How to Handle Your Car Loan if You Lose Your Job

With the proper planning, a job loss doesn't have to lead to a car loan default. "Hope for the best, prepare for the worst", is a common saying that has a lot of wisdom to it. Losing a job isn't something anyone wants to think about, but it's something everyone should be prepared for if they have an auto loan or other bills. There are a few options you typically have if you suddenly find yourself without income and need to pay for your car.

How to Handle Your Car Loan if You Lose Your JobCommunication with your lender is key. The first step to saving your car loan in the event of a job loss is to communicate with your lender. Your lender doesn't want you to default on your auto loan. In many cases, they may work with you to come up with a temporary solution to make your loan affordable during the hardship.

Auto loan deferment may help. For a short-lived situation, your lender may help you by offering a deferment. In deferment, payment can be skipped without penalty for a short time. Your missed payment is then added to the end of your loan. If you're in good standing, your lender may allow you to defer payment for around 30 to 60 days.

Long-term options to consider. If deferment isn't an option, your lender may be able to help you restructure your loan. In a restructuring, your lender extends your loan term in order to lower your monthly payment to something more manageable. Similar to refinancing, you typically negotiate an entirely new loan contract with a lender. Another option that may be available in some cases is auto loan assumption.

Is auto loan assumption for you? The auto loan assumption process allows someone else to take over the car loan, and ownership of the vehicle, while keeping the same terms as the original borrower. This option isn’t offered by all lenders, and the new borrower has to qualify for the loan under the same terms as you did. Loan assumption is more commonly seen with leased vehicles. This option leaves you without a car, but it's better than facing repossession if your lender can't help.

Seling your car for profit. Another option that leaves you without your car is selling it. If there's equity in your vehicle, where you owe less than the vehicle is worth, this means you may be able to put some cash in your pocket after the sale. You have the option to sell it privately or to a dealership. At best, your profit might be large enough to allow you to buy an inexpensive car for cash after you pay off the loan.

Right now might be a good time to look into selling a car for profit, since the value of used cars has been on the rise. The current industry-wide inventory shortages due to supply chain and chip issues have caused the value of used cars to soar, meaning you could get more for your used car right now than ever before.

What Not to Do if You Lose Your Income

Losing a job can be stressful, and so can the prospect of losing your car. Even though you may be grasping for anything that could logically help in this situation, there are a few things to avoid altogether. These include:

These options not only add to the issues you're currently facing with the loss of employment, but they impact your ability to get a loan or any line of credit in the future. If you're unable to get help from your lender, and are trying to avoid the negative effects of repossession, you can always consider selling the vehicle.

Once You're Back on Your Feet

If you weren't able to keep your vehicle after a job loss, it's likely you need auto financing again after the dust settles and you're back on your feet. You should know that you don't need to worry about a lower credit score or a fresh job standing in your way if you find the right kind of lender to work with.

Chances are you're going to need a subprime lender – the type that looks beyond credit scores to help people get loans, even if they're struggling with bad credit, no credit, bankruptcy, or repossession. In the meantime, if you've lost your job, but don't want to lose your vehicle, keep talking with your lender. Remember, you don't have to lose your car in every case.


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