What Happens If I Don’t Pay My Car Loan?

If you keep missing your car loan payments, your lender will eventually declare that it is in default. This may happen after as little as 30 days and up to 90 days, depending on the terms set by your lender. At this point, your car may be repossessed and your lender will pass your loan to a collection agency (known as charging off the loan). Your credit score may also take a significant hit.

Missing a car loan can have several damaging effects. However, if you can’t afford your car loan, you likely have better options than simply not paying it. These options depend on your financial situation, loan type, and how much you have left to pay.

What If I Stop Paying My Car Loan?

Millions of Americans are struggling to make their car repayments on time. According to Federal Reserve data, 7.9% of auto loans moved into delinquency in the first quarter of 2024. If you stop making payments on your car loan, you can face several negative consequences.

Each payment you miss may incur late payment fees and negatively impact your credit score. Even if you start repaying your auto loan at a later date and avoid any further consequences, you’ll end up paying more interest on your loan because it will take longer to pay off.

If you keep missing payments, your lender will warn you that you are not adhering to the loan terms, and may threaten to repossess your vehicle.

Once you are 30 to 90 days late on your repayments, your lender will likely say that your loan is in default. Once you’re in default, the lender may be able to repossess your car anytime, without notice, and come onto your property to take it.

You will still owe the lender the difference between what you still owe on your loan (plus expenses), and what your lender gets for selling the car. This is called a deficiency, and your lender will pursue you for it. In most states, they can even sue you to recover this money.

In short, you can’t get out of your car loan if you simply stop paying it. If you can’t afford your car loan, there are likely better options to help you stay in financial health.

What to Do if You Can’t Afford Your Car Loan Payments

If you can’t afford your car loan repayments, the first thing to do is to talk to your lender as soon as possible. Many lenders will work with you to avoid losing money. They may offer you one or more of these options:

• A payment deferral, where you have more time to make payments
• A reduction in your payments
• A new repayment schedule, so you’ll pay off your loan more slowly over a longer period

If your lender can’t offer you affordable terms, you have a few options, including voluntary repossession, refinancing, or selling your car.

Voluntary Repossession

You can call your lender and tell them you can no longer make repayments on the loan. This is called a voluntary repossession. Your lender will take physical possession of your car and then sell it to recoup some losses. You’ll owe them the difference between what you owed and the amount they sold the car for. 

Refinancing Your Loan

If your lender can’t change the terms of your current loan, you might be able to refinance your car loan with the same lender or a new lender. Refinancing a car loan can lower your interest rate or extend your repayment term, both of which can lower the amount of your monthly payment.

Many auto lenders allow you to get pre-qualified for a loan before you submit an official application. This process makes it possible to compare interest rate quotes, repayment terms, and monthly payments from multiple lenders with just a soft credit check, which won’t impact your credit score.To find the best auto loans available for refinancing it's best to shop and compare.

Selling Your Car

Perhaps the easiest way to get out of your car loan is to sell your car and use the money from the sale to pay off the loan. If you sell your car for more than you owe, you can use the difference to buy a new car.

If you owe more than you get from selling it, you’ll still need to repay this difference to your lender.

The Bottom Line

Your car will eventually be repossessed if you don’t pay your car loan. Before that point, you’ll be charged late fees for your missed payments, your credit score will take a significant hit, and you may be charged fees for repossession.

If you can’t afford your car loan, you should first talk to your lender, who may be able to offer you lower or more flexible repayment terms. Alternatively, you can sell your vehicle and use the proceeds to pay off your loan, or have it voluntarily repossessed.