In default on car loan: What to do?Negotiating with the lender face-to-face might helpBy Todd Ossenfort
Dear Credit Guy,
I
lost my job and my wife just got one in June. We're behind on one car and the
lender wants $1,000. We have another car through the same finance company, and
they said if we default on one car they would take both. Can they do that? Also,
would they put the money at the end of the loan for us because we can make both
payments but we can't pay the $1,000?
-- Paul
Dear Paul,
I'm
not sure exactly what your lender can or cannot do concerning your loan because
I haven't read your loan papers. I recommend you track down the loan agreement
and review the section that covers how a default is handled. Unless it is
included in the agreement, I don't believe your lender can repossess your other
vehicle unless it is also in default.
Once
you know what is included in your loan agreement, make an appointment to speak
with your lender. If possible, I'd request a meeting in person. Typically your
vehicle cannot be repossessed until after the loan is more than 90 days late,
so be sure you act before you reach that point.
Be
prepared to demonstrate that you are now able to make the payments on both of
your vehicles. Regardless of what is included in the loan agreement, most
lenders would much rather you make your loan payments so they can earn the
interest charged on the loan rather than deal with the costs of repossessing
the vehicle. So, keeping that in mind, be prepared to negotiate how you will
pay the past due amount of $1,000.
Adding
the past due amount to the end of the loan may require a modification of the
loan into a new loan agreement, and I would be willing to bet your lender may
be hesitant to do that. In addition, it may not be in your best interest to do
so, especially if the new terms will increase your monthly payment. However, if
your current agreement can be extended by the number of months it would take to
pay the $1,000 without changing any other terms in the agreement, then that
would be a very reasonable solution.
Another
alternative is to request that you pay off the past due amount over an extended
period of time by adding an agreed upon amount to your existing monthly payment
until the past due amount is paid in full. For example, if the lender agreed to
allow you four months to pay off the $1,000, you would need to add $250 to your
existing monthly payment. Assuming you could afford to make the additional
payment, your lender may be willing to allow you to pay what you owe in this
manner. Regardless of how the negotiations are resolved, request that the
solution you decide upon be put in writing.
Moving
forward, you might consider purchasing loan payment protection insurance that
would provide money for your car loan payment should you be unable to so due to
unemployment, death or disability. The insurance can be expensive, especially
if added to your loan with the auto dealer. It is best to seek this type of
insurance from an independent agent if you are interested. I'd review the
affordability of the insurance with your current insurance agent at the time of
your next car purchase.
Of
course, if you buy a new car in the near future, many manufacturers are
offering free payment protection as incentives to buy. However, I wouldn't
recommend buying a new vehicle until you are once again gainfully employed and
are able to put down a significant down payment.
Take
care of your credit!
See related: Cure your defaulted student loan in six steps, When hit with extra fees on auto lease, pay them on time or else, Strategies for escaping a too-expensive auto lease
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.
Published: November 14, 2009
 |
 |
 |
|
Three most recent The Credit Guy stories:
|
|
 |
|
 |
|
|
|
|
CreditCards.com's newsletter
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!
 |
|
|
|
|
|
