What Happens When You Default on a Car Loan?

Auto financing is a common first step into borrowing for young adults

A car loan goes into default status when the lender has determined that the borrower is in violation of the contractual terms and conditions of the loan. This can occur after a payment has been missed and the lender has made several attempts to collect.

Borrower Communication

A delinquent auto loan can be amicably mitigated if the borrower initiates communication with the bank about financial difficulties with the payments.

Lender Communication

The lender will begin communications with a mailed reminder that the borrower has missed a payment. If the reminder goes unheeded by the borrower, the lender will call the borrower.

Repossession

Unserviced auto loans are likely to result in repossession of the vehicle by the lender. In most jurisdictions, the lender does not have to warn the borrower about the process since repossession always follows a number of attempts to communicate with the buyer.

Beyond Repossession

After the car is repossessed, the bank will auction the vehicle and apply the proceeds collected from that transaction to the remaining balance on the loan. If there is a balance that remains beyond auction, the lender will hold the debtor responsible for it.

Settling the Debt

The borrower will be billed for the remainder of the debt. If this attempt to collect is ignored, the lender will file a legal claim against the borrower for the balance.

References

• CarsDirect: What Happens If You Default on a Car Loan
• PR.com: Understanding the Repossession Process