• Nobody wins when a car is repossessed.
  • Lenders want to help troubled borrowers.
  • A number of options are available to make borrowers current.

A couple of missed car payments on an auto loan are reason for serious concern, but they don't have to lead to losing your car.

Although some areas of the economy appear to be recovering -- or are at least no longer in free fall -- many people are still living week to week and paycheck to paycheck. Where this is the case, any bump on a borrower's financial road can mean falling behind in monthly auto-loan payments. Illness, a job layoff or even a major appliance unexpectedly going on the fritz can lead to missed car payments.

The good news is that past-due payments and repossessions are down from their peak numbers in 2009, according to credit data expert Experian. For example, the number of repossessions dropped by nearly 40 percent from the end of 2009 to the fall of 2012. So things are getting better.

Repossession Is Lose-Lose

Here's the truth many borrowers don't realize: When a car is repossessed, nobody wins. From the borrower to the lender to the carmaker to the car dealer, everyone loses. No one wants a borrower to lose his car. The borrower winds up without a car and with a huge hit to his credit score; while the lender ends up with a used vehicle it must sell at a big loss. Experian reported that in the fall of 2012, on average, lenders lost more than $7,000 on every repossessed vehicle. Repossession hurts everyone.

Here's what Chris Brenner, the national manager of debt management at Toyota Financial Services (TFS), Toyota's own auto-loan division, had to say about repossession: "For TFS, repossession is the last step and least desirable outcome. Our goal is to develop strong, lasting relationships with our customers on behalf of not only TFS, but also Toyota and dealers. Also, repossession almost always results in financial loss for TFS."

Contact Your Lender

But what if you suddenly find yourself in trouble? You need to face the fact that you probably won't be able to catch up with even one missed payment. That means you must do something.

What should you do if you find yourself behind a payment or two or in a situation that you believe will cause you to fall behind in your payments? Don't panic; take action.

According to lending experts, the worst action is no action at all. The sooner a troubled borrower contacts his lender, the better the chances that a happy ending for everyone can be reached.

"Early communication with the customer is important," declared Brenner, "TFS prefers to work with our customers as soon as they become aware of financial challenges that may impact their ability to make a payment."

Why contact the lender as early as possible when things begin to go sideways? Early communication means more available options to resolve the problem. In the initial discussion, it's important to be honest with yourself and the lender. Is this a short-term problem like using this month's car payment to replace your refrigerator which stopped working, or the disruption caused by a natural disaster like Hurricane Sandy? Or is it more long term, such as losing your job?

There Are Remedies

For the most part, lenders have no hard and fast rules; they work with troubled borrowers on a case-by-case basis. Each has its own set of options. However, there are a few possible actions most lenders share. Refinancing the loan, changing the due date, differing payments, modifying the terms of the loan, making payment extensions and waiving late charges are among the options a particular creditor might consider.

Members of the armed services have even more available remedies of their own. "The Servicemembers Civil Relief Act (SCRA) also offers a number of benefits to help covered members of the military meet their financial obligations while serving our country," Brenner advised, going on to say, "For example, the SCRA allows covered servicemembers to have their interest rate lowered to 6% when applicable."

The most common solution lenders offer is extending the loan. In simple terms, an extension waives a specific number of upcoming payments and then adds them to the back end of the loan. Although the borrower may not be required to make interest payments during the waived period, the interest will continue to add up and will be worked into the extended payments.

Even if a borrower's problem is long term, there may be a solution. Remember, lenders only want your car back as the very last resort. If the lender is one of the manufacturer-backed companies like TFS, one option may be to trade down to a less expensive car.

"There are situations," Brenner said, "where the customer is no longer able to maintain the payments for a vehicle for an extended time period. This can be an opportunity for the customer to return to the Toyota dealer and work with them to determine if there may be other options which would still allow the customer to have a vehicle but not necessarily the vehicle they initially leased or purchased."

What It Means To You

Sticking your head in the sand won't solve the problem when you're faced with missed payments. Most lenders want to resolve the problem and will work with you to do just that, but you have to give them the chance.

author photo

Russ Heaps began covering the automotive industry in 1986, first overseeing the automotive pages of the Boca Raton News and then the Palm Beach Post in Florida. In 2001 he became managing editor of AMI Auto Week and NOPI Street Performance Compact magazines. Since leaving AMI he has freelanced his auto reviews and industry analysis to the Washington Times, Hispanic magazine, Journal-Register Newspapers, Bankrate.com, MyCarData.com, Interest.com, and others. He resides in Greenville, SC.

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