The American Repossessor

This is a consumer advice column written by the Better Business Bureau of Northern Indiana. It appears weekly in Business Monday.

Many people are struggling as the economic slump continues, and vehicle repossessions are on the rise. A repossessed car hinders more than just a car owner’s mobility; it has a severe impact on credit scores, thereby limiting the ability to get loans or credit cards for up to seven years. Better Business Bureau advises troubled car owners on how to avoid losing their vehicle – and their creditworthiness.

According to the American Bankers Association, the number of direct auto loans that were at least 30 days delinquent increased from 2.03 percent to 3.01 percent during the first quarter of 2009, and delinquent auto loans through dealers hit 3.4 percent in March. Perhaps not surprisingly, the number of repossessed vehicles jumped 12 percent to 1.67 million nationally in 2008 and is expected to increase by another 5 percent in 2009, according to Manheim Consulting.

The worst thing you could do when falling behind on a car payment is to ignore it. Automobile owners have to take responsible action immediately — otherwise, repossession and a negative effect on personal credit scores will follow.

Also, if a lender chooses to sell the car at auction, and it is bought for less than the outstanding loan, the original owner may still be on the hook to pay it back in addition to added fees – essentially paying for a car he or she no longer owns.

BBB recommends that car owners take the following steps when falling behind on car payments:

Contact your lender. According to the American Financial Services Association (AFSA), auto repossessions cost creditors about $8,000. So the best-case scenario for both you and your lender is to keep you in your car and making payments. Lenders will often work with troubled borrowers to develop more agreeable payment plans. Some possible options, according to

AFSA, are loan refinancing, extending or deferring payments, changing payment due dates and waiving fees.

Cut costs elsewhere. For people where public transportation is scarce, a car is a necessity for getting to work, the grocery store or school. If you can’t afford to lose your car, consider the items that you can afford to do without: cable television, eating out, cigarettes and new clothes.

Choose a less expensive vehicle. If you’re not upside down on your loan, and can pay off the loan by selling the vehicle, consider finding a less expensive auto with lower monthly payments.

Do your research before enlisting any debt-management help. Some businesses offer assistance in debt management and repo prevention. Be extremely wary of offers and sales pitches that require upfront fees, and always research the organization with BBB before you do business with them.

Consider enlisting the help of a credit-counseling agency as they offer inexpensive, and in some cases free, guidance on how to manage money. You can find a credit counseling agency near you through the National Foundation for Credit Counseling – the nation’s largest and longest-serving nonprofit credit-counseling network – at www.nfcc.org/.