Behind on car repayments? Your options before repossession

If your lender repossesses your car and sells it for less than you owe, you still have to pay the difference, including the costs of repossessing and selling it. Selling the car yourself first is one option, alongside a hardship arrangement with your lender and free help from a financial counsellor.

Which one fits depends on whether you can get back on track, and on what the car is worth against the loan. This guide walks through what happens when you fall behind, step by step, using Moneysmart’s own example of how a shortfall builds up. It’s general information, not financial advice. For help with your own situation, talk to a free financial counsellor through the National Debt Helpline on 1800 007 007.

What happens when you fall behind on a secured car loan?

Check your loan contract to see whether the car is security for the loan. Moneysmart explains that with a secured loan, if you don’t meet your repayments, the lender can take the car and sell it to cover the loan.

That doesn’t happen the day a repayment is missed. Moneysmart says the lender first has to send you (and your guarantor, if you have one) a default notice giving you 30 days to pay the overdue amount. It can repossess once those 30 days have passed and you haven’t paid, made an arrangement to pay or asked to postpone repossession.

As at October 2026, Moneysmart also says that, generally, a lender can’t repossess without a court order if you owe less than $10,000 or 25% of your loan, whichever is lower.

The earlier you act, the more choices you have. Moneysmart’s advice if a default notice arrives is simple: don’t ignore it, and talk to your lender or get free legal advice immediately.

How does repossession unfold, step by step?

This is the process Moneysmart and the National Debt Helpline describe. Your lender’s letters will give the exact dates for your loan.

During the 21-day wait, Moneysmart says you can get the car back by paying the overdue amount plus costs, or the full amount owing. The full detail is on Moneysmart’s page about repossessed cars and goods.

What should you ask your lender for first?

If you’re behind, or know you’re about to be, Moneysmart’s first step is to contact your lender’s hardship team. Search “hardship” on the lender’s website, or call, email or use its chat. Expect to be asked why you’re in hardship, what your income and major expenses are, and what repayments you can afford.

Moneysmart says a financial hardship arrangement can include:

• Setting up a payment plan.
• Altering your loan repayments.
• A temporary change, such as deferring a payment.
• A permanent change, such as varying the loan.

Moneysmart’s rule is to only agree to an amount you can afford to pay. If you later find you can’t stick to the new arrangement, tell the lender straight away, keep paying what you can and negotiate a new arrangement. If the lender refuses your request, it must give you reasons, and you can complain. Moneysmart’s financial hardship guide sets out each step.

Ask about selling, too. In its June 2026 review of car loans, ASIC said some lenders could improve their hardship communications by explaining options such as voluntary surrender and time-to-sell arrangements. If selling is on your mind, ask your lender whether it offers time to sell the car and what it needs from you.

Who can help you for free?

You don’t have to work this out alone, and you don’t have to pay for help.

Moneysmart says that if you’re having trouble meeting your car loan repayments, you can talk to a financial counsellor about your options. The National Debt Helpline’s page on car loans covers repossession, hardship variations and selling, and describes its counsellors as non-judgemental.

How can a repossession sale still leave you owing money?

The car is sold to reduce the debt, but its sale price is set against everything you owe, including the costs of taking and selling it. Moneysmart shows how with a worked example about a borrower it calls Eva.

Eva took out a secured loan to buy a new $30,000 car. With lender fees, her total loan was $32,000. A year later she lost her job, fell behind on repayments, and the bank repossessed the car and resold it for $20,000.

Two things stand out. Without the $1,500 in repossession and sale costs, Eva’s shortfall would have been $4,000. And after a full year of repayments, she still owed more on the loan than the car sold for.

Shortfalls like Eva’s show up in official data too. In ASIC’s June 2026 review of eight car lenders, voluntary surrender or repossession happened on only 0.3% of the loans reviewed. But four lenders gave data on more than 250 loans where the car had been repossessed, and in nearly 90% of those cases the borrower still owed over half the original loan amount after the car was repossessed.

Handing the car back voluntarily works the same way. Moneysmart says that if the lender sells a surrendered car for less than your loan amount, you still have to pay back the remaining balance.

Can selling the car yourself help, and when won’t it?

The National Debt Helpline lists selling the car as another option. It suggests this might be appropriate if you can no longer make any payments, don’t need the car for work, or can get by with a cheaper car, public transport or a bicycle. It also sets out the ground rules:

• Tell the buyer the car is under finance.
• Get your lender’s permission to sell.
• Once a price is agreed, tell the lender and ask how it wants to be paid.

When selling can help

• The car is worth more than the payout figure. A sale for more than the payout clears the loan, and any money left over is yours.
• You’ve decided you can’t keep the car. Selling before a default notice runs out may avoid repossession costs like the $1,500 in Moneysmart’s example.
• You want a say in the timing. You choose who buys it and when, within what your lender agrees to.

When selling won’t help

• The setback is short term and you need the car. If you can get back on track, a hardship arrangement may keep the car on the road.
• You owe much more than the car is worth and can’t cover the gap. Selling doesn’t wipe out the rest. The National Debt Helpline says that if the sale price is below what you owe, you still have to pay the remainder.
• Your lender hasn’t agreed yet. Get its permission first, as the National Debt Helpline advises, along with a payout figure and its payment instructions.

A private sale with money owing takes extra steps. Your lender’s security interest shows up on a PPSR search, so a careful buyer will see it, and the lender has to be paid out as part of the sale. Our guide explains how the PPSR entry clears after a payout. When you sell to us, we deal with your lender directly to pay out the loan. Our page on selling a car under finance shows how that works.

What if the car is worth less than you owe?

When the car is worth less than your payout figure, the gap is called negative equity. The sale price alone won’t clear the loan, so the rest has to come from somewhere else.

When you sell to us, negative equity has to be covered before settlement. We show you the numbers before you decide, so you can take them to your lender or a financial counsellor first. Our page on selling a car with negative equity explains the process in more detail.

If you can’t see where the gap would come from, that’s the moment to call a financial counsellor, before you commit to anything.

Before any decision, get these four numbers in front of you:

1. The overdue amount, and the date on any default notice.
2. A payout figure from your lender for a set date. Our guide to car loan payout letters explains how to read one.
3. A genuine offer on the car, from a buyer ready to pay it.
4. What you can afford each month, from a budget you’ve actually written down.

The offer minus the payout figure tells you whether a sale leaves you with money or a shortfall. Our car equity calculator does the sum for you.

What should you ask your lender before you sell?

Contact your lender by phone, email or chat, and ask for the answers in writing:

1. How much am I behind, and has a default notice been sent?
2. Can you give me a payout figure for a specific date, and how long is it valid?
3. Do I need your permission to sell the car, and can I have it in writing?
4. Do you offer a time-to-sell arrangement, and what happens with collections while the sale goes through?
5. How should the buyer pay you, and what authority do you need from me?
6. If the sale doesn’t cover the payout, what happens to the rest of the debt?
7. Once the loan is paid out, how long until your security interest is removed from the PPSR?

Keep a record of every call: the date, who you spoke to and what was agreed. If you can’t reach agreement, a financial counsellor can help, and AFCA is there if it comes to a dispute.

Choosing the path that fits your situation

There’s no single right answer when you’re behind on a car loan. If the problem is temporary and you need the car, a hardship arrangement may be enough. If you can’t keep the car, selling it or handing it back are the options to weigh, ideally with a financial counsellor. Either way, acting before a default notice runs out keeps the most options open.

If selling is one of the options you’re weighing, a real number helps. We buy cars, utes, SUVs and 4WDs 2021 or newer with 100,000 km or less, anywhere in Australia. A licensed dealer gives you a genuine offer by phone, free and with no obligation, and no fees are taken out of the offer. If you accept, we inspect the car at a time and place that suits you, deal with your lender directly to pay out the loan, then pay any equity into your bank account. Cars under finance usually take 2 to 3 business days to settle, and the car is only collected after you confirm the funds have cleared.

If yours is older or has more kilometres, send it through anyway and we’ll tell you straight away if we can help. Get in touch or call 1800 73 55 73, and take the numbers to your lender or counsellor before you decide.