New Fed data shows spike in missed car payments: What it means for you

CHICAGO - Some new data from the Federal Reserve Bank shows that the number of people missing their car payments is on the rise.

In a Fox 32 money saver special report, Dawn Hasbrouck took a look at what’s behind the trend and what to do if you are struggling to pay this bill.

It’s an issue that can have some serious consequences.

"Researchers at the Fed and elsewhere look at it as an indicator of household financial stress, overall," said Gene Amromin, vice president and director of financial research at the Chicago Fed. "So any time you see delinquencies, or missed payments go up, you start paying attention as to why."

The latest data shows that about 8% of car loan borrowers will end up missing a payment during the course of the year, compared to about 7% before the pandemic.

"The context is during the pandemic period. The levels of missed payments were just really at historic lows. Many reasons for this. Mortgage payments were frozen, so were student loan payments. Stimulus checks were coming in the mail. And so people found it relatively easier to be able to afford car payments," Amromin said.

Those missed payments can quickly add up to bigger issues.

"Well, it shows up on your credit score report pretty quickly. You miss one car payment, it’s not good for your credit score. You miss two car payments, it’s even worse for your credit score. But if you were to miss a third payment, then your car gets repossessed," Amromin said.

"Thirty days late, 31 days can reduce your credit score by 60 points. And sometimes 75," said Donna Rasmussen, executive director for Consumer Credit Counseling Service of Northern Illinois. "And then you miss it for 60 days your score is going to go down even more. And it can take a year to get your score back in a favorable light. It can take a year or longer and then if something goes into collections."

Rasmussen said credit score declines can impact people in many aspects of their lives.

"You can’t get a home loan or down payment assistance for a loan if your score is under 640. So, if your score goes to 635, that cuts you out of a lot of benefits that you can get for homeownership. And housing people - landlords and lenders - they look at that," according to Rasmussen.

She said a missed payment can stay on your credit report for as long as seven years and that many times, when people make a car payment after missing two they're usually doing it at the expense of paying another bill.

"We see people who are - they’re making that third car payment. But they’re also two months behind in their electric bill. Or their water is getting ready to be shut off or they’re not able to make a student loan payment. So you know all of these things it is a huge spiral for a lot of people," Rasmussen said.

"And that’s concerning because effectively, you’re choosing to become delinquent on one form of debt.  On credit cards right. In order to avoid worsening your situation with the car loan," Amromin said.

Rasmussen said her organization is getting a lot of calls right now from people of all different economic backgrounds looking for help.

"They’re overwhelmed, they don’t know what to do. I think I make enough money, but I don’t know where it goes," Rasmussen said.

"We see a lot of people that had shopping issues, gambling issues. People with six figures are having the same struggles that the rest of us have that aren’t making the big bucks."

She added that her organization also offers counseling services to help people get organized and said that developing good financial habits is important for all of us.

"It’s like swimming. It’s a life skill that everybody should have," Rasmussen said.

So what can you do to get back on track if you miss a payment?

The experts we spoke to said it’s important to take a hard look at your budget and re-evaluate expenses. They also recommend talking to your lender before a payment is missed to discuss possible solutions.