Car Loan Default Information

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Car loans, just like home loans, are serious and legally binding. If you default on your loan and fail to make a payment, there are going to be consequences. While some are simple and short term, others could become much more serious the longer you avoid your financial issue.

  • Short term: Late fee If you fail to make a payment on time, you'll likely face a late fee from your lender. If you pay the fee and return to making on-time payments, it's likely that you won't face any issues with your loan. Late fees typically have no long-term effects on your reputation or credit rating. But realize that those fees can add up over time, and they also will affect your relationship with your lender. If you continually have late fees, you're reducing the chance that your lender would be willing to work with you in the event that you have a serious problem with your loan.
  • Medium term: Credit bureau report and issues with lender Let's say you fail to make a payment on time, and continue to exhibit problems for several months. Chances are good, if not definite, that your lender will notify the credit bureaus of your missed payments. Usually this happens when you reach the 90th day of default, but your lender could operate differently. A notation on your credit rating can have instant consequences, so it's imperative that you repay the amount due and get back on track. If you fail to do so, your lender could garnish your wages (literally, get a court order to take money out of your paycheck) or could repossess your vehicle. Don't let this happen.
  • Long term: Damage to personal credit rating The long-term aspects of defaulting on your car loan could be even more significant than paying late fees or dealing with your lender. In fact, they could wreak havoc on your financial life for years longer than you even intended to own your car. If you default on your loan, your credit score could plummet. Your report will list your loan as delinquent. You are likely to face difficulty getting credit of any kind in the future, and any credit you do receive will be at a much higher interest rate. It could take years to rebuild your reputation with banks and creditors.

What to do if you get in loan trouble

If you're facing difficulty with your loan, don't ignore the problem. Act on it. Here are some strategies you can employ:

  • Call your lender and discuss the problem. If you have a stellar relationship with your bank and good credit, then you might be able to work out a short-term arrangement to keep your loan in good standing.
  • Think about refinancing. If your payment is too high, you might want to refinance your loan so you can afford it and avoid default or delinquency.
  • Get a cheaper car. Sell your car, pay off your loan with the proceeds of the sale, and buy a more affordable car that's in your budget. Don't let your vehicle become your financial downfall.