Clark Howard's Tips

The double danger of car repo

December 7, 2007

Auto loan delinquencies are skyrocketing; they're reportedly the highest they've been since 1991. That's a sure sign of economic slowdown.

Whenever people have been squeezed in the past they'd do a home equity line of credit. But now those equity lines are tapped. That's why it's very important to stay current on your car loan.

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The interest rates are generally good, but the penalties for default can be huge. And let's not even speak of repo. Having your car repossessed is doubly harmful. Not only do you have to find other ways to get to work, but most states have what's known as "deficiency." This is what happens when the lender sells the repo car at auction and gets below wholesale value. They're then legally allowed to bill you for the deficient amount. If you can't pay it, they can sue you and get a judgment against you.

So if you're having trouble making your car payments, get in touch with your lender and try to arrange a forbearance to avoid repo. Under the terms of forbearance, the payments you can't make now will likely be tacked on to the end of the loan.

One final word about prioritizing your debts: If you're really pinched, don't pay that credit card! Pay your mortgage, food and medical expenses and your car loan first. Put the credit card collectors on ignore until you're able to begin paying them again.

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