Car Loan Defaults: 5 Noteworthy Facts

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - April 26, 2021

Auto loan default to due late or missing payments isn't something you want on your list of experiences while financing a vehicle. But just when is a car payment considered late? The answer depends on your lender, but before you jump into a car loan, consider these five facts about defaulting on your car loan.

1: Default Doesn't Always Wait

Any payment that is posted after midnight on the payment due date is considered late. Some lenders consider your loan defaulted as soon as you've missed one payment deadline. However, most lenders allow for a 10-day auto loan grace period before you suffer the consequences of a late payment. These can show up as additional fees on your loan, or your vehicle could be repossessed.

Once you hit the 30-day mark though, that late payment is now officially missed and you've likely defaulted on your car loan. Even though payment is generally considered late after a month, some lenders may allow more time – an additional month or two – before action is taken to recover your car.

If your lender does allow you extra time, make sure to talk to them about your financial situation as soon as possible. This often means calling them before you're even late in paying. Lenders don't want you to default on your auto loan, so they may have options to help you stay on track, like deferment. If they don't, or you wait too long to contact them, you may be risking a repo.

2: Repossession Is Likely Upon Default

Repossession means a recovery specialist may be sent out by your lender to tow your vehicle away. This can happen almost anywhere and any time once you default on your auto loan payment. Again, the best way to stop a repo is not to let it happen, so talk to your lender ASAP!

Auto loans are typically a type of secured loan, and the car is the collateral. Since you don't actually own the vehicle until you finish paying the loan, the lender has every right to claim their property and recover the vehicle once you default.

Recovery specialists can repossess your car at your home, work, or even the grocery store, so if you know a repo is coming it's a good idea to clean your car out. If you don't you have to go to the lot where they're storing your vehicle and request your items. Additionally, once a repo’s set in motion you have to pay for it. This means that now you owe the lender your back payments, and any repo and storage fees incurred while the lending is waiting to sell your car at auction.

3: Missed Payments, Default, and Repo Damage Credit

We're not talking about combined total damage, either. Each of these things appears as their own negative mark on your credit reports, and each can lower your credit score, too. This happens because late and missed payments, auto loan default, and repossession are each likely to be reported by your lender to the three national credit bureaus – TransUnion, Experian, and Equifax.

If you need to review how much damage a repo and the missed/late payments caused, you can request your credit reports from the bureaus. The credit bureaus have teamed up with www.annualcreditreport.com to give consumers free access to their credit reports and score. This service is typically only available once per agency every 12 months. Right now, though, due to the economic strife caused by the coronavirus pandemic you can access this service weekly until April 2022.

It's a good idea to know what your credit score is and what's on your credit reports because that can give you direction when you're shopping for loans. If you know you're not in the best credit situation, you can visit the right lenders and dealers for your credit score range, rather than facing denial from lenders that don't help credit-challenged consumers.

4: Damage From Default Lessens Over Time

With all the potential damage that defaulting on your car loan can do, there's some light at the end of the tunnel. Repossession and other damage done by default lessen over time, carrying less weight against your score as time goes on. Most negative marks drop off your reports after seven years, but the brunt of the damage is caused within the first year after default. In fact, many lenders don't work with borrowers within the first year after a repo.

An even brighter note is that the more you work to repair your credit situation after your default, and the quicker you do, the more the positive marks can begin to outweigh your past credit mishaps.

5: Default Isn't The End of the Road

Even though the goal should never be to default on your auto loan, having one on your credit reports isn't the end of the line when it comes to financing a vehicle. There are some in-house lenders that work with borrowers regardless of their credit situation, called buy here pay here (BHPH) dealers. These dealerships are the lender and don't often use your credit to determine loan qualification. However, since these dealers don't typically check your credit, they may not report your timely payments, which means your credit score can't improve with this loan.

There is another option, though – subprime lenders. Subprime lenders take your credit score and reports into account but use so much more to determine your eligibility for a car loan. These lenders base your creditworthiness on your ability, stability, and willingness to take on an auto loan. If you need a vehicle after default or repossession, this might be the better option for you, and we know where to find the bad credit lenders you need.

Get Back on the Road!

The most noteworthy fact about car loan default is that you can start repairing your credit with the right auto loan for your situation afterward. Be sure to stick to an auto loan budget, and talk to your lender before signing on the dotted line to see just when they consider a car payment late so that you aren't caught off guard next time around.

If you're not sure where to start your process, we want to help. Here at CarsDirect, we've been connecting credit-challenged consumers to special finance dealerships in their local areas for over two decades. To get matched to a dealership near you simply fill out our fast, free car loan request form and get back on the road to the vehicle you need!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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