BBB Advice on Managing Your Auto Loan
Austin, TX – September 11, 2009 - With Cash for Clunkers over and many families on tight budgets, making timely vehicle payments can sometimes become overwhelming. Unfortunately, vehicle repossessions are on the rise and having a car repossessed hinders more than just a car owner’s mobility. It has a severe impact on credit scores which limits 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 good credit standing.
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. As a result, 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.
“There are options out there for consumers to take advantage of in order to keep their vehicle,” said Carrie A. Hurt, President and CEO of BBB serving Central, Coastal and Southwest Texas. “The worst thing you can do when falling behind on a car payment is to ignore the problem.”
If a vehicle is repossessed, the finance company will “accelerate” the note which means the entire balance of the note is due in order to get the car back. Since many consumers may not be able to pay the full amount, some companies allow the consumer to make the past-due payments in full in exchange for their vehicle.
If this does not work, the finance company will often sell the vehicle at an auction, and it is usually bought for less than the outstanding loan. Unfortunately, this means the consumer is responsible for the difference between the total amount due and the auction selling price which is called a “deficiency balance.”
BBB recommends car owners consider take the following steps if they fall 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 consumers who live 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 and new clothes are just a few examples.
Choose a less expensive vehicle. If you can pay off the loan on your vehicle by selling it, consider finding a less expensive car 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 upfront fees and always research the company with BBB. 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 at www.nfcc.org.
For more advice from BBB on managing personal finances and debt, visit www.bbb.org.
About BBB:
BBB's mission is to be the leader in advancing marketplace trust. BBB accomplishes this mission by creating a community of trustworthy businesses, setting standards for marketplace trust, encouraging and supporting best practices, celebrating marketplace role models and denouncing substandard marketplace behavior. Businesses that earn BBB Accreditation contractually agree and adhere to the organization's high standards of ethical business behavior. BBB provides objective advice, free business BBB Reliability Reports and charity BBB Wise Giving Reports, as well as educational information on topics affecting marketplace trust. To further promote trust, BBB also offers complaint and dispute resolution support for consumers and businesses. The first BBB was founded in 1912. Today, 128 BBBs serve communities across the U.S. and Canada, evaluating and monitoring more than 3 million local and national businesses and charities. Please visit bbb.org for more information about the BBB System.
This Better Business Bureau is currently supported by approximately 9,500 Accredited Business locations and serves more than 5.5 million consumers in its 62-county service area in Texas. These counties include: Aransas, Atascosa, Bandera, Bastrop, Bee, Bell, Bexar, Blanco, Bosque, Burnet, Caldwell, Calhoun, Comal, Comanche, Coryell, De Witt, Dimmit, Duval, Edwards, Falls, Fayette, Freestone, Frio, Gillespie, Goliad, Gonzales, Guadalupe, Hamilton, Hays, Hill, Jackson, Jim Wells, Karnes, Kendall, Kerr, Kinney, Kleberg, Lampasas, La Salle, Lavaca, Limestone, Live Oak, Llano, Maverick, McLennan, McMullen, Medina, Mills, Navarro, Nueces, Real, Refugio, San Patricio, San Saba, Travis, Uvalde, Val Verde, Victoria, Webb, Williamson, Wilson and Zavala.