Grace Period for Car Payments: The Ultimate Guide

Is There a Grace Period For Car Payments?

Alyssa Schwartz

Updated December 28, 2021

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On average, Americans with car loans are paying $614 a month in car payments on new automobiles and $500 per month in used car payments, according to data from automotive industry resource Edmunds. Given how steep these payments can be, it might seem difficult some months to scrape together the funds to make them on time.But considering the potential consequences of a late car payment, those with auto loans may find themselves wondering, ‘When is a car payment considered late?’ and ‘Is there a grace period for car payments?’ Read on to learn more.

When Is a Car Payment Considered Late?

As with other banking agreements, a car payment is typically considered late if the amount due has not been posted to the lender on the date it is due. However, it’s always a good idea to check with the specific lender as to when a car payment is considered late. Some lenders may require the payment to be posted by 5 p.m., or the close of banks, on the due date, while others may allow payments to be posted until midnight.Some lenders may also extend a so-called “grace period” to auto borrowers, which allows a payment to be counted as on time so long as it arrives within a certain window after the due date.Because many auto loans are considered “secured loans” — with the car itself used as collateral — timely car payments are especially important in order to avoid car repossession. The easiest way to avoid the consequences of a late car payment is by ensuring that all payments are made on time, based on the schedule outlined in the terms of the car loan agreement.

How Many Days Is the Grace Period for Car Payments?

In general, a grace period for a car payment is 10 days past the payment due date. During this time, the car payment typically will be accepted without penalties or other consequences.That being said, there is no legally defined grace period attached to a car loan. Although some lenders may offer a late car payment grace period or be willing to waive late fees and penalties on a slightly overdue payment — especially if it’s a rare occurrence — they’re not obliged to do so.

Is There a Late Car Payment Fee?

Making a late car payment may result in late car payment fees and other penalties. Depending on the car loan agreement, these fees may be applied as soon as the payment becomes past due (for example, after 5 p.m. if the payment deadline is at the close of business), or if a grace period is offered and the payment is not made by the end of that window. However, just like a grace period, late fees on car payments will depend on the specific terms in the car loan contract as well as state laws. The best way to find out whether late car payments are subject to fees, and how those fees are determined, is to check the loan agreement or talk to the lender.

Is Partial Payment Considered a Late Car Payment?

Unfortunately, making a partial payment likely won’t help you out, as a partial car payment is generally still reported as a late payment.That being said, this could vary depending on whether this is your first time making a late payment or it’s become a habit. Depending on the lender, they may accept a partial payment for the time being if you’ve never made a late car payment before.

What Happens If I Still Do Not Pay After the Late Car Payment Grace Period?

If you still haven’t made a payment even after the late car payment grace period comes and goes, you could face consequences like late car payment fees, credit score declines and even repossession of your vehicle. Here’s the rundown on the possible repercussions.

1. Late Car Payment Fees

The first way that late car payments can cost you is in the form of extra fees and penalties. There is no set formula that dictates the cost of late car payment fees — these will vary from lender to lender and depend on the specific car loan as well as your state’s laws.As such, the only way to determine precisely how much a late car payment may cost is to consult the car loan agreement or check directly with the lender. (If an individual is at risk of a late payment due to a lack of cash flow, it’s a good idea to get this information in advance to weigh the full cost implications of missing the payment due date.)

2. Potential Impact on Your Credit Score

An individual’s credit score is a number used to inform future prospective lenders how likely that person is to pay their bills — and that score is determined by their existing credit payment behaviors. One’s credit score takes into account all types of existing debt, including car loans, and the repayment history. Late payments are considered a sign of risk and may reduce one’s score, which in turn can make it even harder to get lower car payments anytime down the road.While paying any bill late can indeed ding a person’s score, overdue payments are not noted on one’s credit report until they are a full billing cycle (usually about 30 days) past due.

3. Car Repossession

Car loans are secured loans that use the vehicle itself as collateral — meaning that if the purchaser defaults, the lender may recoup their loss by repossessing the car. But precisely how repossession works will depend on the car loan agreement and state laws. The car loan should spell out what constitutes a late payment, as well as if there is an acceptable grace period. Once a payment is officially considered late, the lender may be entitled to reclaim the vehicle or to remotely deactivate it. When a car is at risk of repossession, an individual may have a right to “cure” or reinstate the loan, whether before or after repossession, if state law permits or this is written into the loan contract. If such a right exists, the individual would be able to make up the payment and keep their car.It’s important to note that repossession does not necessarily mean an individual can walk away from their lease altogether. They may still be required to repay some or all of their loan, and there may also be additional repossession costs. Additionally, a car repossession will also remain on an individual’s credit report for seven years from the original late payment.

Options to Avoid Repossession

The best way to avoid a repossession is to avoid making a late car payment. But given the high cost of buying a car, that may be challenging — especially for individuals whose car loans have less than favorable rates.One of the benefits of car loan refinancing is that it can give individuals an opportunity to take advantage of more favorable loan terms — such as lower interest rates, a longer loan term or a lower initial payment — to make car payments more affordable.In some cases, such as if an individual chooses to spread their payments out over a longer period, this can increase the total cost of buying a car. But for individuals for whom a car is a necessity, this may be a helpful tradeoff. It is, however, important to note that there may be costs associated with refinancing, such as an early termination fee on the existing car loan and registration and/or title transfer fees.And for individuals who may be staring down a late payment? It’s always a good idea to talk to the lender before the payment is due to see what arrangements can be made. Some lenders may allow a payment deferral (the option to “skip a payment” may also be written into the lease agreement) or be willing to make accommodations on a case-by-case basis.

The Takeaway

Buying a car can be expensive — and if you’re at risk of a late car payment, it can be even more so. One of the best ways to reduce the risk of late payments (whether or not your lender offers a grace period) is to find the most favorable loan for your individual circumstances. Find out if you’re eligible for a lower interest rate through car loan refinancing by visiting Lantern today.Compare auto loan refinance rates in just minutes!

Photo credit: iStock/nortonrsxThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC112205

About the Author

Alyssa Schwartz

Alyssa Schwartz is an award-winning freelance writer whose work has appeared in The Globe and Mail, Vogue, Robb Report and other publications. Alyssa writes on a variety of finance topics for both individuals and small businesses.

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