Feeling the financial pinch? If so, you aren’t alone. According to the Reserve Bank, the average ratio of household debt to disposable income has reached record highs, indicating that a number of Australian households are struggling to meet their financial obligations. For most, the two biggest monthly costs faced are property and vehicle finance and when money gets tight, car finance is usually the first to go. It doesn’t have to be this way. Here are your options when you can’t make your car payments:
What happens when you miss a payment
Sometime, you might miss a car payment or two as a result of unforeseen circumstances or bills. When this happens, you’ll be in default on your contract, giving you a month to make the outstanding payment. If during this period you suspect you won’t be able to do this, it’s essential you act quickly.
The first thing to do is contact your lender and let them know what’s going on. There’s a good chance you’ll be able to negotiate a forbearance (amnesty period) or rearrange your loan terms. Unlike property or other appreciating investments, cars don’t hold onto their value. Therefore, it’s in your lender’s best interest to NOT repossess your car.
You’ll then need to need to establish whether or not you owe more on your car than what it’s valued at. If you owe less, you could also use this as grounds to renegotiate your contract, extending it so that your monthly payments are less. In the end, you’ll pay more than what your car’s worth, but if you want to keep it it’s your best option.
If you would rather be free of your debt and you owe less, you can sell your car and possibly walk away with extra cash afterwards. If you have a lease agreement, see if you can find someone to take over your lease and car for the remaining period.
What not to do
No matter how bad you feel your situation is, the worst possible thing you can do is nothing. Leaving your car loan up to fate is a huge mistake. By trying to re-negotiate your loan, the worst-case scenario is that you’ll be in the exact same position you are now, so you have nothing to lose.
Want more information about managing your car finances? Get in touch with us today.