What Happens If I Miss an Auto Loan Payment?
The worst thing you can do when you take out an auto loan is miss a payment. Even if you are low on money, there are too many consequences for defaulting on a loan payment. One late payment can devastate your credit score, and having good credit is critical to your financial future. Obviously, if you are going to miss a payment, it is best to limit it to just one. If you miss any more, especially consecutively, you could be in a lot of trouble.
Usually, when you miss one payment, you will get a late notice that your bill is past due. Missing out on just one payment can cause the interest rate on your loan to skyrocket. Your interest rate could conceivably jump from single digits up to 20%, depending on your credit score. Missing payments will also hurt your credit score; missing payments consistently will hurt it even more. The worst thing that can happen to you is to default on your loan, meaning you do not make any payments for an extended period of time. For most people, a car loan is a big financial commitment that takes up a large chunk of income. Other than having a mortgage for a home, your auto loan might be the biggest bill you have to pay each month. It is important to ensure that you protect your financial well-being by paying off your loans as soon as possible. If you’re able, you should try to pay a little extra each month. This will help you pay off the loan faster while reducing interest expense.
When you miss payments on your loan, the lender can choose to wait 30-120 days before deciding to contact the credit bureaus and report your default. A defaulted loan will result in a negative mark on your credit report that will drastically lower your credit score. If you do not make a payment over the course of a year, the loan company can demand you pay the entire amount of the loan in one lump-sum payment. The loan company may even choose to enter a judgment against you. If they win, they can either force your employer to take money out of your paycheck to help pay for the loan or possibly repossess your car. Not only will your credit score take a huge hit, but you will also lose your car.
If you encounter financial difficulties and are unable to make your auto loan payment, taking out another loan or getting a payday loan is preferable to defaulting. The worse thing that can happen is that you will have to pay a little more money. You may be making more payments on other loans, but at least you will not risk losing your car or lowering your credit score. Remember to pay your bills on time–ignoring late notices will not make the problem go away!