Reasons for repossessions
Affordability plays a major role in falling behind on car payments, but additional factors may be at play:
Economic pressures: Lingering effects of the COVID-19 pandemic have left many households financially unstable. Despite economic recovery efforts, inflation and rising living costs have eroded disposable incomes, making it harder for people to keep up with their car payments.
High auto loan interest rates: Interest rates on auto loans have remained elevated, driven by broader economic policies aimed at controlling inflation. Higher interest rates mean higher monthly payments, which can strain budgets that are already stretched thin.
Increased car prices: The prices of new and used cars have soared due to supply chain disruptions and increased demand. This has led to larger loan amounts and subsequently higher monthly payments.
Subprime borrowers: You’ve heard of subprime home loans, but there’s a bustling market for subprime auto loans, too. Borrowers of these loans are at a higher risk of default due to their precarious financial situations.
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Explore better ratesAvoiding repossession
There are steps individuals can take to help them from falling behind on their auto loans.
One can be to regularly review your income and expenses to ensure that your budget is realistic and accounts for all necessary payments, including your car loan. Building an emergency fund can cover unexpected expenses and act as a buffer if you encounter financial difficulties, helping you stay on track with your car payments.
Before repossession hits, consider refinancing your vehicle loan. If you have improved your credit score since taking out your loan, you might qualify for a lower interest rate. Refinancing can reduce your monthly payments and make them more manageable. Additionally, extending the term of your loan can also lower your monthly payments, but be careful: this would tack on more interest over the life of the loan.
Also consider these moves:
Talk to your lender: If you anticipate trouble making a payment, contact your lender immediately. Many lenders offer hardship programs that can temporarily reduce or defer payments. You may also want to consider loan modifications with your lender, which could result in adjusting the terms of your loan to help you avoid default.
Raise your credit score: Ensure all your bills, including credit cards and utilities, are paid on time. A better credit score can lead to better loan terms and manageable car payments. Work on reducing other debts to improve your overall financial health and creditworthiness.
Consider downsizing: As a last resort, if your car payment is unmanageable, consider selling your vehicle and purchasing a less expensive one, or consider using available public transportation options.
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