Your options depend on how far behind you are and what your lender allows
If you can no longer afford your car payment, you have several paths forward, and the one that works depends on your situation right now. If you are current on payments, you can contact your lender to discuss a loan modification, deferment, or refinance. If you are already behind, your options narrow—but they still exist. The worst choice is to ignore the problem and stop paying, because that triggers repossession within 60 to 120 days in most states, and repossession damages your credit and leaves you owing the difference between what the car sells for at auction and what you still owe.
The mechanics matter here because different lenders move at different speeds and have different policies. A bank that services its own loans may have more flexibility than a loan servicer that handles hundreds of thousands of accounts. What you can negotiate depends partly on whether you have equity in the car, how much you still owe, and whether you have missed payments yet.
Key Takeaways
- Contact your lender before you miss a payment—most lenders have hardship programs for borrowers who call ahead rather than those who stop paying.
- Loan modification, deferment, and refinancing are three different tools that change your payment structure in different ways and have different credit impacts.
- If you are already behind, your lender may still negotiate, but the conversation becomes more urgent because repossession can begin after one or two missed payments depending on your contract and state law.
- Selling the car yourself and paying off the loan avoids repossession and credit damage, but only works if you have equity or can cover the shortfall.
- Voluntary surrender is faster than repossession but still damages your credit and may leave you owing a deficiency balance.
Loan modification: keeping the car with a new payment structure
A loan modification is a formal change to your loan terms—usually a lower monthly payment, a longer loan term, or both. Your lender agrees to rewrite the contract. This is different from a one-time payment skip or a temporary forbearance; it is permanent unless you later refinance.
To request a modification, contact your lender's loss mitigation or hardship department. You will need to explain why you cannot afford the current payment and provide proof: recent pay stubs, bank statements, proof of job loss, medical bills, or whatever caused the hardship. The lender will review your income and expenses and decide whether to approve. Approval usually takes two to four weeks.
The trade-off is that you extend the loan, which means you pay more interest over the life of the loan. If you have five years left on a six-year loan and modify to seven years, you are paying interest for two extra years. Your credit report will show the modification, which lenders see as a sign of past hardship, but it is less damaging than missed payments or repossession.
Deferment and forbearance: pausing or reducing payments temporarily
Deferment and forbearance are short-term tools that pause or reduce your payment for a set period—usually three to six months. They are not the same thing, though lenders sometimes use the terms interchangeably. Deferment typically means you skip payments entirely; forbearance means you make a reduced payment. Either way, the skipped or reduced amount is added to the end of your loan, so you are not erasing the debt, just moving it.
These tools work best if your hardship is temporary—you lost a job but have another one starting in three months, or you had an unexpected medical expense but your income will return to normal. Call your lender and ask what they offer. Some lenders grant deferment automatically for one or two months; others require a written request and documentation.
The credit impact is smaller than a modification because you are not changing the loan permanently. However, if you miss a payment without arranging deferment first, the lender will report it as a missed payment regardless of your reason. The key is to call before the payment is due.
Refinancing: moving the loan to a different lender
Refinancing means taking out a new loan with a different lender to pay off your current loan. The new lender pays off the old one, and you owe the new lender instead. This works if you can find a lender willing to refinance at a lower rate or longer term, which usually requires that you have decent credit and that the car is worth close to what you owe.
Refinancing is not the same as modifying your current loan. Your current lender has no say in whether it happens—once the new lender pays them off, the old loan is closed. However, refinancing only helps if the new loan has a lower payment. If you refinance at a longer term to lower your payment, you are paying more interest overall, similar to a modification.
To refinance, you need to contact banks, credit unions, or online lenders and ask for a quote. They will pull your credit and ask about the car's value and how much you owe. If you owe more than the car is worth (you are "underwater"), most lenders will decline. Some credit unions will refinance underwater loans for members, but the rate will be higher to offset the risk.
Selling the car yourself to avoid repossession
If you have equity in the car—meaning it is worth more than you owe—you can sell it privately, pay off the loan with the sale proceeds, and walk away. This is the cleanest exit if it is available to you. Your credit is not damaged because you did not default; you straightforward paid off the loan early.
To do this, you need to know what the car is worth. Use Kelley Blue Book, NADA Guides, or Edmunds to get a realistic market value based on the car's condition, mileage, and location. Then subtract what you owe on the loan. If the number is positive, you have equity. If it is negative, you are underwater and selling will not cover the loan balance.
If you are underwater but can cover the shortfall from savings or another source, you can still sell. You pay the difference out of pocket, the loan is paid off, and you own no car. This is expensive but avoids the credit damage and deficiency balance that come with repossession or voluntary surrender.
Voluntary surrender: returning the car to the lender
Voluntary surrender means you contact your lender and tell them you cannot afford the car and want to return it. You drive it to a location they specify, hand over the keys, and walk away. This stops the repossession process before it starts and shows the lender you are cooperating rather than hiding.
However, voluntary surrender still damages your credit. The lender will report it as a default, and it will appear on your credit report for seven years. Additionally, after the lender sells the car at auction, if the sale price is less than what you owe, you may owe the difference—called a deficiency balance. For example, if you owe $15,000 and the car sells for $10,000, you may owe $5,000 plus auction fees and collection costs.
Some states limit or prohibit deficiency judgments, meaning the lender cannot pursue you for the difference. Other states allow it. Check your state's law before you surrender. Even in states that allow deficiency judgments, many lenders do not pursue them for cars, especially if the amount is small. But you cannot count on that—ask your lender directly what their policy is.
Repossession: what happens if you stop paying
If you miss payments and do not contact your lender or arrange a modification, deferment, or refinance, the lender will eventually repossess the car. The timeline varies by state and by contract, but repossession can begin after one or two missed payments. Your lender does not need a court order in most states; they can hire a repo company to take the car from your driveway, your workplace, or the street.
Repossession is worse than voluntary surrender because you have no control over the process, the lender may charge you for the repo company's fees (often $500 to $1,500), and the damage to your credit is the same. You still owe any deficiency balance. The only advantage is that you do not have to make the decision yourself, but that is not an advantage—it is a loss of control.
After repossession, the lender will sell the car and send you a notice of the sale price and any deficiency. You have a right to know these details in most states. If you dispute the sale price or believe the lender did not try to get fair market value, you can challenge it, but this requires legal action and is expensive.
Comparing your options side by side
| Option | Credit Impact | Timeline | You Keep the Car | Best For |
|---|---|---|---|---|
| Loan Modification | Moderate (shows hardship) | 2–4 weeks | Yes | Long-term hardship, want to keep car |
| Deferment/Forbearance | Minimal (if arranged first) | 1–2 weeks | Yes | Temporary hardship, expect income to return |
| Refinancing | Minimal (new inquiry, hard pull) | 1–2 weeks | Yes | Good credit, car worth what you owe or more |
| Sell Privately | None (if not in default) | 2–4 weeks | No | Have equity, want clean exit |
| Voluntary Surrender | Severe (reported as default) | 1 week | No | Underwater, cannot afford, want to avoid repo |
| Repossession | Severe (reported as default) | 60–120 days | No | None (worst outcome) |
Frequently Asked Questions
How long after I miss a payment can my car be repossessed?
It depends on your contract and state law. Most lenders can begin repossession after one or two missed payments, but some wait until you are 90 days behind. Check your loan agreement or call your lender to ask their specific policy. Do not assume you have 90 days—some lenders move faster.
Will a loan modification hurt my credit score?
A modification will appear on your credit report and may lower your score slightly because it signals past hardship. However, it is far less damaging than missed payments or repossession. Your score will recover faster from a modification than from a default.
Can I refinance if I owe more than the car is worth?
Most traditional lenders will not refinance an underwater loan. Some credit unions offer underwater refinancing to members, but at a higher rate. Your best option is usually a loan modification with your current lender or selling the car and covering the shortfall yourself.
What happens if I voluntarily surrender and still owe money after the sale?
The lender may pursue you for the deficiency balance through collection or a lawsuit, depending on your state's law. Some states prohibit deficiency judgments on cars; others allow them. Ask your lender what their policy is before you surrender, and check your state's law.
Should I ignore the problem and hope it goes away?
No. Ignoring missed payments leads to repossession, which damages your credit for seven years and may leave you owing a deficiency. Calling your lender before you miss a payment gives you options. Lenders have hardship programs because they prefer to work with you rather than repossess.