Your options depend on how far behind you are and what your lender will negotiate
If you can no longer afford your car payment, you have a window of time to act before the lender takes the car back. The moment you miss a payment, contact your lender directly—do not wait for a notice. Most lenders have a grace period of 10 to 15 days before a missed payment hits your credit report, and many will work with you on a temporary solution if you reach out first. Your options include deferment (pushing payments to the end of the loan), forbearance (temporarily lowering or skipping payments), refinancing to a longer term, selling the car, or surrendering it voluntarily. Each has different consequences for your credit, your wallet, and what you owe.
The worst outcome happens when you do nothing. After one missed payment, the lender can begin repossession, though most wait 60 to 90 days. Once the car is repossessed, you still owe the remaining loan balance after the lender sells it at auction—often for less than you owe. You also face a repossession on your credit report for seven years. Acting now, even if you think you cannot solve the problem, keeps you in control of the decision.
Key Takeaways
- Contact your lender before you miss a payment; most have hardship programs that can defer or reduce payments temporarily without damaging your credit as severely as a missed payment.
- A missed payment stays on your credit report for seven years, but repossession stays even longer and costs more in the long run.
- Refinancing to a longer loan term lowers your monthly payment but increases the total interest you pay over the life of the loan.
- Selling the car yourself and paying off the loan avoids repossession and gives you control over the sale price, unlike a lender's auction.
- Voluntary surrender stops the repossession process but does not erase what you owe, and the deficiency judgment can follow you for years.
Deferment and forbearance: temporarily pausing or reducing payments
Deferment and forbearance are the fastest options if your hardship is temporary—a job loss you expect to recover from, a medical emergency, or a reduction in hours. Deferment pushes your missed or upcoming payments to the end of your loan, so you do not pay them now but you pay them later. Forbearance temporarily reduces your payment or lets you skip one or two months. Neither option requires you to prove anything beyond a reasonable explanation of why you cannot pay right now.
The catch: deferment and forbearance do not erase the payments. You will owe them eventually, and the loan will extend beyond its original end date. Some lenders charge a fee to set up deferment. More importantly, if you enter deferment or forbearance and then miss a payment anyway, the lender can move straight to repossession without waiting for the grace period. Ask your lender in writing what happens to your credit report if you use deferment or forbearance—some report it as a hardship arrangement (less damaging than a missed payment), and some report it as a delinquency. Get the answer before you agree.
Refinancing: spreading payments over a longer period
Refinancing means taking out a new loan to pay off the old one, usually with a longer repayment term. If you owe $15,000 with three years left, refinancing to five years lowers your monthly payment. The trade-off is that you pay more interest overall because you are borrowing for longer. Refinancing also requires a credit check, and if your credit has dropped since you took out the original loan, you may face a higher interest rate than you had before.
Refinancing works best if your income problem is permanent but manageable—you earn less than you used to, but you can sustain a lower payment indefinitely. It does not work if you are about to lose your job or face an even bigger financial crisis. You also need to have enough equity in the car (owe less than it is worth) or have decent credit to refinance. If you are already behind on payments, most lenders will not refinance until you catch up.
Selling the car and paying off the loan yourself
If you have time before repossession, selling the car yourself gives you the most control. List it on Craigslist, Facebook Marketplace, Autotrader, or Carvana. You keep the sale price and use it to pay off the lender. If the sale price exceeds what you owe, you pocket the difference. If you owe more than the car is worth (you are "upside down"), you have to cover the gap out of pocket, but you avoid the larger gap that happens after a repossession auction.
The process: get a payoff quote from your lender (the exact amount needed to close the loan today), list the car, and arrange for the buyer to wire funds to your lender while you transfer the title. Some lenders allow the buyer to pay you directly if you sign a power of attorney, but this is riskier. You can also use a service like Carvana or Vroom, which handles the sale and payoff directly, though they typically offer less than a private sale.
Voluntary surrender: returning the car to the lender
Voluntary surrender means you return the car to the lender and walk away. It stops the repossession process and prevents the lender from towing your car without warning. However, it does not erase your debt. After the lender sells the car at auction, if the sale price is less than what you owe, you are liable for the deficiency—the gap between the sale price and your loan balance. The lender can sue you for this amount, and if they win, they can garnish your wages or place a lien on your bank account.
Voluntary surrender also damages your credit report, though slightly less severely than repossession. It stays on your report for seven years. Some lenders are more aggressive about collecting deficiencies than others; some write them off. Before you surrender, ask your lender in writing whether they will pursue a deficiency judgment and what the typical deficiency is for cars like yours. Get this in writing so you have proof of what you agreed to.
Repossession: what happens if you do nothing
If you miss payments and do not contact your lender or pursue one of the options above, the lender will repossess the car. This can happen as early as 60 to 90 days after the first missed payment, though some lenders wait longer. Once the car is repossessed, the lender sells it at auction, usually for significantly less than its market value. You still owe the difference between the sale price and your loan balance, plus repossession fees (typically $300 to $500) and auction fees.
A repossession stays on your credit report for seven years and makes it much harder to borrow money in the future. Your credit score can drop 100 to 150 points or more. You also lose the car immediately and without warning, which can disrupt your work or daily life. Repossession is the most expensive and damaging option, which is why lenders prefer to work with you if you reach out first.
How to contact your lender and what to say
Call the customer service number on your loan statement or bill. Tell them you are having trouble making your payment and ask what hardship options are available. Be honest about your situation: job loss, reduced hours, medical emergency, or unexpected expense. Have your loan account number ready. Ask specifically about deferment, forbearance, and loan modification. Request that any arrangement be confirmed in writing before you agree to it.
If the first representative does not offer options, ask to speak with a supervisor or the loss mitigation department. Some lenders have dedicated hardship teams that have more flexibility than regular customer service. If you are behind on payments, the lender may require you to catch up before offering deferment or forbearance, or they may allow you to add the missed payments to the end of the loan. Get all terms in writing, including whether the arrangement will be reported to credit bureaus and what happens if you miss a payment during the arrangement.
Frequently Asked Questions
How long do I have before the lender repossesses my car?
Most lenders wait 60 to 90 days after the first missed payment, but some wait longer and some move faster. Your loan agreement specifies the timeline. The grace period before a missed payment hits your credit report is usually 10 to 15 days, so contact your lender within that window if possible. Once repossession begins, you may have only a few days' notice.
Will deferment or forbearance hurt my credit score?
Deferment or forbearance is less damaging than a missed payment, but the impact depends on how your lender reports it. Some report it as a hardship arrangement (minor impact), and some report it as a delinquency (major impact). Ask your lender before you agree. A missed payment drops your score 100 to 150 points; deferment typically drops it 20 to 50 points if reported as a hardship.
What if I owe more than the car is worth?
You are upside down on the loan. Selling the car yourself requires you to cover the gap out of pocket. Refinancing may not be possible if you lack equity. Voluntary surrender or repossession leaves you liable for the deficiency, which the lender can pursue through a lawsuit. Deferment or forbearance buys time to improve your financial situation before you decide.
Can the lender sue me for the deficiency after repossession?
Yes, in most states. The lender can sue you for the difference between the sale price and what you owed. If they win, they can garnish your wages or place a lien on your bank account. A few states have anti-deficiency laws that protect you, but most do not. Ask your lender whether they pursue deficiencies before you surrender or allow repossession.
What happens to my credit if I voluntarily surrender the car?
Voluntary surrender stays on your credit report for seven years, similar to repossession. It is less damaging than repossession because it shows you took action rather than forcing the lender to recover the car, but both significantly lower your credit score. The impact on your ability to borrow money is substantial for several years.