Negotiating With Car Loan Lenders and Car Lease Companies

If you're having trouble making your car loan or lease payments, you might be able to negotiate with the lender or leasing company to get lower payments, get an extension of time to make the delinquent payments, cancel your car lease, or work something else out.

Negotiating When You Have Trouble Making Car Payments

If you expect you'll have trouble making your car payments for several months, often your best bet is to sell the car, pay off the lender, and use whatever is left to either pay your other debts or buy a reliable used car.

However, if you want to hold onto your car, here are some options to negotiate with the lender.

Time Is of the Essence

If you miss a payment, immediately call the lender and speak to someone in the customer service or collections department. Don't delay. Cars are more quickly repossessed than any other type of property. One reason for this is that the creditor doesn't have to get a court judgment before seizing the car. (To learn more, see Car Repossession Laws: An Overview.)

Another reason is that cars lose value fast—the creditor who has to auction one off wants the largest possible return. Also, cars have been known to disappear before they can be repossessed. Luckily, some creditors might not be eager to repossess your vehicle. According to one industry consultant, creditors lose about $8,000 per car repossession.

Below are three options to ask your lender about. To get an idea of what your lender may be willing to do, you can review information about your lender on www.bankrate.com. Then, call your lender and ask.

Get an Extension

If you present a convincing argument that your situation is temporary, the lender might grant you an extension, meaning the delinquent payment can be paid at the end of your loan period. The lender probably won't grant an extension unless you've made at least six payments. Also, most lenders charge a fee for granting an extension and don't grant more than one a year. Fees for extending car loans vary tremendously. Some lenders charge a flat fee, such as $25. Others charge a percentage (usually 1%) of the outstanding balance. Others charge one month's worth of interest. (Get Nolo's eForm Request Short-Term Lower Payments, to help negotiate with your lender.)

Change Your Monthly Payment Date

Another option is to ask if the lender will change your monthly payment date so that it corresponds better to when you receive your income. Some lenders that agree to this might also waive late fees or reduce the interest charged, which would lower your payment amount.

Get the Loan Rewritten to Reduce Payment Amounts

The lender may offer to rewrite the loan to reduce the monthly payments. This means, however, that you'll have to pay for a longer time period and you'll have to pay more total interest. Make sure that getting a lower monthly payment doesn't require you to take out a larger total loan.

Try to avoid loans that have a prepayment penalty or that include interest calculated in any way other than the simple interest method.

When You Have Trouble Paying Your Car Lease

If you can't afford your automobile lease payments, your first step is to review your lease agreement. If your total obligation under the lease is less than $25,000 and the lease term exceeds four months (many car leases meet these two requirements), the federal Consumer Leasing Act (15 U.S.C. §§ 1667-1677f, 12 C.F.R. § 213) requires that consumer vehicle leases disclose the following information:

• the amount due (including an itemization) at the time the lease is signed
• payment schedule and total payments
• payment calculation
• notice that the charge for early termination of the lease may be substantial, up to several thousand dollars
• the conditions under which the lease may be terminated early
• the early termination fee or a description of how the fee is calculated
• the mileage limitation and the charge for excess miles, if any, and
• vehicle wear and tear standards, which must be reasonable.

The Act requires other disclosures as well. In addition, many states impose extra requirements.

Canceling Your Car Lease

If you want to cancel your lease, look carefully at the provisions in your contract describing what happens if you default and how you can terminate the lease early. Many of these provisions include claims that you'll owe a very large sum of money or complex formulas that are difficult to understand. Ending a lease early is expensive—you can expect the early termination fee to be hefty. But if the fee seems way out of line, you may be able to get the lessor to agree to some kind of reduction.

Look in your lease agreement for the explanation of how the early termination fee is calculated. Under the federal Consumer Leasing Act, the explanation must be "clear and conspicuous" and the amount must be "reasonable." Also, ask the lessor to confirm exactly how much you will have to pay to terminate the lease early in your particular circumstances. If you think the amount is not reasonable, as is required, use that in your negotiation.

To learn more about options for settling debts or negotiating with creditors, see Debt Settlement & Negotiation.