Can’t Afford Your Car Payment? Here Are Your Options

Struggling With Car Payments? Here’s What You Can Do

If you can’t afford your car payment, you’re not alone — and the good news is that you have options. The right choice depends on whether you want to keep your car or let it go. 

• If you want to keep your vehicle, you might be able to refinance your loan, work with your lender on a hardship program, trade the car, or file bankruptcy to make payments more manageable. 

• If keeping your car isn’t possible — or it no longer makes financial sense — you can surrender it through voluntary repossession, sell it, or consider filing for bankruptcy to deal with the debt.

Every option has pros and cons, and it’s important to weigh them carefully before deciding how to move forward. This article will break down each of these options to help you figure out the best approach for your situation.

How To Keep Your Car When Money’s Tight

If you’re struggling to make your car payments, it might feel like losing your vehicle is unavoidable. Fortunately, that’s not necessarily true. You can take steps to avoid defaulting on your auto loan and potentially keep your car. If you have a good credit score, you may have more options, but even if you have bad credit, you may be able to:

• Refinance the car loan

• Take advantage of hardship assistance programs

• Trade down to a more affordable vehicle

• File bankruptcy to get rid of other crushing debt

Look Into Refinancing Your Car Loan

Refinancing your car loan means replacing your current loan with a new one, often from a different lender. The goal is to lower your monthly payments by either securing a lower interest rate, extending the loan term, or both.

If your credit score has improved since you first bought the car or if interest rates have dropped, refinancing at a lower rate could make a big difference in your monthly payments. Even if your credit hasn’t improved, extending the term of your loan can reduce your payments by spreading them out over more time.

Keep in mind that while smaller payments can help you now, extending your loan term may increase the total amount you pay due to additional interest. 

Ask Your Lender About Hardship Programs 

Most lenders don’t want you to default on your loan and may be willing to help borrowers who are facing financial hardship. Some lenders offer hardship programs, which might include a loan deferment, payment extension, or late-fee waiver.

A deferral, or loan extension, allows you to temporarily pause your payments. After the deferment period ends, you’ll resume payments, and your loan term will be extended by the same amount of time. Keep in mind that interest often continues to accrue during a deferral, which could slightly increase the total cost of your loan.

Late-fee waivers are another option. If you submit a late payment within 30 days of its due date, your lender may agree to waive the fee, and your credit score won’t be impacted. Federal law prevents lenders from reporting past-due payments that are less than 30 days late to credit bureaus.

Hardship programs are usually designed for short-term struggles, such as recovering from a natural disaster or unexpected job loss. It’s worth reaching out to your lender to see what help they can offer.

Trade Down to a More Affordable Vehicle

If your car loan is unaffordable, trading your vehicle for a less expensive one could help. Some dealerships let you trade in your car to pay off your loan and apply any remaining value toward a cheaper vehicle. 

If you have positive equity, it can serve as a down payment. Even with negative equity, some dealerships may roll the balance into a new loan — but be cautious about higher interest rates or longer loan terms. The Consumer Financial Protection Bureau (CFPB) provides tools to help you navigate this process and make informed decisions. 

Trading down can be a good way to reduce your car-related expenses without giving up the convenience of having a vehicle altogether. It’s especially helpful if you need a reliable way to get to work or run errands but can’t keep up with your current payments.

Consider Filing Bankruptcy To Free Up Money and Keep Your Car

If you’re struggling with car payments because of overwhelming debt, filing bankruptcy might help you free up enough money to make your monthly car payment. 

Chapter 7 bankruptcy eliminates debts like credit cards, medical bills, and personal loans. With these debts erased, you may find more room in your budget to stay current on your auto loan.

That said, keeping your car during bankruptcy comes with some conditions. If you file Chapter 7, you’ll need to be current on your car loan payments, sign a reaffirmation agreement to keep the loan, and ensure that your car’s value is covered by the bankruptcy exemptions available in your state. If these three criteria aren’t met, the lender may still repossess the car.

How To Let Go of Your Car When You Can’t Afford It

If the strategies above don’t work and you still can’t afford your car payments, letting go of your car may be the best option. This can free you from your monthly payment, but it’s important to understand the potential consequences, like owing the difference between your loan balance and the car’s value.

There are several ways to approach this, including:

• Giving the car back to the lender (voluntary repossession)

• Selling the car

• Filing bankruptcy (which can allow you to surrender the vehicle without the risk of debt from the auto loan)

Each of these options comes with pros and cons, and the best choice will depend on your financial situation. Let’s take a closer look at these paths.

Return the Car to the Lender (Voluntary Repossession)

Voluntary repossession happens when you tell your lender you can’t make your car payments and agree to return the vehicle. You’ll meet with your lender or their representative to hand over the car, and they’ll sell it to recover the loan balance. 

If the sale price doesn’t cover what you owe, you’ll likely be responsible for paying the difference, called a deficiency balance. You may also need to pay late fees or a prepayment penalty if your loan terms include one. Filing for Chapter 7 bankruptcy may discharge this balance along with other eligible debts, which we’ll cover later. 

The biggest advantage of voluntary repossession is that it helps you avoid repossession fees, which can add up to hundreds of dollars in an involuntary repossession. It also gives you control over when and where the surrender happens, which can reduce the stress and uncertainty of having your car taken unexpectedly.

While any repossession will stay on your credit report for up to seven years, voluntary repossession may appear as a “voluntary surrender.” This could soften its impact on your credit score and look better to lenders reviewing your history. It won’t completely eliminate the consequences, but it’s often less damaging than an involuntary repossession.

Sell Your Car

If your car is worth more than what you owe on your loan, selling it can be a smart way to get out of your payments. Once the sale is complete, you’ll pay off your loan and can use any leftover cash as a down payment for a more affordable replacement, such as a used car. While it may not be as nice as your current vehicle, you’ll no longer have to worry about monthly car payments.

If your car loan is upside down (meaning you owe more than the car is worth), selling becomes more complicated and risky. You’ll still need to pay off the remaining loan balance after the sale, which could mean taking out another loan to cover the difference. 

Be cautious — this new loan could come with high interest rates or tough repayment terms, especially if your credit isn’t great. Make sure the payments on the new loan fit your budget before moving forward, or you could end up in a worse financial situation.

If you sell your car and are left with a remaining loan balance you can’t afford to pay, filing for bankruptcy may help eliminate that debt and give you a fresh start.

How Bankruptcy Can Help With Unaffordable Car Loans

If you’re struggling to afford your car payments, chances are you’re also juggling other debts that make it even harder to stay afloat. Filing for Chapter 7 bankruptcy can provide relief by helping you manage these financial burdens, whether you want to keep your car or let it go.

Upsolve has a free tool that can help you file Chapter 7. Check your eligibility with our quick screener.

How Bankruptcy Can Help if You Let the Car Go

If you decide to give up your car — whether by selling it, voluntary repossession, or lender repossession — Chapter 7 bankruptcy can help eliminate any remaining loan balance. This remaining balance, known as the deficiency balance, is the difference between what the lender gets for the car (often from a sale) and what you still owe on the loan.

Deficiency balances can be a significant burden, especially if your car was worth much less than the amount left on your loan. Chapter 7 bankruptcy allows you to discharge this debt entirely, meaning you’re no longer responsible for paying it. This can be a lifesaver if your lender is pressuring you for payment after repossession or sale.

By wiping out the deficiency balance, Chapter 7 bankruptcy gives you the opportunity to move forward without that financial weight holding you back. Many filers are surprised to find that they’re able to get auto financing for a used or new car even after filing a bankruptcy case.

How Bankruptcy Can Help You Keep Your Car

One of the most significant benefits of Chapter 7 bankruptcy is its ability to wipe out unsecured debts, like credit card balances or medical bills. By eliminating these obligations, you may free up enough money to afford your car payments again. 

To keep your car in Chapter 7, you’ll need to stay current on your loan and sign a reaffirmation agreement. This agreement lets you continue paying off the loan as if the bankruptcy hadn’t happened. 

However, it’s important to carefully consider whether keeping the car is worth it — especially if it’s worth less than what you owe.

Let’s Summarize... 

If you can’t afford to make your auto loan payments, you’ll first need to decide if you want to keep the car or get rid of it. If you’re fine with getting rid of the car, you can surrender it through voluntary repossession, sell it, or file Chapter 7 bankruptcy. If you want to keep your car, you can see if your lender offers a hardship program, refinance your car loan, trade your car, or file Chapter 7 bankruptcy and sign a reaffirmation agreement.

If you decide to file bankruptcy, Upsolve is here to help. Our free tool can guide you through the Chapter 7 process step by step.