Do I Have to Keep Making Car Payments During a Lemon Law Case?

Yes. You should keep making your car loan or lease payments during a lemon law case. Your loan is a contract with your lender, which is usually a separate company from the manufacturer, and a lemon law claim does not pause it. If you stop paying, you risk late fees, damage to your credit, and repossession, which can complicate your claim. The good news is that the payments you make are not wasted. In a buyback, the manufacturer typically refunds the payments you made and pays off the remaining loan balance directly to your lender.

Why the lemon law does not pause your loan

The Song-Beverly Consumer Warranty Act creates obligations for the manufacturer. Under Civil Code 1793.2(d)(2), the manufacturer must replace or refund a new motor vehicle it cannot fix after a reasonable number of attempts. Nothing in that rule changes your separate contract with the bank, credit union, or finance company that holds your loan. Even when the lender is the manufacturer’s own finance arm, the loan terms still apply until the case is resolved.

So from your lender’s point of view, a missed payment is a missed payment, whether or not your car is a lemon.

What can happen if you stop paying

• Late fees and default interest under your loan contract.
• Negative credit reporting. Late payments can stay on your credit report and affect future borrowing.
• Repossession. If the lender takes the car, it may sell it, and you can still owe the difference. Losing the car can also make a buyback harder, since a buyback normally involves returning the vehicle.
• Harder settlement math. Missed payments, fees, and a damaged credit file make the repurchase messier for everyone.

How your payments are handled in a buyback

Restitution under Civil Code 1793.2(d)(2)(B) is based on the actual price paid or payable, including transportation charges and manufacturer-installed options, plus collateral charges like sales tax and registration fees, and incidental damages like towing and rental costs. A mileage offset may be subtracted for use before the first repair visit for the problem. In a typical financed buyback:

1. The manufacturer pays off your loan. The remaining balance goes straight to your lender, which releases its lien.
2. You get back what you paid. That usually includes your down payment and the monthly payments you made. In our cases, finance charges you actually paid are included, and California courts have allowed buyers to recover finance charges paid when taking restitution.
3. The offset is deducted. The formula is the price paid or payable for the vehicle, times the miles driven before the first repair visit for the problem, divided by 120,000.
4. You return the car.

Because the refund accounts for the payments you make, staying current generally means those payments come back to you as part of the repurchase. Read how a buyback handles your loan and credit and what is a lemon law buyback.

A simple example (illustration only)

These numbers are invented. Say you put $3,000 down and have made 12 payments of $600 ($7,200). Your loan payoff is $28,000. In a buyback, the manufacturer would pay the $28,000 to your lender and refund your $10,200 in payments and down payment, plus eligible taxes, fees, and incidental costs, minus the mileage offset. If you had stopped paying after month six, you would have fewer payments to recover, plus late fees and credit damage. Use our California lemon law calculator with your own figures.

What happens to your credit after a buyback?

When the manufacturer pays your lender in full, the loan is closed. A loan that was kept current and then paid off generally looks very different on a credit report from one that went delinquent before the payoff. After the repurchase is complete:

• Ask your lender for a paid-in-full or lien release letter.
• Check your credit reports a month or two later to confirm the account shows as paid and closed.
• If something is reported wrong, dispute it with the credit bureau and send a copy of the payoff letter.

What about a lease?

The same advice applies. Keep making lease payments. Lessees have the same lemon law rights as buyers (Civil Code 1795.4 and 1793.2(d)(2)(D)). In a lease buyback, the manufacturer typically pays off the leasing company and refunds what you paid. See lemon law for a leased car you still owe on.

What if I cannot afford the payments right now?

If the car’s problems have caused financial strain, for example from paying for rentals while it sits at the dealer, do not just stop paying. Instead:

1. Call your lender early. Ask about hardship options, a payment deferral, or a due-date change. Get any agreement in writing.
2. Keep receipts for rentals, rideshares, and towing. Reasonable rental costs actually incurred are part of incidental damages in a buyback. See rental cars during warranty repairs.
3. Ask the manufacturer about a loaner while the car is in the shop. See dealer holding my car for weeks.
4. Tell your lawyer. Financial pressure is a real factor when deciding how to respond to an offer.

What if I paid cash?

Then there are no payments to keep up. A cash buyer’s refund is based on the price paid, plus collateral charges and incidental damages, minus the offset. See lemon law if you paid cash.

Other things not to do during your case

• Do not sell or trade in the car without advice. See selling or trading in during a claim.
• Do not stop insuring or registering the car. Keep it legal to drive.
• Do not skip maintenance. Follow the owner’s manual and keep receipts.
• Do not stop reporting the problem. If the defect returns, take the car back to an authorized dealer and get a repair order.
• Do not sign manufacturer paperwork without understanding it.

Checklist: records to keep during your case

• Your purchase or lease contract.
• Monthly loan or lease statements and proof of each payment.
• A current payoff letter from your lender (your lawyer will usually need this).
• All repair orders, including “no problem found” visits.
• Receipts for towing, rentals, and out-of-pocket repairs.
• Recall notices. Check your VIN with our recall lookup.

Talk to us before you change anything

If you are thinking about stopping payments, selling the car, or letting the lease end, call first. A California lemon law attorney or Los Angeles lemon law attorney at our firm can explain how each choice affects your case. You pay nothing, win or lose. We are paid only if you win, and the manufacturer pays our fees, including in settlements. If a case is lost, our firm covers the costs.

Call 877-536-6620 for a free case review, in English or Spanish.

Frequently Asked Questions

Can I stop making car payments during a lemon law case?

You should not. Your loan is a separate contract with your lender, and missed payments can lead to late fees, credit damage, and repossession.

Will I get my car payments back in a lemon law buyback?

In a typical buyback, the manufacturer refunds the down payment and payments you made, less a mileage offset, and pays off your remaining loan balance directly to the lender.

Who pays off my car loan in a buyback?

The manufacturer typically pays the remaining balance directly to your lender, which then releases its lien.

Does a lemon law claim hurt my credit?

The claim itself is not a credit event. Missed loan payments are what can damage your credit, so keep paying.

What if I cannot afford my payments while the car is in the shop?

Call your lender about hardship options, keep receipts for rentals and towing, and tell your lawyer. Do not simply stop paying.

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