An important part of a successful budget is fitting all of your monthly expenses within your income.If you ever find you can’t afford your monthly car payment, you have several options to get some relief. Each of these options comes with its own set of pros and cons, and you’ll want to review them carefully to see which option might be right for you.

1. Contact the dealership and request a trade

One of the first steps that you can take is to contact your dealership and see if you can trade in your vehicle for a more affordable option. The dealership may be willing to give you a good deal on a vehicle with payments that work better for your budget.

Depending on the price difference between your current and new cars, and the term and rates of your new car loan, you may be able to save a significant amount of money by trading down to a less expensive car.

Be aware that the current state of the used car market may make trading your car a bit more difficult. Prices of used cars have climbed significantly over where they were a few years ago. So, depending on what kind of car you are trading in and what kind of car you’re looking to get instead, it may be more challenging than expected.

Who this strategy is best for

Borrowers who purchased a car through a dealership and used in-house financing.

2. Request loan modification

Another option that you have if you can’t afford your car payment is to request a loan modification. With a loan modification, you work with the lender to change the terms of your loan. This could include lowering your interest rate, deferring payments for a period or changing your payment’s due date so it aligns better with your schedule.

A loan modification can also extend the term of your existing loan. This will usually lower your monthly payments, but you will pay more interest over the course of your loan. You’ll want to proceed carefully and make sure that the numbers work for you before agreeing to any modification.

Who this strategy is best for

Borrowers who are currently or on the brink of becoming delinquent on their auto loan — especially if they are on otherwise good terms with their lender.

3. Request a deferral

Some lenders may agree to defer your auto loan payments if they’re no longer affordable. A deferral involves skipping a couple of payments — between one and three months — without incurring penalties.

The process for requesting a deferral looks different with each lender. You may have to draft up a hardship letter and provide supporting financial documentation for your request to be considered. Or you may have the option to skip a loan payment inside the online dashboard.

Either way, if your request is approved, you’ll get much-needed relief. But keep in mind you’ll still owe the skipped payments. The lender will add this amount to the end of the loan, resulting in an extended term and more interest paid.

Who this strategy is best for

Borrowers who are experiencing financial hardship and need some time to get back on track financially before resuming auto loan payments.

4. Refinance your auto loan

If your lender is not willing to modify your loan, you also have the option to refinance your car loan. You can shop around and prequalify with several lenders to find the best rate and terms. If you have accounts with a local bank or credit union, you might be able to find better rates there since you already have a history with them.

Before you refinance your auto loan, find out if you are eligible. Even if you have a poor credit score, you may be eligible to refinance your auto loan if you are able to pay off your car loan quickly or you have improved your credit score. Also, check to see if there are any fees associated with refinancing an auto loan. Some fees include an early termination fee, transaction fees, state registration fees, auto insurance cost and late payment fees.

Consider the following as a good process to refinance your car:

  1. Decide if refinancing is the right financial move.
  2. Review your current loan.
  3. Check your credit score.
  4. Estimate the value of your car.
  5. Shop around for the best refinancing rates.
  6. Determine how much you’d save by refinancing.
  7. Get your paperwork in order.
Who this strategy is best for

Borrowers who could qualify for a more affordable auto loan payment by refinancing thanks to an improved credit score or other circumstances.

5. Sell privately and purchase within your budget

If you can’t afford your car payments right now, another possibility to consider is to sell your car privately and then purchase a different car that is more in line with your current budget. There are more steps involved in selling a car with a lien, but it is still definitely doable.

The current market is particularly good for selling a used car, with prices significantly higher than in previous years, so you may be able to command a great price.

Of course, the other side of a hot used car market is that it may be more challenging to find a replacement car that fits your budget. Make sure to research the market and understand how much it will cost to buy your replacement car. That will give you an idea of how much you’ll save by changing cars and whether it will be worth it to you.

Who this strategy is best for

Borrowers who can turn a profit on their current vehicle and get a cheaper replacement.

6. Ask friends and family for assistance

A last resort may be to ask friends and family for assistance. This may or may not be a great option for you depending on your relationship with your friends and family, and their own financial situations. But if you’re in a dire situation where you can’t afford your car payment, talking with those that are closest to you may be a good avenue to consider.

Keep in mind as well that assistance from friends and family doesn’t always have to be financial. While it would be great if you had a rich uncle who would just pay off your loan immediately, most of us are not in that situation. But in addition to possible financial help, your friends and family might also be looking to buy a used car or know someone that is. Those kinds of connections might help you save money.

Who this strategy is best for

Borrowers who have a good relationship with relatives or friends who may be willing to help you financially or find a buyer to purchase your car.

Next steps

When you’re in a situation where you can’t afford your car payments, recognizing and taking stock of your finances is the most important step. Ignoring the situation or, even worse, missing payments on your car loan will cause major problems with your overall financial situation. After you identify the problem, it’s time to explore your options.

Contact your lender first to see if they would be willing to modify your loan. Lenders don’t like modifying existing loans, but they also don’t like repossessing cars. Make your case as to why a modification is necessary for you to keep making payments. Depending on your situation and credit score, you may be eligible to refinance your loan and potentially save money. Be sure to research the fees associated with refinancing and read the terms of your loan agreement before taking any action.

Frequently asked questions

  • If you are unable to pay your car loan, now is the time to take action. Review the following options: reach out to your lender, see if you can defer payments, look into getting a new loan, trade in your car or sell it or surrender your car voluntarily.
  • Fees associated with refinancing an auto loan may include an early termination fee, transaction fees, state registration fees, auto insurance cost, late payment fees and an upfront cash payment.
  • Yes, you may be eligible for a refinance loan even with a poor credit score.

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