Let’s face it. The fact is more and more of us are struggling to get by today. Unemployment rates are through the roof and there does not look to be any relief in the near future. So what happens if you miss a car loan payment? What can the lender do? The fact is, if you miss a car payment, it could end up costing you more than you think.
A car loan is an installment loan meaning it carries more weight with a lender than say a credit card would. When you miss a payment on an installment loan, it affects you in many ways. Here are a few of the ways missing a payment will cost you financially:
Lower Credit Score: Most of us think about the fees that may be associated with being late or missing a car loan payment, however, your credit score is where you will feel it the most. When you miss a payment on an installment loan, your credit score could drop as much as 20 points. While 20 points doesn’t sound like much, it is estimated that a 10 point drop in credit score will cost you approximately $12,000 over a five year period. This increase in cost is from higher rates being charged on a number of loan products including mortgages, car loans and credit cards.
Higher Rates: When you have a reduced credit score, you will more than likely have to pay a higher rate of interest next time you go and purchase a vehicle or home. Every quarter of a point in interest makes a significant impact to your pocket book. Depending on your current auto loan contract on your vehicle, some lenders actually have the legal right to increase the interest on your existing loan is you miss a payment.
Fees: The final thing that will take place if you miss a car payment is additional fees charges by the lender. These vary from lender to lender but most charge a late fee in the range of $15. This is regulated by state and in the big scheme of things is the least of your worries and the cheapest of all charges to incur when missing a payment.
If you feel like your situation is beyond repair, reach out and call your lender. They want to hear from you and most understand and can relate to what you are going through. Be honest with them and they are more willing to listen and assist you through this difficult time. Another option to consider is refinancing your existing car loan. In some cases you are able to skip a car payment which is much better for you than missing a payment all together.
You can find more information about car loan refinancing and auto loans online at OpenRoad Lending. You will find answers to more of your pressing questions and useful tools to help with your car finance questions.
About the Author: Chris Goodman has been in the auto finance business for more than 20 years and has assisted thousands of consumers with their car loan needs. He is an expert on car loan refinancing and auto loans. Find more information at http://www.OpenRoadLending.com and see how easy it is to get a car loan.