Running on Empty

The phone started ringing as soon as Paula San Gabriel of Bowie missed her first car payment.

The 23-year-old college student bought a used Jeep Grand Cherokee in 2005 for $20,000. Gold with leather interior, it was the perfect car for cruising around with her friends. San Gabriel put down $1,000 and financed the rest under the easy lending standards that once seemed ubiquitous: 9 percent interest with $400 monthly payments spread over six years.

The ride was smooth until San Gabriel hit a road bump in January 2006. The engine broke down, and her warranty had expired. Fixing her car could cost as much as $5,000 -- money she could not spare considering the size of her car note. Driven partly by financial crisis and partly by sheer frustration, San Gabriel stopped making her payments the next month. And the creditors started calling.

"I know the banks don't play," she said. "If you're missing $5 and you're a day late, they report that stuff."

The turmoil that has roiled the housing market is also making waves in the auto loan industry. Although auto loans have fixed interest rates -- compared with the adjustable mortgage rates that have pummeled homeowners -- many consumers are finding that they have taken on more debt than they can handle to purchase their cars as well.

Delinquencies on indirect auto loans, which are made through a third party and constitute roughly 90 percent of car loans, reached more than 3 percent in the fourth quarter of last year, the highest rate in at least 17 years, according to the American Bankers Association. Delinquencies are defined as payments that are more than 30 days past due.

The reasons for that rapid rise are varied, and anecdotal evidence suggests that the delinquencies affect a broad swath of economic classes. Some are the result of homeowners with ballooning mortgages making tough decisions about which bills they can afford to pay. Other car owners succumbed to repayment plans of as long as seven years, compared with the traditional maximum of five years. As a result, Edmunds.com estimates, more than a quarter of auto loans are "upside down," meaning the borrower owes more than the car is worth. The average negative equity was $4,305.05 in March, up 32 percent from March 2002.

"The auto industry is not exempt from the current stress that's out there in the economy," said Carol Kaplan, spokeswoman for the ABA. "If you're going through it right now, you're not alone."

The worst thing to do if you find yourself in trouble is to ignore it, according to lenders and financial advisers. Whether you're in danger of missing a payment or you're so far behind that repossessors are knocking on your door, the first step toward resolving the problem is to come clean. Call your lender and discuss your options -- you may have more than you think.

"Yes, you can recover," said Philip Reed, consumer advice editor at Edmunds.com. "But essentially what you need to do is . . . start again building your credit up. . . . It does take quite a while."

If you know you're going to miss a payment . . .

Lenders suggest that you call them as soon as your bills start making you nervous. Americans Well-Informed on Automobile Retailing Economics (AWARE), an industry trade group that includes the American Financial Services Association and the National Automobile Dealers Association, said warning signs include avoiding looking at bills and difficulty saving money.