What to Do If You Can’t Make Your Car Payments

You’re not alone if you’re struggling to make your car payments. As interest rates and car payments continue to rise, paying for a car lease or loan is more challenging.

When you lease a car, you borrow it from the dealership for a few years and make monthly payments. An auto loan, on the other hand, is a financing tool for buying a car. When you have a car loan, you purchase the vehicle and repay it over time.

Whether you’re either paying an auto loan or lease payments will determine which steps make the most sense. Here’s what to do when you can’t make your car payments. 

What should you do if you can’t pay your auto loan? 

You can take steps to solve the issue when you cannot pay your auto loan. Start by evaluating why you can’t afford the payment. The reason you cannot pay your loan will help determine the best solution. 

Reason	Potential solution
Temporary budget concern	Contact your lender
Lower monthly payment	Refinance your loan
Long-term budget concern	Sell or replace your car

Contact your lender

If you can’t make your car payment, you should contact your lender before doing anything else. Most lenders have hardship programs that might be able to help, including the option to pause payments through forbearance, change your due date, or utilize more affordable payment plans. 

How it works

Contact your lender’s customer service number and explain your situation. The representative should be able to connect you to the financing department or give you the direct phone number. 

Pros and cons

Pros

• Protects your credit score

  If you can work with your lender to find a solution before you miss a payment or have your car repossessed, you can save your credit score.

• Quick solution

  Contacting your lender is the most straightforward and often provides an immediate fix. 

Cons

• Not a long-term solution

  Lender hardship programs are temporary fixes for short-term problems. It’s not the best option if you need financial assistance for a long time. 

• No guarantee

  Hardship programs are at the lender’s discretion, so you might only be able to access them if your lender offers them. 

Refinance your loan

Refinancing your auto loan can lower your monthly payment, especially if you have increased your credit score since you got the initial loan. When you refinance a loan, you replace your current loan with a new one.

How it works

Compare offers from multiple lenders, including your current lender, to find the best deal. Consider the loan length, interest rate, and fees. 

If you need a lower monthly payment, you might want to opt for a longer repayment term. It increases the total interest you pay, but it might be worth it to be able to afford your car. 

Pros and Cons

Pros

• Long-term solution

  After refinancing your loan, you don’t need to complete any other steps. It lasts the length of your loan. 

• Lower monthly payment

  Refinancing a loan is the only way to lower your monthly payment permanently. 

Cons

• Must have solid credit

  You need a solid credit score to qualify for a lower interest rate and better repayment terms. 

• Not immediate

  It typically takes a few days to finalize the process, even if you work with an online lender. 

Sell or replace your car

If you can no longer afford your car, consider selling it or replacing it with a cheaper option. 

Depending on your location and lifestyle, you might be able to function without a vehicle while you reassess your finances. If that’s impossible, you could replace the car with a cheaper option. 

How it works

You can sell your car privately, which usually allows you to sell it for a higher price. A private sale might be a solid option if you do not plan to finance a new car. 

You can also sell your car to a dealership through a trade-in deal or for cash. A dealership sale might be more straightforward if you plan to finance a cheaper car from the same dealership. 

Pros and cons

Pros

• Permanent fix

  When you sell your car and buy a cheaper one or choose to live without a vehicle, you no longer have to worry about your previous loan. 

• Save a significant amount

  You might be able to sell your car and buy a new one with some of the money left over. 

Cons

• Requires a lot of effort

  It takes effort to sell your car, especially as a private seller. It could also take weeks to find a suitable buyer. 

• Must pay off the loan

  Once you sell your car, you must pay off the loan. If your vehicle is worth less than what you owe, it’s not a viable solution. 

Ask the expert

Erin Kinkade

CFP®

If you need the vehicle to transport yourself to work or school or transport your children, especially in a rural, car-dependent area, I recommend refinancing the loan to a longer payment period to result in a lower monthly payment. If you live in an area with public transit, Uber, or Lyft, I suggest selling the car to pay off the loan or pay down the loan and try to refinance to a longer term resulting in an even lower monthly payment. Then, if you eventually will need a vehicle of your own, begin working on a savings plan to pay for a new vehicle, ideally with cash.

What to do if you can’t afford your auto lease payments

Auto leases are different from auto loans. Drivers typically have fewer options for changing the lease or ending it. But there are still steps you can take if you can’t make your car payments. Start by determining the reason you can’t afford it.

Reason	Potential solution
Temporary budget concern	Contact your lender
Lifestyle inflation	Lower your budget or ask family
Can no longer afford the car	Consider a lease assumption

Contact your lender

Whether you’re experiencing a job layoff, unexpected expenses, or temporary unemployment, you can contact your lender to ask about hardship assistance. Most lenders offer hardship programs, including deferment, due date changes, or lower monthly payments. 

How it works

Start by contacting the dealership where you leased the car. Ask about hardship assistance programs. Once you find a solution, get it in writing to prove you reached an agreement.

Pros and cons

Pros

• Fast solution

  The process is typically quick once you contact the correct person in the financing department.

• Avoids penalties and fees

  Working with your lender to find a solution helps avoid penalties, fees, and negative impacts on your credit score. 

Cons

• Not a permanent solution

  Hardship assistance programs are typically temporary, so it’s not the right option if you need long-term help. 

• Might not exist

  It’s always worth asking about hardship assistance, but some lenders do not offer any programs.

Your monthly car payment should be no more than 10% of your income and ideally lower if your income is unstable or fluctuates. 

Erin Kinkade

CFP®

Lower your budget or ask family

If you cannot afford your lease payment, you might be able to change your budget to access additional cash. You can also contact family or close friends for help if you’re going through a challenging financial time. 

How it works

If you are comfortable asking someone for assistance, it’s worth having the conversation. You can also evaluate your budget and try to cut back. 

Consider if there are subscriptions you can cancel, grocery bills you can decrease, or other services you can temporarily stop.

Pros and cons

Pros

• No fees or interest

  You do not have to pay any fees or interest when you borrow money from your family or cut back on spending. 

• Do it yourself

  You do not need to access external programs or funding to make your car payment, which might make it less complicated. 

Cons

• Not always possible

  You might not have friends or family who can help. Or you might already have a bare-bones budget that you cannot cut further.

• Could strain relationships

  Borrowing money from friends and family can complicate relationships. That’s not always the case, but it’s something to be mindful about. 

Consider a lease assumption

It’s typically challenging to cancel a lease or end it early. But you might be able to set up a lease assumption and have another driver take over your lease. The driver assumes the payments, terms, and vehicle. 

How it works

If the car is in high demand, the dealership might be able to take it back and help you start a new lease. You can also work with lease assumption broker sites like Swapalease or LeaseTrader to find a driver who wants to take over your current lease. 

Pros and cons

Pros

• Permanent solution

  Lease assumptions are permanent solutions because you are no longer responsible for the car, monthly payments, or contract. 

• Fresh start

  Once you’re no longer responsible for the lease, you can start fresh with a cheaper car or other solution.

Cons

• Additional fees

  Lease assumptions typically have fees. Depending on the agreement’s details, you might be responsible for all, some, or none of them. 

• Hard to set up

  Finding someone to take over your lease can be difficult, especially if the payments are high.