January 13, 2023
Getting in the habit of making late car payments can really impact your credit score. It's important to start making auto loan payments on time and in full each month. Even one late payment can really damage your credit score, and a missed payment can result in repossession. How do you know when a late payment is too late? And, how do you prevent late payments?
When Is A Car Payment Considered Late?
A late payment isn't typically reported to the credit bureaus until it hits 30 days past due. Depending on your lender, you may have a late car payment grace period, which is typically around 10 days. But, your creditor has the right to assess a late fee immediately following the missed payment. While you’re still on the hook for the late fee and the initial payment, you do have time before a missed payment affects your credit score. Creditors aren’t allowed to report a missed payment to the national credit bureaus before the 30-day mark.
Remember, just because you have time doesn’t mean you should put off paying your car loan each month. It’s never a good idea to get in the habit of missing payments – even if you do end up paying them before the 30-day mark. Not only do you end up paying more late fees on top of the monthly payment, but you also put yourself at risk of missing more payments in the future.
Stop Making Late Payments
You don’t need to stress yourself out over making your monthly payments on time. The trick is to find a strategy that works for you.
Here are three simple ways to get in the habit of making your monthly car payments on time:
- Pick your payment date – If you can, picking a specific date can get you in the habit of paying all of your bills on the same day each month. You can also schedule it around when you get paid so you know you'll have the money on the due date.
- Payment reminders – Write down in either a calendar or your phone when you need to pay your bills. Or, if you’re able to, set up automatic bill pay online so you don’t have to worry about missing a payment.
- Talk to your lender – If you aren’t sure if you’re going to be able to make the next month’s payment on time, get in contact with your lender as soon as possible and discuss the options. Depending on the lender and your financial situation, you may be able to skip your current month’s payment and add it to the end of the loan or come up with a revised repayment plan. It’s better to be safe than sorry, so ask.
What Happens When You Miss A Car Payment?
When you miss a car payment, you become subject to late fees and repossession. If you don’t pay within the 30-day time frame, you can expect your credit score to drop and lose your vehicle. Repossession and late payments stay on your credit reports for up to seven years, and you may run into some issues if you plan on financing in the near future. Many traditional lenders don’t like to see a repossession listed on someone’s credit reports.
Another thing to consider is if you have a cosigner on the auto loan. Because your cosigner signed on the loan, they’ll get a similar negative impact, meaning your cosigner’s credit score drops, and the default is listed on their credit reports.
Keep Up With Your Car Payments Each Month
One missed payment could mean a repossession and/or a big hit to your credit score. If you’re worried about missing a payment, talk to your lender and see if they can help you out.
If your lender is unable to help, there are still a few tips you can use to help make your full car payment on time.
- Split your payment – One of the easiest ways to ensure full payments on time is to split your auto loan payment. If you pay half your bill before the due date, and the other half on the due date you can actually save a little bit of money in the long run, by saving in interest. By knocking down your balance early you save a bit in interest since you reduce your monthly balance and interest accrues based on what you owe. Splitting your payment may also allow you to budget for the smaller amount at different times of the month making it easier to manage than one large payment.
- Refinance your vehicle – If you're having trouble keeping up with your auto loan payment, but haven't missed one yet, it might be time to look into refinancing. The goal of refinancing is to save you money each month by lowering your payment in one of two ways, either lowering your interest rate or stretching your loan term. Remember, if you stretch your loan term without lowering your interest rate you're not saving overall, just paying less each month for a longer period of time. Keep in mind you must qualify for refinancing, especially if you're struggling with bad credit.
