How a Car Loan Payment Affects Your Credit Score

Making a car loan payment late can be detrimental to your finances for many reasons. Not only will it hurt your credit score, but you may be charged more interest or be subject to harsher car loan terms as well. Late fees can constitute a severe monetary penalty, and add up until you are forced into a very bad situation. You might even have to default on your loan.

How Late Payments Affect Your Credit Score
Late payments on important loans such as car or home mortgages have a huge affect on your credit. A single late payment on either of these can drop your credit up to 100 points. It's worth noting that a late payment only affects your credit score if it is more than 30 days past due. Anything less than 30 days overdue will likely incur some late fees, but will not be reported to the credit bureau.

How Late Payments Affect Other Finances
Even if your car loan payment is less than 30 days late, and so does not affect your credit, late payments can still have negative consequences for your finances. Your lender will likely charge you a late fee, which you will have to pay in addition to the missed payment. With some lenders and loans, the fee may be fairly small, but if you have a bad credit car loan you may be charged up to a couple hundred dollars. Different lenders have different policies concerning how late charges are accrued. One lender may have a single penalty for any late payment, while other lenders may charge you for every single day that the payment is late. If the latter case is true, making a late payment can result in extremely high fees which you may not be able to pay. Left unchecked, you might be forced to extreme measures, such as defaulting on the loan.

What You Can Do to Fix Your Credit
The best way to fix your credit is to manage your finances in such a way that you'll make all your payments in full and on time from now on. If you otherwise have a perfect credit history, a single late payment can be forgiven. You might find it easier to organize your finances if you apply for loan consolidation, which merges all of your current loans into a single loan that is easy to remember to pay each month. Don't fall victim to "instant credit fix" scams--there is no instantaneous way to restore your credit, it has to be built back up over time.

Missed Your Car Loan Payment? What to Do

If you've missed one or more car loan payments, you're not alone. Especially during tough economic times, it's hard for many people to keep up with all their payments, all the time. Even people who have always had good credit can sometimes fall under the burden of their bills and make one or more late car loan payments.

Call the Lender
If you've missed car loan payments, you're facing the possibility of car repossession. Your lender can repossess your car without giving you advanced notice or asking for permission to come onto your property. If you haven't contacted them about the missed payments, and have been avoiding returning their calls and attempts at contact, you're leaving them no choice but to repossess.

If you don't pay and don't communicate with the lender, you give them the impression that you're defaulting and willfully ignoring them, and therefore not concerned about paying your debt.

But if you communicate with your lender, you might be surprised at how helpful they'll be. They want you to keep the car so they can avoid the hassle and expense of repossessing it, reselling it and trying to collect any owed amounts from you. In most cases, it's cheaper for them to work out arrangements with you to let you keep the car.

Be Proactive
It's best if you call the lender when you realize you're going to make a payment late. Ask the lender for an extension of extra time to make the payment. They may opt to waive a late fee or let you miss the payment entirely, instead tacking it onto the end of your loan term. If you've been paying on the loan for at least a little while without problems, the likelihood of this is increased.

If you're already late on your car loan payments, still call them. Open lines of communication will get you farther than any other option.

Make the Payment
You've talked to the lender, so now honor the agreement. If they gave you extra time to make the payment, be sure to do everything in your power to do it by that new date. If you have any doubt you'll be able to, don't agree to that date and instead ask for more time.

While they can repossess at any time when you've not made a payment by the due date, most lenders won't show up the next day after a payment is missed. If you're in communication with them, it's likely they won't repossess at all unless you miss a few payments and seem to be just stalling them instead of making a real effort to pay.

Surrender the Car
If you've missed car loan payments or you're perpetually behind and unable to catch up, look at your situation and decide if you really can afford that particular car with that payment. If not, it's best to surrender the car voluntarily than to have it repossessed. When you surrender the car because you can't make the car loan payments, you avoid the huge negative mark that defaulting and repossession leaves on your credit report.

Reducing Your Car Loan Payments: Helpful Tips

Car loan payments are a fact of life for many. It can become downright painful to have to keep up with these payments every month. There are a few things you can do to reduce your loan payments. Here's what you should keep in mind.

Pre-Arrange Financing
If you haven't already purchased your vehicle, you can arrange financing before you go to the dealership. In most cases you will end up paying more for a vehicle when you finance it directly through the dealer. Try to find financing through your bank or credit union for the best possible rates. This will help keep your monthly payments lower.

Do You Need the Additional Warranties?
When you finance through a dealership, most people don't realize that the finance managers are nothing more than sales people. You think you've already gone through the negotiation process over the price of the car, but now you have to listen to another form of a sales pitch. They will go over adding on additional warranties, undercoating, scotch guarding, and other things. You are more relaxed during this process and more apt to say yes. It can have an effect on your monthly payment though. Most of these add-ons are unnecessary and should be avoided to keep your payments down.

Refinancing
If you've already purchased your car and your payments are a little high or out of hand, look into refinancing. With decent credit, you can refinance your car at a lower rate and generally enjoy a lower monthly payment. A refinance loan is really a new loan. One lender will pay off the existing loan and you will end up paying the new lender back. The thing to be careful of with this though is many auto loans demand you pay a pre-payment penalty if you do this. This is usually the amount of interest left on the overall loan. Depending on how long you've chosen to finance for, this penalty fee can be pretty big. Check in to these things before you look at refinancing. Refinancing is still usually a good option for those who want to shave money off the monthly payments.

Trade in Your Car
If you had a great job and could afford a luxury vehicle two years ago, and now find yourself in a different situation, you can save money on your car payments by trading the car in for a less expensive model. This doesn't sound like the most appealing solution to most people, but it doesn't have to be a bad thing. Trading in your luxury sedan for a sedan of lesser flair can save you a lot of money every month. If you needed a huge SUV, but now can get away with a smaller one, then why not do it? A car really only needs to get you from point A to point B. Heated leather seats and surround sound stereos aren't necessary. If you find yourself struggling to make your car payments, then this is a good option to look into.

Using Car Loan Payments to Build Your Credit

Many young people find an auto loan as their first exposure into the world of credit and money management. Up until making this major purchase, credit extended to a young person might not even be reportable to the 3 major credit bureaus. However, when that first car loan is secured, each month your lender reports your payment activity to the bureaus.

What info s in a report?

• Personal Identification.including your name (full and aliases used), all addresses, your social security number, birth date, all employer history, and if applicable, any similar information about a spouse.
• Credit Accounts. All accounts in which you conduct business including banks, utility companies, gas card charge accounts, department store charge accounts and other credit-card companies. Also, all loans are listed by type, such as a student loan, a home mortgage, an auto loan with information about the opening date, credit limit, if there are cosigners and your payment pattern for at least the past 2 years.
• Public Records. All information concerning any legal issues pertaining to financial matters such as liens, foreclosures and bankruptcies. Many credit reporting agencies also list non-financial legal records, such as motor vehicle violations, arrests, convictions and other types of legal records in which you were involved.
• Inquiries. Credit reports list all inquiries made seeking information about you. These inquiry reports usually remain for 2 years.

Auto Loan as Credit Recovery
One major possession that bankruptcy procedures tend to protect is your car loan. Depending upon the procedure, you may continue payments on the same loan you had before bankruptcy or may be required to obtain replacement financing that is of greater benefit to you as a consumer. Since bankruptcy wipes away most debt (in one form or another), retaining an auto loan and making payments can go a long way toward restoring your credit worthiness. Rebuilding credit is a time-intensive activity requiring discipline dedicated toward proper money management.

Payment Planning
As a young person seeking to use your first car loan to help establish a credit history, it is important to understand that your actual payment activity will affect your credit rate. Therefore, it is important to plan making your monthly payment in an efficient manner that keeps you on time. Check if you have the opportunity for an automatic payroll deduction and payment feature. Many employers offer payroll deduction for certain types of payments. This is especially true if your loan is secured through a credit union associated with your employer. You can use this pain-free process for having your car loan paid at the same time each month when your paycheck is issued. This will relieve you from the necessity for physically making a payment by either mail or in-person.

If not promptly dealt with, making a late payment on your car loan can adversely affect both your credit score and your personal finances. Fortunately, responsibility in the future can help erase one-time mistakes.