What Does It Mean To Default On A Car Loan

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Automotive Content Editor

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.


, Automotive Content Editor - May 27, 2016

When you default on your car loan, it means you've stopped making your scheduled loan payments to your lender. It's important you know what could lead to default in your situation, so read your contract carefully. This way you know what to avoid!

Default Basics

Typically, default happens on a loan after three missed payments or 90 days. Some auto loans can be defaulted on much more quickly, sometimes as little as 24 hours after a missed payment. This is more common with buy here pay here dealers, though.

When you default on your car loan, the lender has a right to repossess the vehicle (it's not technically yours until you pay it off). This can have a devastating effect on your credit reports and score. How much your credit score drops depends on your current credit situation. If you have better credit, default and consequent repo do more damage than if you're already struggling with poor credit.

Be sure to read your auto loan contract carefully, because no matter what a dealer or lender says to you, only the language in your contract is binding. And, there may be other caveats in your car loan that outline other ways your loan might be defaulted, such as not carrying full coverage auto insurance, or making modifications to the car before you pay it off.

Avoiding Default

When the going gets tough, you don't have to default on your car loan. In fact, most lenders would prefer to avoid it as much as you would. Repossession is expensive for lenders, too. In many cases, if you know that hardship is coming, or at the first sign of one, contact your lender.

Some lenders have more options to offer you to avoid default, and many of them can generally push back your payment date at least a little in order to help you out. This is called a deferment, and lenders typically grant them for around 30 to 90 days.

Deferment doesn't cancel those payments, but pauses them, adding them to the end of your loan. Be aware that interest still typically accrues while you're in deferment, and you may be required to continue to pay off the accrued interest while in a deferment period.

Additional Options to Consider

If your lender isn't willing to work with you to avoid default, you may not be out of options. If you're looking for a more affordable auto loan, you can explore refinancing options to get a lower interest rate or longer loan term on the same vehicle. Or, it may be time to consider trading in for a more affordable car. No matter which option you choose, we want to help. At CarsDirect, we have a network of special finance dealerships across the country that are ready to work with you. Rather than struggling to find a dealership on your own, let us do the work for you. Simply fill out our fast, free car loan request form to get started.

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, Automotive Content Editor

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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