I’m 29 years old and just financed a 2023 Dodge Ram I clearly can’t afford — I owe $27K, pay $650/month, plus $350 for insurance. Voluntary repossession will ruin me — what can I do?

Americans collectively owe a staggering $1.51 trillion in auto debt, more drivers are finding themselves struggling with these obligations. Experian reports a 0.15 percentage point increase in delinquencies in 2023, with 2.33% of borrowers now 30 to 59 days behind on their payments.

For many, the dream of a new car has become a burden. If you're 29 with a $27,000 loan and rising insurance premiums, you're undoubtedly one of them.

When you're in this situation, it's worth exploring all of your options, as the wrong decision could derail your finances for years to come.

The consequences of an unaffordable car loan

An auto loan you can’t afford poses serious risks to your finances. Falling behind on payments not only damages your credit score, but it also jeopardizes your financial goals, such as saving for retirement or paying your essential bills.

If you get too far behind, repossession could be next on a lender’s agenda. A repossession can stay on your credit report for up to seven years, often causing a credit score drop of over 100 points. Even if you set up voluntary repossession to give the car back, the financial consequences are similar — you just avoid the embarrassment and uncertainty of the lender retrieving it and may save a bit on lender fees.

Worse still, when a lender resells a repossessed car, it rarely covers the full loan balance. You’ll be liable for any remaining debt, meaning repossession won’t wipe your slate clean.

Steps to take if you can’t afford your car loan

If you realize you’re in over your head with your car loan, you do have a few options for dealing with the situation.

• Refinance your loan: Check whether you qualify for a lower interest rate through refinancing, as recent months have brought some rate declines. Lowering your payments this way can make your loan more manageable.
• Negotiate with your lender: If refinancing isn’t possible, discuss your situation with your lender. They may offer a modified payment plan to bring your monthly costs within budget.
• Sell the car: Selling might mean taking a loss, especially if you bought it new as cars lose an average of 10% of their value the moment you leave the lot. Still, you may be better off if you can sell it for enough to get out from under the crushing auto loan.
• Get creative: Consider whether you could rent the vehicle on Turo or look into a side gig to help cover the payments.

With time, as your loan balance falls and your income possibly grows, refinancing might become easier. If that doesn't happen, repossession could be your only way out, and a voluntary approach is usually better.