As
the economic slump continues, many people are struggling to make ends meet, and
unfortunately, vehicle repossessions are now on the rise. Having a car
repossessed hinders more than just a car owner’s mobility; it has a severe
impact on credit scores, thereby limiting the ability to get loans or credit
cards for up to seven years. Better Business Bureau advises troubled car owners
on how to avoid losing their vehicle and their creditworthiness.
According to the American Bankers Association, the
number of direct auto loans that were at least 30 days delinquent increased from
2.03 percent to 3.01 percent during the first quarter of 2009, and delinquent
auto loans through dealers hit 3.4 percent in March. Perhaps not surprisingly,
the number of repossessed vehicles jumped 12 percent to 1.67 million nationally
in 2008 and is expected to increase by another 5 percent in 2009, according to
Manheim Consulting.
“The
worst thing you could do when falling behind on a car payment is to bury your
head in the sand and ignore the problem,” said Frank Whitney, CEO of the MidCal
BBB. “To prevent repossession, and the negative effect on personal credit
scores, automobile owners have to take responsible action and face the issue
head on - otherwise, there is nothing good that will come of the situation.”
As
if car owners didn’t need another reason to avoid the repo man, if a lender
chooses to sell the car at auction, and it is bought for less than the
outstanding loan, the original owner may still be on the hook to pay it back in
addition to added fees—essentially paying for a car they no longer own.
BBB
recommends car owners consider taking the following steps when falling behind
on car payments:
Contact your lender. According to the American Financial Services Association (AFSA), auto repossessions
cost creditors about $8,000. Therefore, the best case scenario for both you
and your lender is to keep you in your car and making payments. To that end,
lenders will often work with troubled borrowers to develop more agreeable
payment plans. Some possible options, according to AFSA, are loan refinancing, extending
or deferring payments, changing payment due dates and waiving fees.
Cut costs
elsewhere. For
many people where public transportation is scarce, a car is a necessity for
getting to work, the grocery store or school. If you can’t afford to lose your
car, consider the items you pay for that you can afford to do without: cable
television, eating out, cigarettes and new clothes are just a few examples.
Choose a less
expensive vehicle. If
you’re not upside down on your loan, and can pay off the loan on the vehicle by
selling it, consider finding a less expensive auto with monthly payments that
are within your means.
Do your research
before enlisting any debt management help. Some businesses offer assistance in
debt management and repo prevention. Be extremely wary of offers and sales
pitches that require up front fees, and always research the organization with BBB
before you do business with them. Consider enlisting the help of a credit
counseling agency as they offer inexpensive, and in some cases free, guidance
on how to manage money. You can find a credit counseling agency near you
through the National Foundation for Credit Counseling - the nation’s largest and longest-serving nonprofit credit counseling
network – at http://www.nfcc.org/
For
more advice from BBB on managing personal finances and debt, visit www.bbb.org