In today’s economy, many people are struggling to pay their bills and make ends meet. Some bills may seem more important than others, and you may be contemplating which bills have precedence. Well, before you decide to pay your auto loan payment late, here are some facts to consider.
Let’s first go over what your credit score is. Your credit score is based on a formula consisting of four things. Late payments account for 35% of your score, followed by your account balances (30%), credit history (15%), and finally the types of credit and amount of new credit (10%). With late payments accounting for over one-third your total credit score, frequent late payments will significantly lower your total credit score.
It’s important to know that payments which are paid less than 30 days late will not affect your credit score and will not be reported to the credit bureau. However, you will most likely incur a late fee from your loan provider. Depending on who your lender is, the fee is usually small and will be billed with the following months payment. On the other hand, if you have a loan through a small dealer or have a bad credit car loan, the penalties can be substantial. Either way, if you choose to make a late payment be prepared to pay a late fee and additional penalties. Review your contract to make sure you can financially afford to make a payment late.
If you must make your auto loan payment beyond 30 days late, you should be aware that a single late payment can lower your credit score by as much as 100 points and will be on your credit for 7 years. Payments that are 60 or more days late will affect your credit more than a payment that is 30 days late. Furthermore, a payment that is late more than 90 days is just as bad as having a charge-off or collection account on your credit. In general, the later your payment is, the worse the consequences will be. Besides lowering your overall credit score, a late payment can also make it more difficult to obtain a new loan or line of credit in the future.
Once your payment is 2 or 3 months late, your lender has the option to repossess or take the vehicle since it has been used as collateral for your loan with them. Once the bank has repossessed the vehicle, they will turn around and sell it. Usually for much less than what’s currently owed and then will bill you for the remaining balance. Even if you are able to pay back what is owed, the repossession will remain on your credit for up to 7 years, making it very difficult to be approved for credit from other lenders.
If you are in the position where you will have to make your auto loan payment late, call your lender. The best thing you can do is to explain your circumstances and try to work out a car loan modification. In some cases, your lender may be able to refinance your loan at a lower interest rate, spread the payment out over a longer period of time, thus lowering your monthly payment. A good option if your financial circumstances have changed and you need to reduce your monthly expenses. If you have been unemployed or unable to work, you may be able to discuss a deferment with your lender. A deferment is an agreement to postpone payments for a certain time period, without adversely affecting your credit rating. Always remember to get any payment arrangement made over the phone, IN WRITING.
Of course, avoiding a late payment is always best. Knowing which payments are most important and which can wait is essential when planning a budget or sitting down to pay bills. Your household expenses should always come first: Mortgage or rent, as they are typically the most inflexible, then electricity, water, gas and at least one telephone line. Things like cable, internet, and extra phone lines should be considered luxuries and paid last. Anything related to your job, like vehicle payments, insurance, child care expenses should be paid next. Without employment, bills cannot be paid. Lastly would be things like credit cards, medical bills, and student loans as they are more patient and flexible. A few phone calls can defer payment and collections for months. Having a monthly budget can be very helpful to keep your payments current and on time. A budget can also help you to reach financial goals, such as a new home purchase, college funds for your children or retirement plans.
Take pride in your credit score. Work hard to keep it in good standing. If you are in a situation where a late payment cannot be evaded, contact your loan provider. A negative report to your credit rating can and will affect your credit score for years to come. Explore all your options and make an educated decision.
