As the effects of the coronavirus pandemic pummel the U.S. economy, mandatory business shutdowns and reductions in consumer demand are leading to massive job cuts. Many car owners will find it hard to make their car payments and avoid defaulting on their car loans. Others may put off a car purchase because of a tenuous job status that takes away confidence they’ll be able to make their payments on time.
According to Johns Hopkins Center for Science and Engineering, U.S. cases of the coronavirus-caused COVID-19 exceeded 143,000 on March 30. There have been about 2,500 COVID-19 deaths in the U.S.
What Should You Do if You Can’t Make Your Car Payment?
First, you don’t want to panic. Your second task is contacting your lender. While you may be afraid to contact your lender and tell them you’re out of work, many lenders are offering special forbearance programs to help borrowers through the next several months. If yours is not, there are still options available. Not doing anything or hiding your job loss from your lender is not a good strategy. Missing payments and potentially defaulting on your loan are mistakes that can haunt your credit for years after the crisis has passed.
“Consumers who expect to be impacted financially by coronavirus, should contact their credit union to discuss options,” says Lynn Heider, vice president of communications and public relations for the Northwest Credit Union Association. “Most credit unions have programs in place, allowing members to temporarily skip payments, obtain emergency low-interest loans, and lower interest credit cards.”
Most banks, credit unions, and other lenders don’t want to see you default on your loan or face repossession. It destroys customer relationships, it’s expensive, and it takes a lot of everyone’s time. Instead, they want to see you get back on your feet, make future payments, and eventually pay off the loan.
“We understand the concern and uncertainty people may be experiencing surrounding the coronavirus (COVID-19) and are committed to being responsive to the needs of our customers and associates as the situation evolves,” said a spokesperson for Capital One in an emailed response to questions. “We also understand that there may be instances where customers find themselves facing financial difficulties. Capital One is here to help, and we encourage customers who may be impacted to reach out so we can discuss and help find a solution.”
We’ll look at some programs already announced by major lenders, then discuss specific steps you can take if you’re in danger of missing a payment.
Special Programs From Lenders
Several major lenders have announced programs to both help current borrowers and give new borrowers peace of mind. The credit arms of Ford, Nissan, General Motors, and Toyota will offer first payment deferrals of between 90 and 120 days to buyers of new vehicles.
GM will also offer certain new car buyers zero percent financing for up to seven years for top credit tier borrowers. The company is providing complementary OnStar crisis assist services to current owners for a limited time.
Hyundai and Genesis are re-launching Hyundai's job-loss protection program for buyers or lessees of new vehicles. If the customers lose their job, the companies will make as many as six monthly loan or lease payments.
Ford’s credit arm has launched a website, FordCreditSupport.com, and a hotline where customers who need help can discuss options with the lender.
“Ford is committed to lending a hand to the people who rely on us,” said Mark LaNeve, Ford’s vice president of U.S. marketing, sales, and service in a press release. “The peace of mind of our Ford and Lincoln customers is our top priority as we work through the developments of this outbreak.”
Nissan Motor Acceptance Corporation, the automaker’s financing company, is encouraging customers to call to discuss payment arrangements. They note that wait times may be longer than normal, as their call centers are being staffed in such a way to promote appropriate social distancing.
Honda and it’s luxury Acura brand have announced late fee waivers, payment extensions, and deferrals. They request you contact Honda Financial Services to discuss your situation. Buyers of new vehicles may qualify for up to a 90-day deferred first payment program. Kia will support existing customers affected by the pandemic with 90 days of payment deferrals.
Ally Bank, a major auto lender, will offer customers payment deferrals for up to 120 days. Interest will still accrue on the balance, but the lender won’t charge late fees. Ally is a financial partner to Mitsubishi, and their customers can contact Ally directly.
Fifth Third bank, a lender with operations in 10 states, is offering up to a 90-day payment deferral on car loans. They have also announced they’re suspending any new repossession actions for the next 60 days. Key Bank will work with borrowers, providing up to a 90-day payment referral with no negative information reported to credit bureaus.
Steps to Take If You Think You’re Going to Miss a Payment
If you have lost your job, had your hours reduced, or suffered a loss that makes it impossible to make your car payment, there are several steps you should follow before your payment is due.
Determine Your Loan to Value Ratio
It's crucial you know where you stand with your car's value and the balance of your loan. If you owe more than the car is worth, your options are limited. When your vehicle is worth more than your loan balance, there's a better chance you can deal with the issue and come out unscathed. Because of rapidly changing market conditions, borrowers who had positive equity last month may be underwater on their loan today.
Talk to Your Lender
It is best to talk to your lender before you miss a payment. In this time of national crisis, many lenders have created special programs or are being more flexible when working with borrowers. There's an understanding in the marketplace that the effects on employment will likely be more temporary than long-term. Because of that, some lenders will allow borrowers to defer payments, have their payments reduced for a time, or their loan terms renegotiated. You may be able to refinance and significantly lower your interest rate or stretch the loan term to lower each monthly payment.
In most cases, you’ll want to talk to your lender by phone, email, or through the messaging system on the lender’s website. Many banks and credit unions have begun to close branches and limit services in response to the pandemic. Capital One, for example, has closed their Capital One Cafes and some other locations across their branch network. TD Bank has reduced branch service hours at all branches and closed some locations. Navy Federal Credit Union is limiting the number of members it will allow in their branches at any one time. If you want to visit your lender in person, be sure to check their website to ensure that they are still open, and follow social distancing guidelines during your visit.
Missing a Payment
Missing a single payment isn’t the end of the world with most lenders, as long as you start paying again as soon as possible and talk to your bank or credit union. Your credit may take a hit, but should recover over time. Once you miss a few payments, however, lenders may be less likely or able to work with you.
With some lenders, however, such as Buy Here, Pay Here dealerships, being even a day late on a payment can lead to your car being electronically disabled or repossessed.
Dip Into Your Savings
If the choice is to not make a car payment or tap into your savings or emergency fund to make it on time, using your savings might be the smart move. Of course, you’ll only want to do so if your savings will remain ample to cover unplanned expenses, such as car repairs, urgent home maintenance, or unexpected medical costs. It’s not a decision to make lightly, as every dollar you spend toward your car is a dollar that’s not available for other critical or emergency expenses.
If you are saving for a home, it’s a better idea to pull some cash out of your house fund and make your car payment than it is to miss an auto loan payment. The damage to your credit from missing a payment date could make borrowing for a mortgage more difficult and expensive. Better to have to put off your home purchase for a short time than pay extra on a mortgage for the next 15 to 30 years or fail to qualify at all to a decline in your credit score.
Citi is currently waiving early withdrawal penalties on CDs. Taking advantage of the bank’s offer allows you to liquidate some cash and make your payments on time, with no financial downside.
Sell Your Car
If your car is worth more than the balance of the loan, you can sell it and pay off the loan balance before you miss a payment. You can then use your positive equity to put toward a cheap used car. If your credit score is still high, you may be able to lease a vehicle with low monthly payments.
Our used car rankings and reviews can help you find a pre-owned vehicle that will give you years of low-cost service.
When you’re underwater on your car loan, meaning you owe more than it’s worth, you have to work harder to protect your credit. You can sell your car to a private party, maximizing how much you get for it, or you can do everything possible to continue making timely monthly payments. Our guide to getting out of an upside-down car loan offers more tips on protecting your finances when you’re trying to sell a car that’s underwater.
Unfortunately, with shelter-in-place and stay at home orders becoming common in various jurisdictions across the country, your ability to sell your car may be limited for some time.
Work With a Credit Counselor
One of the first ways of getting out of debt is to stop digging the hole any deeper. A credit counseling service – not a debt consolidation company – can help you set up a budget and work with creditors to create manageable payment plans. The Federal Trade Commission offers a guide to finding a credit counselor who will help you, and not rip you off.
Give the Car Back to the Lender
It’s human nature to want to protect your car from repossession, but it’s a bad idea to hide it from the bank. If you’ve missed several payments and know the lender is going to repossess your car, it’s much better to return it voluntarily than make them chase after it.
Here’s why: The lender pays a fee to the repossession company to retrieve the car. The harder you make it for them to get the car back, the more the repo company can charge. The fees the repo company charges the bank are added to the loan balance you’re responsible for. In other words, the games you play only end up costing you money.
Watch Out for Scammers
Unfortunately, some scammers use turbulent times to prey on vulnerable consumers. Watch out for deals that look too good to be true, such as credit repair services and offers to get you out of debt, for a price. The U.S. News Money team provides a guide to recognizing and preventing loan scams.
Don’t Neglect Your Auto Insurance
When cash gets tight, it can be tempting to skip paying your car insurance premiums. That’s a risky and irresponsible thing to do. First, it could leave you open to serious financial liability – up to the loss of your home in some states. Second, it’s illegal in most states to drive without insurance. Lenders and leasing companies generally require you to carry insurance to protect their collateral in case of an accident or theft. If you don’t have insurance, your lender or leasing company can place their own insurance on the car, and charge you an exorbitant price to do so.
Fortunately, many auto insurance companies have rolled out programs to assist customers affected by the COVID-19 pandemic. In fact, the majority of the companies in our ranking of insurance companies have programs to defer payments, skip late fees, and suspend policy cancellations. They encourage customers to use their online tools to reach representatives, as many agency offices are closed.
We’ve put together a guide to the coronavirus and car insurance that tells you what you need to know in today’s quickly changing conditions.
Our auto insurance guide will help you find the cheapest insurance in your state, the coverages you need, and any money-saving discounts you qualify to receive.
More Tools From U.S. News & World Report
It is the mission of U.S. News & World Report to help you through life’s major decisions and events. We’ve created a centralized hub of coronavirus information to help you and your family weather this storm. We have resources ranging from how to avoid being infected to understanding your rights as a traveler with canceled vacation plans. Our education team has resources to guide you through changing financial aid policies and how to move your education online.
The U.S. News Money team offers a wealth of information about navigating today's turbulent financial environment while helping you protect your savings and retirement.