Struggling to repay your car loan? Here's what you can do.

Illustration of a car and credit card
Illustration of a car and credit card Getty Images

If you've found yourself struggling to keep up with auto loan payments recently, you're not alone. According to The Wall Street Journal, "seasonalized rates of severe delinquency for auto loans are the highest since at least 2006." This is due in large part to rising prices for cars both used and new, coupled with higher interest rates. And soon, borrowers' financial situations may get even tighter, as student loan payments are poised to resume in the fall. Should you realize you're in a position where making your monthly payment on your auto loan is untenable, there are steps you can take to find some relief.

1. Contact your lender

While you may feel tempted to avoid your lender when you've missed or may miss auto loan payments, what you want to do is reach out to them. Per Experian, "because vehicle repossession is usually the most time- and resource-intensive route when payments are missed, many lenders are willing to work with borrowers to get their payments under control."

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Additionally, according to Experian, the "sooner you get in touch, the more options your lender may be able to offer." For example, if you reach out, they may offer to change your payment due date. Or they might modify your existing payment schedule, such as by extending your loan term to lower the amount of monthly payments.

You might even be able to get your lender to agree to a deferral, according to Bankrate, that "involves skipping a couple of payments — between one and three months — without incurring penalties." Just note that you will still owe those payments eventually. The lender will just tack on the amount to the end of the loan, which will mean a longer loan term and more interest.

2. Consider refinancing

Especially if your credit has improved since you took out your auto loan, refinancing might be an option worth exploring. As Experian explained, "refinancing involves replacing your current loan with a new one, often with a different lender," and "depending on your situation, you may be able to get a loan with a longer repayment term than what you have left on your current term, which can help reduce your monthly payments."

There are caveats to consider with this approach to auto loan relief though. For one, if you pay off your existing auto loan early, you may owe a prepayment penalty. Additionally, if you opt to extend your loan term to lower your monthly payments, you will pay more interest over the life of the loan.

3. Consider trading in or selling your vehicle

If your auto loan is stretching you too thin, you might reconsider if you need a vehicle — or at least if you need as expensive of a vehicle as you currently have. According to Bankrate, "depending on the price difference between your current and new cars, and the term and rates of your new car loan, you may be able to save a significant amount of money by trading down to a less expensive car."

You can investigate your options by getting in touch with your dealership and seeing what sort of a deal they could give if you were to trade in your vehicle. Or you might do some research on what sort of price you could secure in a private third-party sale. Per Experian, "trade-ins tend to be more convenient, but you'll typically get more value with a private-party transaction."

A couple of notes before you settle on this approach though. For one, "the current state of the used car market may make trading your car a bit more difficult," reported Bankrate. And second, per Experian, "If you owe more than the car is worth, this option might not work as well."

4. Ask your network for help

If you're stuck between a rock and a support place, remember that everyone needs to ask for help at some point in life. You might see if either your friends or family is in a financial position that will allow them to offer assistance. While the most obvious form of aid is financial, according to Bankrate, "assistance from friends and family doesn't always have to be financial." Instead, they might have leads on an affordable car you can buy or a buyer for your vehicle you need to get off your hands.

If you do opt to ask for a loan from friends or family to see you through, make sure to formalize the exchange of funds with a contract stipulating a repayment plan. This will help you avoid a situation where financial tensions impact your relationship, as you'll know when to make payments and they'll know when to expect full repayment.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. 

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