What happens if you don't pay back a car loan?

Asked by: Theodore Williamson  |  Last update: March 28, 2024
Score: 4.2/5 (49 votes)

Once you are 30 to 90 days late on your repayments, your lender will likely say that your loan is in default. Once you're in default, the lender may be able to repossess your car anytime, without notice, and come onto your property to take it.

What happens if you never pay your car loan?

If you default on your auto loan, your lender will likely repossess the vehicle unless you surrender it voluntarily. A repossession can compound the damage done to your credit by your late payments and make it difficult to get approved for another auto loan for a while—or other types of financing like a home loan.

What happens if I don't want my financed car anymore?

Ask for a Voluntary Repossession

Voluntary repossession allows you to return a car you financed without being subject to the full repossession process. This could spare you some credit score damage, though a voluntary repo could still be reported to the credit bureaus.

What could happen if you get behind on your car loan payments?

What are the consequences of not making your car payment? If you're anywhere from 30-90 days late, your car could get repossessed.

What happens when car loan goes to collections?

When your car loan is charged off, that means the lender no longer believes you will repay the loan, and they may sell your account to collection agencies or debt buyers. You still legally have to repay the loan, and it can significantly damage your credit.

What Should You Do if You Can’t Afford Your Auto Loan?

34 related questions found

What happens if you ignore a collection agency?

When it comes to debt collection calls, it is never clever to ignore them. In fact, it may make things a lot worse for you. The debt collector may file a collections lawsuit in court, which could lead to the garnishing of wages, seizure of personal property, or money taken from your bank accounts.

What are three possible consequences of defaulting on a car loan?

When a loan defaults, it's sent to a debt collection agency whose job is to collect the unpaid funds from you. A loan default can drastically reduce your credit score, impact your future eligibility for credit and even lead to the lender seizing your personal property.

How many months behind on car payment before repo?

Unfortunately, in California, there is no automatic grace period that you get before they can repossess your car. However, this does not necessarily mean that a financial institution can or will repossess your vehicle if you are only a few days behind. There are some exceptions to the rule.

How many car payments can you fall behind?

And here, the answer is more complex, as it hangs on your relationship building with the lender. Most won't begin repossession until you miss three or more payments, but, as mentioned, they have the right to act after the first instance. The only solution is to try and build a positive relationship.

How can I get out of a car loan without destroying my credit?

You can sell your car to get rid of it without hurting your credit. This is easiest if the value of your car is close to or above the balance of your loan. You could also transfer your current loan to another person if they're approved for financing and agree to take it over.

Can I trade in a car I still owe on?

In most instances, yes, you can trade in a car with a loan, and some dealers might roll your remaining balance into a new loan. But trading in your car doesn't make your loan disappear. You will still have to pay off the remaining loan balance that your trade-in amount doesn't cover.

How do they repo a car without keys?

The agent will usually be equipped with a duplicate key for the vehicle, but could also enter the car by picking the lock and hot-wiring the engine. In some states, lenders are not required to issue you a notice if they are about to repossess your car.

Is Voluntary repossession bad?

Voluntary surrender and repossession are loan defaults, which stay on your credit reports for seven years. That type of negative mark will harm your scores, especially your automotive-specific credit scores. The next time you apply for a car loan, you'll likely be deemed high risk and charged high interest.

Will returning a car hurt my credit?

Having your car repossessed or surrendering it voluntarily is seen as a major negative event by lenders. They'll view you as high-risk. Expect your credit score to take a big hit, maybe over 100 points or more. That makes getting approved for financing in the future much harder.

How bad does voluntary repo hurt credit?

Estimates vary, but you can expect a voluntary repossession to lower your credit score by 50-150 points. How big of a drop you will see depends on factors such as your prior credit history and how many payments you made before the repossession.

Can I refinance my car if I'm behind on payments?

Even if the lender doesn't offer a lower rate, you may get a longer loan term with more affordable monthly payments. Can You Refinance if You're behind on Payments? If you're late on your payments, you won't be able to refinance your car until you bring the loan back to current.

Are people defaulting on their car loans?

The result has been a dramatic increase in the percentage of subprime borrowers falling at least 60 days past due on their auto loans. In January 2023, 5.93 percent of subprime borrowers were delinquent, compared to only . 28 percent for prime borrowers.

What is the auto loan crisis in 2023?

Struggling To Stay Afloat

Fitch Ratings recently unveiled a concerning statistic: the delinquency rate on +60-day past-due subprime auto loans reached a record high reading in September 2023, hitting 6.11%. This alarming trend persists, with the rate remaining elevated at 6.00% as of October 2023.

Are people behind on car payments?

A record number of subprime borrowers are behind on auto loan payments by more than 60 days. The rate hit 6.11% in September, per figures from Fitch Ratings reported by Bloomberg. Vehicle repossession rates are also on the rise, leaving many without transportation.

How many car payments can you miss before repossession?

Even falling one payment behind is enough for a lender to repossess your car. Usually, a loan is two or three months behind before the lender initiates a repossession. At that point, the lender can seize the vehicle, often without warning, and then sell it to recover the loan balance.

How many years does it take for a repo to fall off?

A repossession stays on your credit report for seven years, starting from the first missed debt payment that led to the repossession. In the credit world, a repo is considered a derogatory mark. After a repo, it's not unusual to see a person's credit score take a substantial drop.

Should I pay off a repossession?

In most states, you have to pay off the entire loan to get your car back after repossession, called "redeeming" the car. The balance you would need to pay to redeem the vehicle might include extra fees and charges, including repossession and storage fees, and even attorneys' fees.

Is it illegal to default on a loan?

However, defaulting on a loan will have serious financial implications and can result in the lender seizing your property as collateral (if applicable) and can be considered a civil offense, meaning that you could be sued by the lender for the unpaid amount.

What happens if you change your mind on a car loan?

Your loan terms change (yo-yo financing)

The short answer is: You can still refuse the deal. To unwind the transaction, you must bring the car back to the dealer, who should then return your trade-in and down payment. Each state has its own laws about how this should happen.

Is it true you don't have to pay a collection agency?

If you refuse to pay a debt collection agency, they may file a lawsuit against you. Debt collection lawsuits are no joke. You can't just ignore them in the hopes that they'll go away. If you receive a Complaint from a debt collector, you must respond within a time frame determined by your jurisdiction.