How to Manage Your Car Payment During the Coronavirus Crisis

By Rebecca Lake

Missing a car payment isn’t ideal but it’s a situation you might face if you’ve been affected financially by the COVID-19 pandemic. 

Falling behind on bills, including your car payment, is something that could happen If you’ve been laid off, your employer has cut your hours or you’ve seen your side hustle income dry up.

If you’re looking for car payment relief because you can’t pay your bills or you think you might be in danger of missing a payment, you do have some options. 

Here’s more information on what to do when you can’t make a car payment during the coronavirus crisis. 

Start With a Budget Review

It’s helpful to know where you stand budget-wise in the wake of the COVID-19 pandemic. 

So, look at your income and expenses to see if it’s still possible to continue making your car payment at this point. 

Income isn’t limited to a regular paycheck either. If you’re receiving unemployment benefits because you’ve been laid off or you’re making money doing side jobs, every penny counts. 

On the spending side, you may have cut certain things out of your budget already. For example, you might be spending less on gas if you’re staying home. But take a second look and see what else you can eliminate to free up money in your budget that you can apply to your car payment. 

If there’s absolutely nothing left to cut, then it’s time for the next step. 

Reach Out to Your Auto Loan Servicer

Once it’s clear that you can’t make a car payment this month, or possibly for the next few months, you’ll want to get in touch with the lender or servicer that owns your auto loan. 

You can explain that you’re experiencing a financial hardship related to the coronavirus outbreak and that it’s affecting your income and ability to pay bills. Be prepared to offer documentation proving your hardship, such as a termination letter from your employer. 

This step can be a little intimidating but it’s not one you should skip. The reality is that auto loan lenders don’t want you to default and they don’t want to repossess your vehicle. 

Your lender may offer different forms of car payment relief when you can’t make your monthly payments. For example, those options can include:

1. Skipping a payment

Skip a payment programs” allow you to skip making your monthly car payment when you can’t pay. Typically, the skipped payment is then added to the end of the loan term. 

This could be a good option if you need temporary relief because you can’t make a car payment one month. Skipping a payment can also help you avoid having a late payment show up on your credit history, which can damage your credit score. 

2. Car payment forbearance

Forbearance programs allow you to put off making car payments for longer than one month. For example, your auto loan servicer may allow you to pause car payments for 60, 90, or 120 days. 

During a forbearance period, you’re not responsible for making payments. This is similar to the forbearance options for federal student loans and mortgages that are available under the CARES Act.

But interest and fees may still accrue for an auto loan that’s in forbearance. That means that while you can get a break from making payments, you may have a higher loan balance to repay once forbearance ends. 

3. Auto loan refinancing

If you still owe a decent amount of money on your car loan, your lender might suggest refinancing to a lower rate. Reducing your loan’s interest rate can reduce your monthly payment, making it easier to keep up with your bills. 

The key here is to shop around for the best rates. And keep in mind that refinancing your car loan may only be a temporary fix if you’re still struggling to keep up with a lower car payment. 

 

Can You Defer Car Insurance Payment?

Aside from pausing your car payment, you may also be wondering whether you can defer your car insurance payment if your income has taken a hit because of the coronavirus. 

The short answer is: It depends on your insurance company. Missing your car insurance payment means that your coverage can lapse, leading to financial headaches if you’re in an accident. 

Instead, many car insurance providers are choosing to offer partial refunds for premiums paid. This is designed to make up for the fact that many people are not driving as much due to stay at home orders. Therefore, drivers simply aren’t getting the most out of their insurance coverage during the pandemic.

There is yet another option to lower your car insurance payment: You could choose to increase your deductible. This, in turn, can lower your premium. While you’re at it, you can also look into any discount programs your insurer offers, such as safe driver discounts or lower prices for bundling insurance products.  

 

Consider All the Options When You Can’t Make a Car Payment

With so many auto loan servicers and lenders making concessions to borrowers, there’s a good chance that you’ll be able to get car payment relief if you’re having a hard time keeping up with your bills. 

But if your lender isn’t as flexible, here are some other last-resort options to think about. 

  • You could sell your car. When you do this, you’ll no longer have a car loan to worry about. The downside, of course, is that you may need to replace the car you sold with something else or figure out another mode of transportation. And, if you decide to buy another car, you’ll have to come up with the cash or get yet another car loan. If you do go this route, you may be able to defer car payments for the first 60 to 90 days – an option many car dealers are offering during COVID-19. 
  • You can use your stimulus check (if you received one) to make your car payment. Just make sure you figure out whether you also need that money to pay other bills, like your rent, mortgage and utilities. 
  • You can start a side hustle or sell things around the house to raise cash to make your car payment. You may be able to sell books, electronics, DVDs, video games and other things for quick cash. This, however, is only a short-term fix. 
  • The fourth and final possibility is to give the car back to the lender. This is called a voluntary surrender. The lender takes the car back, sells it and applies the proceeds to the loan balance. But here’s the kicker: The lender can still hold you responsible for any remaining amount owed on the loan if the sale doesn’t pay off your entire loan balance. 

Be Proactive to Protect Your Finances and Credit

Coronavirus can take a toll on your bank account, but you can still put up a strong line of defense. For example, you can develop a financial plan to help you pay your bills and sidestep major credit damage. You can also follow the tips in this guide to help you make your car payment.

The most important thing is to stay in touch with your creditors and lenders so you know your options for managing your bills during COVID-19

 

Rebecca Lake has been writing about personal finance and business for nearly a decade. Her work has been featured on CreditCards.com, Credit Karma, Credit Sesame, and other personal finance sites.

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