Behind on your car loan? What to do, and in what order

Hours cut, an unexpected bill, a relationship ending, an illness: there are a hundred ordinary reasons a car loan repayment can suddenly feel impossible. If that’s where you are, take a breath. You have more options than it feels like right now, and the earlier you use them, the more of them stay open. This guide sets them out in the order that usually works best.

Step 1: Look at the numbers honestly

Before you call anyone, get a clear picture. It makes every conversation easier.

• What’s your take-home pay now, and how long is the change likely to last?
• What are your essential costs: housing, food, utilities, getting to work?
• What do you owe on the car, and what are the repayments?
• What other debts do you have?

The car budget planner can help here. Enter your current income and expenses, leave the car fields at zero, and the “comfortable repayment” figure shows what you could realistically put towards the loan each month. That’s a useful number to take into a hardship conversation.

Step 2: Call your lender early and ask for hardship help

Lenders deal with financial hardship all the time. A hardship variation is, in Moneysmart’s words, “a change to the terms of a loan, due to financial hardship, to make the loan easier to manage”. It might mean:

• more time to pay;
• reduced repayments for a period;
• a temporary pause in repayments; or
• a repayment plan based on what you can afford.

Moneysmart says that if you can repay the loan but can’t afford it right now, you should ask your credit provider for a hardship variation. Some tips for the call:

• Call before you miss a payment if you can. It’s easier to arrange help while your account is up to date.
• Explain what’s changed and how long you expect it to last.
• Offer a realistic amount you can pay, based on your budget.
• Ask how the arrangement will be reported on your credit file.
• Get it in writing. Ask for written confirmation of what’s been agreed.

Step 3: Get free, independent help

You don’t have to do this alone. The National Debt Helpline on 1800 007 007 (Monday to Friday, 9:30am to 4:30pm) connects you with a financial counsellor in your state. Moneysmart notes live chat is also available. Financial counselling is free and confidential, and a counsellor can:

• help you work out which debts to prioritise;
• negotiate with lenders on your behalf; and
• explain your rights if things have gone further.

Aboriginal and Torres Strait Islander people can call Mob Strong Debt Help on 1800 808 488 for free legal advice about money matters.

What are your rights before a car is repossessed?

This is the part people fear most, so it’s worth knowing the rules Moneysmart describes.

Situation	What generally applies
You owe less than $10,000, or less than a quarter of the loan (whichever is lower)	The lender generally can’t repossess without a court order
You owe more than that	The lender must be able to show you’re behind on repayments
Before repossessing	It must send you (and any guarantor) a notice giving you 30 days to pay the overdue amount
During those 30 days	Paying the overdue amount, agreeing an arrangement, or asking to postpone repossession can stop it

The key message from Moneysmart: if you receive a default notice, don’t ignore it, and act immediately. Those 30 days are your window to fix things.

What if you can’t agree with your lender?

If you’ve asked for help and you’re unhappy with the lender’s response, you can complain to the Australian Financial Complaints Authority (AFCA), which Moneysmart describes as offering “free, independent dispute resolution”. Usually you’ll need to raise the complaint with the lender first. A financial counsellor can help you prepare.

Should you sell the car?

Sometimes, yes. If the car is worth more than you owe, selling it can clear the loan and stop the pressure. If it’s worth less, you’ll need a plan for the shortfall. Either way:

• Talk to your lender first. The loan is usually secured on the car, and its interest is registered on the PPSR, so the loan must be paid out as part of the sale.
• Get a payout figure with a date.
• Think about transport. Make sure you’ll still be able to get to work, perhaps with a cheaper car bought outright.

Our page on secured vs unsecured loans explains how security affects a sale.

Could refinancing or consolidation help?

Possibly, but usually not as a first step when you’re already behind. New lenders will look closely at missed payments. If your situation has stabilised and you have several debts, debt consolidation or refinancing your car loan might reduce pressure, provided the new loan passes the tests: lower total cost, no longer term, and a repayment that fits even if things change. When you’re back on an even keel, you can check your options without committing to anything.

Be cautious about anyone offering to “fix” your debts for an upfront fee. Moneysmart warns about unlicensed debt management firms, pressure to sign quickly and missing written costs.

What should you avoid?

• Ignoring calls and letters. Problems grow when lenders can’t reach you.
• Payday loans to make car repayments. Moneysmart warns they can charge large fees, and borrowing to repay a loan is a signal to see a financial counsellor.
• Hiding the car. It won’t solve the debt and can make things worse.
• Signing anything you don’t understand. Take it to a financial counsellor first.

If an urgent expense caused the problem, our emergency personal loans page lists cheaper options, including No Interest Loans for essentials such as car repairs and registration.

What should you say when you call your lender?

If the call feels daunting, a simple script helps. You might say something like:

“I’m calling about my car loan. My circumstances have changed because [reason], and I’m worried I won’t be able to keep up the current repayments. I’d like to ask for a hardship variation. Based on my budget, I can afford [amount] per [week, fortnight or month] for the next [period]. Can we talk about options?”

Then listen, take notes, and ask:

• What options are available, and how long would each last?
• What happens to the interest and the loan term during the arrangement?
• How will it be reported on my credit file?
• When will I get the agreement in writing?

Keep a record of who you spoke to, the date and what was agreed. If the lender asks for documents, such as a letter from your employer or a medical certificate, send them promptly. And if the conversation doesn’t go well, a financial counsellor from the National Debt Helpline can make the call with you.

Looking ahead, once things settle

When the pressure eases, it’s worth building a buffer so a single bad month can’t threaten the car again. Rework your budget with the planner, keep a small emergency fund, and choose loan terms that leave breathing room.

If you’re later in a position to borrow again, for a more affordable car or to restructure your debts on better terms, you can start an application with our secure partner and see your options before you commit. A real person can talk it through. Please give accurate details about your income, expenses and any recent hardship arrangements, because a loan built on honest numbers is the one that holds up when life gets bumpy.

See my options when I’m ready →