Article by Bevan Ellison

Stopping your car finance repayments can have some nasty consequences if it isn’t handled correctly, so what are the options for those who cannot afford to keep making the car finance payments.

Basically the consequences are the car being taken away by the lender and then it will be sold at auction to recover as much of their money as possible. Any difference between what is owed in total and the sale price of the car is known as shortfall and the lender will try to recover any shortfall left over from the borrower.

The payment defaults will also be reported to a credit reporting agency. This default will be placed on your credit file and will now be visible to any lender who checks your credit file when you are applying for credit. This doesn’t just mean future car finance but all types of credit.

So what are the options for a borrower who cannot make the repayments due to a factor that they cannot control? All types of situations can affect this for example a borrower may have been sacked from their work or have a health issue that affects their earning ability. There may have been a split between co-borrowers and only one borrower wanting to continue the repayments.

Without keeping a level head when these situations happen can be the difference between a borrower making rash decisions that leave bad marks on their credit file, or a borrower working out a deal with their lender that can save their credit file and possibly save having to return the car to the lender.

Contacting the finance company as quickly as possible is the key to getting a deal that is satisfactory to both parties. Calling before even one payment is missed is the best option. Every borrower is different and the finance company will assess each situation as such. A loan that has already fallen into arrears will not be judged the same as a borrower who has called and been honest upfront about their situation.

Different options that the lender may offer include putting a freeze on the repayments for an agreed time period or the possibility of the borrower giving the car back to the finance company without a negative report being listed on their credit file. There are over possibilities and these will depend on the lender and borrower.

Anything that has an effect on the repayments of your car finance doesn’t have to affect you for the years to come. Quick and honest contact with the finance company may mean being able to keep the car or late contact may result in losing everything; the choice is in the borrowers hands.

About the Author

The Article is from Finance HQ providing financial advice and information for New Zealanders. For more about car finance visit Finance HQ