If the recent outbreak of the coronavirus, or COVID-19, is stretching your wallet thin, it’s good to know that thankfully, lenders are willing to work with borrowers in this unusual time. It's in your and your lender’s best interest to work together, so here’s where to start.
Call Your Lender
If you’re having trouble keeping up with your payments due to an involuntary job loss, a layoff, or unexpected expenses because of the current coronavirus outbreak, call your lender. They can’t work with you if you don’t contact them.
If you default on your car loan, it harms everyone. When you stop making payments and default, for whatever reason, you can face a repossession (sometimes as early as the day after your first missed payment). Your credit reports can show a repossession for up to seven years. There are a number of fees associated with a repo, and if you can’t pay them as well, you run the risk of harming your credit even further.
Lenders want borrowers to complete their auto loans. If your lender has to go through with a repossession, they usually have to sell a repossessed vehicle at loss, and as the borrower, you’re left to pay any deficiency balance. If you can’t cover it, the balance is typically sent to collections.
If you’re having trouble making your monthly loan payments because of a shelter-in-place or stay-at-home order, or a layoff, contacting your lender also lets them know that you’re still dedicated to completing your loan. By simply not paying, and letting the loan default, you risk harming your credit score and your ability to get approval for future loans.
Coronavirus Programs by Dealership Finance Arms
Many captive lenders are taking action to help their customers. For those having problems with their car payments during the COVID-19 outbreak, some of them are offering deferment or payment rearrangements for auto loans and leases as a result of the coronavirus.
If you purchased or leased a new vehicle through the captive lender of a car manufacturer, you may be able to defer your payments for up to 90 days, with some lenders even offering deferments for up to 120 days.
The following captive finance companies are among those offering options for customers that are facing financial insecurities:
- Nissan Motor Acceptance Corporation
- Ford Motor Credit
- Toyota Financial
- Hyundai Motor Finance and Genesis Finance
- Chrysler Capital or Ally Financial
- GM Financial
If your lender doesn’t have a deferment program, you may be able to change your payment due date, or make other adjustments. These lenders have reached out and stated that many of them are willing to discuss payment options, with some stating they’d be willing to work with their customers on a case-by-case basis.
To see what your options are, you should call your lender and be up front with your situation.
However, if your lender can’t make adjustments to your payments or defer it, you could try refinancing your loan.
Refinancing Your Auto Loan
Think of refinancing as rearranging the terms of your original auto loan. When you take out a loan, you’re assigned an interest rate (the cost of borrowing money, expressed as a percentage), and a monthly payment based on the loan term. Over 40% of car loan terms are between 61 and 72 months long, according to Experian, with interest rates typically determined by your credit score and the type of vehicle you’re financing.
If you’ve had your auto loan for more than a year, your credit is in good shape, you haven’t missed any payments, and there’s equity in your car, you may be eligible for refinancing. You can refinance with your original lender or look for another one.
If you started your auto loan with bad credit and your credit score has improved, you may also be eligible for refinancing, if all the requirements noted above are also met.
Your vehicle is also part of the consideration to refinance. Many lenders won’t refinance cars that are over 10 years old, or have more than 100,000 miles on them. Requirements vary between lenders, so be sure to ask questions and be up front about your financial situation and the condition of your vehicle.
Can’t Refinance but Don’t Want to Default?
If all else fails, you may be able to trade your car in for something more affordable. If you need a dealership to work with your individual credit situation, a subprime auto loan could be the answer. Subprime, or bad credit, lenders work through dealers for buyers with less than perfect credit scores.
At The Car Connection, we’re connected with dealerships around the country that work with subprime lenders. To get started, you simply fill out our online car loan request form. It's free, secure, and there’s never an obligation to buy anything.