Car payments are one of the biggest expenses in many households. If money is tight, even one missed payment can feel overwhelming. Because auto loans are “secured debt,” the lender holds the title to the car until the loan is paid off. That means the loan can’t usually be forgiven, but there are still ways to make it more manageable.
What Auto Loan Hardship Programs Offer
Some lenders provide hardship programs for borrowers going through financial difficulties. To apply, you usually need to contact your lender directly, explain your situation, and complete an application.
Depending on the lender, possible changes might include:
- Adjusting your payment due date
- Allowing you to skip a payment and move it to the end of the loan
- Extending the loan term
- Reducing your interest rate
- Creating a temporary repayment plan
These changes may give short-term relief, but they also come with trade-offs. Extending your loan can increase the total interest you pay. Lowering your interest rate or changing the terms could also affect your credit. In some cases, you might end up owing more on the car than it’s worth, which is called being “upside down” or “underwater” on a loan.
Alternatives to Hardship Programs
If a hardship program isn’t available or doesn’t meet your needs, other options include:
- Selling your car: You can sell the car and use the money to pay off part or all of the loan. If the sale doesn’t cover the balance, you’ll still owe the difference.
- Refinancing: Taking out a new loan with different terms may lower your monthly payment. Approval and rates depend on your credit and overall financial situation.
- Family or personal support: Some people turn to relatives or friends for help covering payments. This can reduce the risk of default, though it may feel difficult to ask.
- Bankruptcy considerations: Bankruptcy doesn’t erase auto loans, but in some cases it may allow you to return the car to the lender or renegotiate the loan. Because bankruptcy has serious long-term effects, it’s important to understand how it works before considering it.
Understanding Voluntary Repossession
If you can’t keep up with payments, you may have the option to request a voluntary repossession. This means you give the car back to the lender instead of waiting for them to take it. The lender then sells the car, and if the sale doesn’t cover the balance, you may still owe money on the loan.
Voluntary repossession can make the process feel more controlled, but it still counts against your credit history.
How Repossession Affects Your Credit
Both voluntary and involuntary repossessions are reported to credit bureaus. A repossession can remain on your credit report for up to seven years. That makes it harder to get approved for future loans or credit cards.
If you go through a repossession, rebuilding credit takes time. Making consistent, on-time payments on other accounts can help. Some people also use credit-building tools, such as secured cards or services that report utility bills and rent payments to credit bureaus.
Car Title Pawning: Why It’s Risky
Car title pawning only applies if you fully own your vehicle. In this type of loan, you hand over the car’s title as collateral in exchange for cash.
Title pawns often come with very high interest rates and can put your car at risk again. Because of these risks, many people explore other options first, such as personal loans or selling belongings they no longer need.
Final Thoughts: Moving Forward With Auto Loan Debt
Auto loan debt can feel like a heavy burden, but there are ways to lessen the strain. Whether it’s through a hardship program, refinancing, selling your car, or exploring other options, it’s important to weigh the benefits and risks before making a choice. The right path depends on your situation, and taking time to understand your options can help you move forward with greater confidence.
Frequently Asked Questions
Auto loans are secured debt, meaning the car itself is the collateral. For this reason, lenders generally don’t forgive car loans. Most relief comes through hardship programs, refinancing, or selling the car.
A voluntary repossession can remain on your credit report for up to seven years. The impact is similar to a standard repossession, though some lenders may view voluntary surrender as a sign of responsibility.
Refinancing may lower your monthly payment if you qualify for a lower rate or longer term. However, it can also increase the total cost of the loan if the repayment period is extended.
If the sale doesn’t cover your full loan balance, you’ll need to pay the difference. Some lenders may allow you to roll the remaining balance into another loan, but this increases your overall debt.
