How Many Car Payments Can You Miss Before Repossession?

One.

You can have your car repossessed after missing just one payment. 💸

Car repossession becomes a possibility when you miss your first auto loan payment. We know that’s not the answer you were hoping for, especially if you’ve been having sleepless nights about losing your car.

If you’re planning to get an auto loan, car repossession is a risk that comes with the reward of owning your dream car. The countdown to losing your dream car starts when you forfeit the first payment.

According to Experian, the percentage of auto loan defaults increased from 2.23% in Q1 2023 to 2.71% in Q1 2024.

In this article, we’ll cover the following topics:

• When does your car get repossessed?
• What to do after you miss a car payment
• What to do after your car gets repossessed
• What is the best alternative to a car loan?

For now, stay in the passenger’s seat and relax. We’ll take over the wheel and navigate you through the challenges of car repossession.

When Does Your Car Get Repossessed?

The threat of car repossession becomes a reality the moment you default on a scheduled payment. However, it doesn’t mean the lender will have the car repo team on your driveway the following day.

Usually, an auto loan agreement includes a grace period, during which you have time to fulfill your obligation without incurring interest and penalties.

Car repossession will also depend on the laws of your state.

In Iowa, if your payment is 10 days late, the lender will send you a “Right or Cure” notice. You’ll be given 20 days to issue payment.

Meanwhile, in West Virginia, if your payment is five days late, the lender can send you a “Notice of Repossession.” The lender is not required to provide prior notice before repossessing your car.

In most states, repossession can occur after just one missed payment. 

💡Pro Tip: Once you miss a payment, don’t wait until you receive a call or a written notice.

Act right away!

What to Do After You Miss a Car Payment

You’re not the only one in this predicament. There are borrowers in the same boat (car?) as you.

So don’t panic. No one’s taking your car… yet.

Follow the steps below after you miss a car payment.

1. Review Your Car Loan Agreement

Bring out your car loan agreement and look for the provision on “Late payments and penalties.”

This section should include information about the lender’s car repossession policy. Find out if the loan agreement specifies the number of missed payments that qualify for car repossession.

Another thing to consider is the number of payments you’ve missed.

Missed payments will lower your credit score.

Lenders send monthly reports to the credit bureaus. Once you miss a payment, it goes into the report and your credit score takes a hit. Miss another payment again, it goes into the report, and your credit score takes a bigger hit.

When negotiating with the lender, they’ll evaluate your ability to pay the loan, and your credit score could be the deciding factor.

A credit score of 750 to 850 (Vantage) or 670 to 739 (FICO) should qualify for a car loan.

If your credit score falls significantly below these numbers, negotiating with the lender might be more challenging.

2. Review Your Finances

People miss payments for many reasons.

It could just be a case of human error. You forgot to issue payment because you were overwhelmed with work. You were focused on other payments that you overlooked the car loan.

Or you simply forgot.

Then, there’s the harsh reality that you might be in financial distress.

If you are experiencing cash flow problems and struggling to make payments, you will need to adjust your monthly budget to free up cash, cover any delinquencies, and stay current.

You might need a payment plan or loan restructuring proposal for the next step.

3. Talk to Your Lender

Here’s a hot take:

Lenders don’t want to repossess your car.

Why? Because repossessing a car takes time and costs money.

The lender will have to pay a repossession company to handle the removal of the car from your premises.

Keep this hot take in mind when you talk to your lender. You might be surprised that many lenders are open to negotiating your car loan.

Tell the lender that you’re having financial difficulties. Take a proactive approach. Express your desire to settle the unpaid balances and follow through with the car loan.

Discuss the following options with the lender:

Propose a payment plan or loan restructuring.

The lender might agree to extend your car loan to reduce the monthly payment in exchange for a higher interest rate.

If there’s an adjustment on the date you get paid, ask the lender if they can adjust the payment due date accordingly.

Propose a loan deferment alternative.

Discuss your cash flow situation with the lender. Ask the lender if you can defer one or two months of loan payments to give you time to fix your cash flow.

For example, if you expect payment for a large project in two months, assure the lender that you will settle your outstanding accounts once you receive the money.

Inform the lender that you are also cutting costs and streamlining your monthly budget.

Propose a trade-in.

Ask the lender if you can trade in your car for a cheaper model and resume the current loan agreement with reduced monthly payments.

Some lenders might have a policy that allows a trade-in. However, if your outstanding balance exceeds the car’s value, the lender will reject your proposal.

💡Note: A car repossession is a derogatory mark that will stay on your credit report for seven years.

What to Do After Your Car Gets Repossessed

If negotiations with the lender break down and you continue to miss payments, your loan may be declared in default.

Under the guidelines of the Federal Trade Commission (FTC), the lender can repossess your car without going to court or giving you prior notice. Also, the lender can sell the car to cover your delinquencies.

Car repossession isn’t one-sided. You still have your rights even if you’ve defaulted on your car loan.

The Consumer Financial Protection Bureau (CFPB) has laid down the rules on what the lender can’t do when your car is scheduled for repossession.

The lender or the repo company can’t do the following:

• Disturb the peace in your area.
• Use physical force such as breaking down the garage door.
• Use threats.
• Use falsified information that gets you to pay less than what you owe.
• Keep personal property or belongings that are found inside the car.

You can still reclaim your car after it’s been repossessed if you pay the delinquencies, and keep your account current.

Another way to reclaim your car is by bidding on it if the lender sells it through an auction.

Related article: Voluntary Repossession: Definition, How it Works, Pros & Cons

What is the Best Alternative to a Car Loan?

A car loan can help you afford your dream car by spreading out the payments. However, if your cash flow is shaky, with a car loan, your financial situation can go from bad to worse in zero to 60 seconds.

Instead of a car loan, consider applying for a car lease.

With a car lease arrangement, you’re paying the leasing company for the right to use the car.

Here are the basic features of a car lease:

• The lease contract duration can range from 24 to 36 months.
• The monthly payment on a car lease can be lower than the monthly amortization of a car loan.
• A limit is set on mileage. Exceeding the mileage can result in penalty charges.
• Upfront payment or downpayment can be lower compared to a car loan.
• Strict requirements on repairs, maintenance, and insurance coverage.
• The minimum credit score required to lease a car is 700, which is lower than the credit score needed for a car loan.

When the car lease expires, you can consider the following options:

• Extend the lease.
• Buyout the lease.
• Trade-in the lease.
• Transfer the lease.
• Return the car.

Buying out the lease allows you to own the car 🚘.

Once you own the car, you have the option to keep it or sell it for a profit 💰.

If you are uncertain about your financial situation but still want to have a car, consider applying for a car lease arrangement first.

Summary

Your car can get repossessed after missing one payment. If this happens, review your finances, and talk to your lender immediately.

Many lenders don’t want to repossess your car because it costs money. Prepare a payment proposal or a restructuring plan. Negotiate a workable arrangement with your lender.

Whether you decide to apply for a car loan or car lease arrangement, you’ll have to pay your monthly charges on time. Missing payments will adversely affect your credit score.

If you are busy at work and struggling to manage numerous bills, how can you ensure that payments are made on time?

The answer is Cushion.

Here’s how Cushion can help keep your credit score strong and healthy:

• Track, organize, and schedule your bills and BNPL payments on Google Calendar.
• Pay your bills, as scheduled, with a virtual card.
• Analyze your spending habits for the last six months.
• Find unused subscription services.
• Cancel unused subscriptions with one click!
• Send a monthly report to the credit bureaus.

With Cushion, you never have to worry about missing payments.