on your payment," suggested Manthei.
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He says borrowers can also consider a voluntary repossession.
"If it goes to a full repossession, that financial institution is trying to get reparations for the cost, the legal cost to file that. A voluntary repossession, while still damaging on the credit, still allows for a more amicable separation," Manthei explained.
But he says once a repossession happens, it's not the end of the road for your personal finances.
"Start to rebuild your credit though something like a shared secure credit card, a shared secured loan," he said.
Drivers with good credit scores who are not yet behind on payments may also be able to refinance the loan with another lender for a payment.
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This issue is hardest on lower income drivers. Prices can keep them from being able to buy cars that would enable them to drive to higher-paying jobs. And with lower credit scores, interest rates can be as high as 21% for used cars.
Once a repossession has taken place, Nerdwallet suggests asking the lender why it happened, whether it was due to falling behind on loan payments or perhaps insurance. Ask if it's possible for you to catch up to get the vehicle back.
If you're already considering bankruptcy, Nerdwallet says filing for bankruptcy before a repossession may enable you to keep the vehicle and catch up on payments.
If it is repossessed and sold for less than you owe, be aware you'll owe the difference. However, if it is sold for significantly below market value, you may have legal recourse.