Tips & GuidesFive Steps To Follow If You Can’t Pay Your Car Loan

Five Steps To Follow If You Can’t Pay Your Car Loan

June 03, 2022

Whether it’s due to the rising cost of living, or perhaps a major life change such as divorce or job loss, you may find yourself in a position where you are no longer able to afford your car loan repayments. So, what should you do?

Most importantly, don’t bury your head in the sand. It’s unlikely your financial situation will improve as you ignore it. Additionally, if you are failing to pay loan and other credit repayments on time, not only will you end up in a bigger hole thanks to late fees, your credit score will also take a hit, making credit more expensive and more difficult to come by later on down the line.

Q. What happens if you don’t pay your car loan?

A. If your car loan is secured against your car and you fail to repay your loan, your lender can repossess your car to recoup its losses. Your lender is required to give you 30 days’ notice to pay the overdue amount before repossessing your car.

If you have an unsecured car loan, your lender cannot seize your car without a court order. Instead, your lender will likely attempt to recoup its money via a debt collection agency.

1. Assess your Finances

So, you’re struggling to make the repayments on your car loan. What should you do? First up, you should take time to assess your finances. Taking into account all your incomings and outgoings, create a budget to find out exactly where you stand financially.

TIP: To save time and energy, use a budgeting app to help you with this process. Many link up to your bank accounts and credit cards, making it easier to see both where money is coming from – and where it is going.

Next, check your credit (you can do this for free with all three of Australia’s major credit reporting agencies). Understanding your credit will put you in a better position should you need to renegotiate or refinance your car loan.

Lastly, compare car loans to find out how your current car loan stacks up within the market. Contact Car Loan World today if you’d like us to help you with this.

2. Talk to your Lender

While you may find this surprising, most lenders want to help borrowers who are struggling with their loan obligations. So, even if you find the call hard to make, you should contact your lender as soon as possible if you think you may fall behind on your repayments.

Armed with the information you have gathered on your current financial situation, you can chat to your lender about your options.

This may involve your lender offering you extra time to repay the loan, or perhaps reducing your repayments based on what you can afford. Your lender may even offer you a repayment holiday to give you a few months to get back on track before your repayments restart.

3. Renegotiate your Car Loan

If you decide those shorter term options won’t help you in the longer term, it may be worth talking to your lender about renegotiating your car loan.

Depending on your position, you may be able to negotiate a lower interest rate on your loan. This will usually only apply if your credit score is lower than when you first applied for your car loan. Alternatively, your lender may allow you to extend your loan term.

Either option will result in lower repayments over the length of your loan, giving you more wiggle room in your budget. However, it’s worth bearing in mind that if you extend your loan term, you may end up paying more interest overall on your loan, as you pay it back over a longer period.

4. Refinance your Car Loan

By comparing the market against what your lender is offering, you may find you can get a better deal on your car loan by refinancing with another lender. With that being said, there are two important factors to consider before you refinance.

Your ability to get approved for a loan: If your recent money struggles have resulted in you missing car loan or other credit repayments, your credit score may now be lower than it once was. Similarly, if your financial position has changed – say, you lost your job or your income has decreased – this will affect how potential lenders view your application.

With a lower credit score or less attractive financial situation, you may find it harder to get approved for a loan when you refinance. If you are approved, your lender may penalise you with a higher interest rate, potentially making the repayments on your new loan higher than your repayments are right now.

TIP: When you compare car loans, know that the advertised rate is not the rate you will pay. On application, the lender will determine the interest rate you pay, depending on factors such as your credit score, financial situation and employment status.

The potential cost of exiting your current loan: Another factor to consider before refinancing is the potential cost of exiting your current loan early. As most car loans are secured, they typically come with early exit fees. Check how much you will have to pay out, and factor that into your decision to refinance.

5. If Needed, Sell your Car

If you simply cannot afford to keep your car, you may choose to sell it to pay off your car loan. If you decide to go down this route, be sure to tell your lender you plan to sell – and inform the buyer that the car is under finance.

MORE: Find out more about selling your car under finance in this post.

Depending on how much you owe on your loan – and how much your car sells for – you may find yourself with extra funds after you have paid off your loan and any applicable fees. This is yours to do with as you wish. If the sale of your car doesn’t cover the remaining amount owing on your loan, you will have to find a way to cover the shortfall.

If you are in a difficult financial situation and need help managing your debts, you can access free financial counselling by getting in touch with the National Debt Helpline.


  • Roland is the founder of Credit World Pty Ltd and a leading financial expert in Australia. He has extensive knowledge on car loans in Australia. Known as a car loan expert, Roland has been featured on TV and in various publications. He started in finance comparison in 2005. Now a 17 year industry veteran.