As the economic slump continues, many people are struggling to make ends meet, and unfortunately, vehicle repossessions are now on the rise. Having a car repossessed hinders more than just a car owner’s mobility; it has a severe impact on credit scores, thereby limiting the ability to get loans or credit cards for up to seven years. Better Business Bureau advises troubled car owners on how to avoid losing their vehicle and their creditworthiness.
According to the American Bankers Association, the number of direct auto loans that were at least 30 days delinquent increased from 2.03 percent to 3.01 percent during the first quarter of 2009, and delinquent auto loans through dealers hit 3.4 percent in March. Perhaps not surprisingly, the number of repossessed vehicles jumped 12 percent to 1.67 million nationally in 2008 and is expected to increase by another 5 percent in 2009, according to Manheim Consulting.
“The worst thing you could do when falling behind on a car payment is to bury your head in the sand and ignore the problem,” said Steve Cox, BBB spokesperson. “To prevent repossession, and the negative effect on personal credit scores, automobile owners have to take responsible action and face the issue head on - otherwise, there is nothing good that will come of the situation.”
As if car owners didn’t need another reason to avoid the repo man, if a lender chooses to sell the car at auction, and it is bought for less than the outstanding loan, the original owner may still be on the hook to pay it back in addition to added fees—essentially paying for a car they no longer own.
BBB recommends car owners consider taking the following steps when falling behind on car payments:
Contact your lender. According to the American Financial Services Association (AFSA), auto repossessions cost creditors about $8,000. Therefore, the best case scenario for both you and your lender is to keep you in your car and making payments. To that end, lenders will often work with troubled borrowers to develop more agreeable payment plans. Some possible options, according to AFSA, are loan refinancing, extending or deferring payments, changing payment due dates and waiving fees.
Cut costs elsewhere. For many people where public transportation is scarce, a car is a necessity for getting to work, the grocery store or school. If you can’t afford to lose your car, consider the items you pay for that you can afford to do without: cable television, eating out, cigarettes and new clothes are just a few examples.
Choose a less expensive vehicle. If you’re not upside down on your loan, and can pay off the loan on the vehicle by selling it, consider finding a less expensive auto with monthly payments that are within your means.
Do your research before enlisting any debt management help. Some businesses offer assistance in debt management and repo prevention. Be extremely wary of offers and sales pitches that require up front fees, and always research the organization with BBB before you do business with them. Consider enlisting the help of a credit counseling agency as they offer inexpensive, and in some cases free, guidance on how to manage money. You can find a credit counseling agency near you through the National Foundation for Credit Counseling - the nation’s largest and longest-serving nonprofit credit counseling network – at http://www.nfcc.org/