What are your options if you weren't able to pay?
Whether we like it or not, debt is a part of life.
Taking a loan is the norm too, but in these trying times, keeping up with payments isn't as easy as it once was. Getting put in a tight squeeze may cause you to default on your loan, and that's added stress for you and your finances.
If you find yourself in a pinch right now, there is no need to panic. There are several ways of getting out of that hole. Here are a few things you can do if you have defaulted on your auto loan. Do keep in mind that not all banks operate in the same way or have as many options for defaulted loans.
Negotiate, if possible
If you feel that you're about to be late on your payment, it's time to visit your lender (either bank or creditor) and learn what your options are or even negotiate your terms depending on the bank.
From there, you can make change a few things with your present loan to ease the burden of payments. You may also refinance the vehicle and ask what schemes are possible if you go for that options. You're basically getting another loan to pay off the prior one, so think about it hard before pulling the trigger on that option.
Of course, you can also ask the lender if they are willing to wait a little longer for the subsequent payment. If they approve the deferral, they will draw up a new contract so you can pay for your car at a more convenient time. This may (or may not) affect your credit rating, but it's a way of showing the creditor good faith.
This is the simplest way to clear the deferred payment, but also the toughest to do. For starters, your finances aren't the healthiest, and settling the late payment (or payments) in one big lump seems insurmountable. However, if you have enough provisions to catch up on the fees, deal with them as soon as you can. Of course, you'll also have to pay for miscellaneous fees (e.g. penalties) due to the delays. Remember, you should only do this if you have more than enough saved up. You have other bills to pay.
If you really need a set of wheels but can't keep up payments for it anymore, sometimes it may be possible to trade it in for a more affordable model. Of course, you will have to talk about it with the dealer and the present lender. You also have to remember that the balance of your old loan will likely go on top of your new loan should your creditor agree to the arrangement. That also means you will have a larger amount monthly, but at least you still have some form of personal transportation. If you can stomach the larger payments, then go for it.
When all else fails...
But let's say that your creditor says no to your terms of negotiation or the idea of trading the car in. What can you do? If you feel like you have exhausted every means possible, you may return the vehicle to the lender. However, that doesn't get you off the hook for any more financial responsibilities. You will still have to pay for the remaining balance, but how can you do that?
The first step is going to the bank (or lender) and negotiate for the early termination of your loan contract. After that, you return the car to them and the sale of the car will go towards the payment of the balance.
What about Pasalo (AKA: Assume Balance)?
We've touched on this subject before and it's not as simple as selling off the car with the new owner paying off the remaining balance. First of all, that approach isn't exactly recognized or legitimate because you need the bank's consent to do that. The bank can sue you criminally for selling and removing the vehicle from your premises without their consent because it breaches the Chattel Mortgage agreement, and you’ll be the one that ends up with a bad credit rating if the buyer fails to make the monthly payments.
It's not all bad, though. There are ways to make Pasalo work. Quoting from our previous story, “The responsibility of seeking permission falls on you, the lendee. If the bank allows it, the buyer is subject to the same credit investigation process. They also need to submit the same documents required of the original borrower.
Once the bank gives consent and everything is above board, there’s good news for everyone. You’re mortgage-free, and the buyer’s principal amount will surely be much lower than what you used to pay.”
What are the consequences?
The most obvious consequence of defaulting on your car loan is repossession. However, there is much more to it than that. It will also impact your credit rating, so your chances of getting a loan next time might be declined. In some ways, it's a stain on your record, and in some cases, it's permanent. Not having a car is bad enough, but having that mark on your credit limits your future loan options, and we're not just talking about auto loans here.
It's understandable given the current situation you may have been forced to miss payments on a car. But always remember there are ways to bounce back, and don't forget that you have choices here. Weigh your options and see if it's still worth keeping up the payments or surrendering it. You must act quickly, though, before your car gets towed away and leave a bad mark on your credit.