An important part of a successful budget is fitting all of your monthly expenses within your income. As part of your ongoing budget review, you might find yourself in a situation where you feel like you can’t afford your car payments. If that’s where you’re at, 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.

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 version. This might be easier to work out if you originally bought your car through the dealership and your loan is financed by it. That might make the dealership more responsive in working things out with you.

But even if that is not the case, it is worth contacting the dealer to see what options might be available to you. 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.

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.

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.

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.

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.

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 sell a used car or know someone that is. Those kinds of connections might help you save money.

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. If that doesn’t work, consider refinancing your loan or selling your car and buying another one.


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