What happens if I don't pay for my car in the US?
When you got your auto loan, you knew you would have to make your monthly payments on time for several years. Unfortunately, situations may have arisen that prevent you from fulfilling your responsibilities and now you are wondering. What happens if I don't pay for my car in the US? Well, the first thing to know is that failure to pay the loan installments has negative consequences. In this article we will explain them in detail. We will also give you some tips that will help you resolve your situation.
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- What happens if I don't pay for my car in the US?
- What if I can't continue paying for my car?
- How can I prevent my car from being taken away if I don't pay the credit?
What happens if I don't pay for my car in the US?
If you have applied for a loan to buy a car in the United States and you do not pay the monthly installments, you may have a lot of problems. You lose payments every month, your credit score goes down. What's more, If you can't resume payments and catch up, your car can be recovered. And what's worse, you may still have some money on your car even after recovery.
It is very important that you know this The repercussions of defaulting on a car loan can have a rather negative impact on your finances. In the next section we will explain it in detail.
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What if I can't continue paying for my car?
If you fail to pay a car loan, you will face serious consequences. We will explain some of them below.
Late payment will negatively affect your credit score. This is because the payment history is one of the most important factors of the credit score, in fact it represents 35% of FICO score (most used credit score among lenders). What's more, a delay in paying your loan will remain on your credit report for seven years.
If you get a car loan, the vehicle is used as collateral for the loan, which means the lender can take your car if you don't pay on time. But when can they take back a vehicle? Depending on the laws in your state and the terms of your loan agreement, the lender may be able to take back the car if you miss a single loan payment and may not even need to notify you before doing so. More often than not, however, lenders contact customers with overdue payments before taking the drastic step of car recovery.
As for your credit score, recovering your car will further exacerbate the impact of delinquency on your credit history. The lien is considered a serious mark on a credit report and will remain there for seven years.
Even after the car is recovered, you may still receive calls, emails and letters from collection agencies. Lenders sell repossessed cars at auto auctions, but if they don't recoup the remaining loan balance when you sell your car, you will have to pay the difference, or what is known as a "deficient balance."
As a last resort, The lender could sue you for the money you owe, garnish your salary, or pledge your home. Finally, even if you pay off the debt, a collection account will remain on your credit report for seven years from the default date.
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How can I prevent my car from being taken away if I don't pay the credit?
From the moment you stop paying a single installment on your car loan, time starts running against you, especially if for some reason you can't keep paying. Therefore, You have to move very fast to prevent everything from getting complicated. Consider the following tips:
Talk to your lender
The good news is that, just like you, no lender wants the default situation to get complicated. Why? Because unpaid debt collection processes cost money. Furthermore, it is unlikely that through the seizure they will recover the entire residual amount.
If you can't make the payment, contact your lender. Explain your situation and ask if they have assistance programs you can apply to. Some financial institutions are willing to suspend payments for a month without applying any type of penalty, especially to customers who have always paid on time. Before placing the call, be prepared to suggest a payment amount that you can afford in the short term.
Refinance the loan
Perhaps, one of the reasons why it is difficult for you to pay off your car loan is because they have charged a high interest rate. In this case, you should consider refinancing your car. By lowering the interest rate or extending the loan term, you can reduce the monthly payment.
To get a lower interest rate, your credit score needs to be better than when you got the current loan. Now, if you have stopped paying monthly installments, your score may have already gone down.
Extending the loan terms can improve your immediate cash flow problem, but it comes at a cost.. You will pay the loan for a longer time, this means that at the end of the loan you will have paid more for your car.
Don't just talk to your current lender about refinancing your car. Look for other options as well, there are many banks available to refinance car in the United States.
Find someone else to take care of the loan
Although prohibited for most loans, some lenders will allow you to transfer your auto loan to someone else. In this case, you will need to find someone with a good credit score who can get better loan terms than you. If you have a candidate in mind, contact the lender to suggest this option.
Use equity in your home
Lenders offer home improvement loans. In this type of products, the houses of the borrowers become collateral for the loans. This is a second mortgage.
Typically, you can borrow up to 80% of your home equity. That is, if you have $ 50,000 of equity, you can borrow up to $ 40,000.
The advantage of home loans is that they consolidate your debt into a single monthly payment and the interest you pay on these loans is tax deductible (if you detail your income tax deductions).
Furthermore, the interest rates are generally lower than those of unsecured loans. Therefore, you may be able to reduce your car payments this way.
Once we have explained to you what real estate loans consist of, we recommend that you analyze your situation very well before opting for this alternative. Remember that if you don't pay your car loan, you can lose it. But if you default on a home loan, you can lose your home. Watch out!
change your vehicle
Changing your car for a cheaper one is also a good way to solve the problem. Of course, you'll first need to know how much your car is worth in order to negotiate a fair price.
Ideally, you shouldn't be in "poor balance", meaning that your car is worth at least what you owe it. However, if you owe more than your car's value, you may still be able to trade it in. In this case, the difference not covered by the swap can be included in the new loan.
An advantage of this type of transaction is that you will usually be able to complete it faster than if you choose to sell your car and then buy a cheaper one. Also, if you made your payments on time, your credit could be improved enough to make a replacement car more convenient for you.
Even so, you need to be very cautious and do your math very well. Remember that changing a loan that you cannot pay for a similar one will not be very useful.
NOTE: if you do this, you must report it to DMV of your state.
Create a budget and stick to it
If you carefully balance your family's income and expenses, you probably will find a way to save $ 100 or $ 150 What do you need per month to be able to pay for your car?
You need to do a good analysis of your situation and prepare a budget that will help you achieve your goal. Obviously, this will take time and effort, but keep in mind that if it were something simple, people who are struggling to pay for their car would not ask for help.
Voluntarily giving up the car
If none of the alternatives we have mentioned above are workable for you and you know that an embargo is inevitable, You can mitigate the impact on your credit score by voluntarily giving the car to your lender. This will still show up as a negative entry in your credit history because you have not been able to repay a loan. However, its effects will not be as serious as a lien because it shows that you have partnered with the lender.
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