Car Loan

Defaulting on a car loan is an unfortunate occurrence that happens far too often, but many people don't understand the process of defaulting and what happens when you go into default. The most important thing to understand is that most creditors don't want you to default, and they are usually happy to work with you to make payment arrangements more manageable for the time being. It is not only a cost deterrent to them if you default, but it is a lot of work to repossess the vehicle or come after you for the money. Staying in contact with your lender during the default process is always best. You may be able to qualify for alternate payment plans, deferrals or forbearance. However if the worst happens here is what you can expect.

First, don't be alarmed by the sheer number of phone calls and letters you will receive. The bank wants to stay in contact with you and they will call, a lot. Once you get far enough behind in your payments and it becomes obvious that you don't intend to pay or keep in contact with the lender, you can expect your vehicle to be repossessed.

Each state has different laws in regards to repossession and at what point in the default process lenders can come and take the vehicles. Most often you default when you fail to make timely payments, but in some instances you can default by failing to follow the terms of your loan, such as not providing the proper insurance on the vehicle.

After falling into default, the bank may hire a third-party repossession company to come and take the vehicle. Laws for repossession vary by state but for the most part repossession companies do not have to alert the owner prior to taking the vehicle. Repossession negatively impacts your credit, along with being embarrassing, and should be avoided if at all possible. Many lenders will make every possible effort in order to resolve the situation in another manner prior to this stage if at all possible.

A second alternative is that the bank can bring a claim against you. By doing so they are hoping to get the money that you owe, even to the point of garnishing your wages. This is less common as most banks will just repossess the vehicle as it is the easier alternative.

When banks seize cars they hold on to them until your debt is satisfied, usually by the sale of your vehicle minus the cost of repossession. If there is a balance left you are responsible for it, and the bank may come after you to get the money, possibly garnishing your wages. Some states allow you the right to be the first person to buy the car back but not all.

Defaulting on a car loan is not something anyone tries to do, but by staying in contact with your lender, being honest and keeping any promises you make, you may be able to qualify for alternative payment methods and avoid repossession.