Car loans are common financial tools for purchasing new and used vehicles, because few people have the liquid assets available to pay the full purchase price for a vehicle. A car loan typically requires monthly payments, which include a portion of the principal and interest charges. If you default on your payments, your lender may sue you for the principal and legal costs.
Time for Default
A default technically occurs if you are even one day late on a car payment. However, lenders rarely take legal action on a loan if you are not severely late on your payments. The time for a default varies among lenders and according to state and federal laws -- a lender commonly considers a car loan in default if you are 30 or 60 days past due.
Collection Proceedings
Lenders typically initiate collection activity before filing a civil suit to collect unpaid balances on car loans. Most lenders have in-house collection agents who send letters and make phone calls in an attempt to bring a loan current. If in-house collection attempts are not successful, some lenders outsource collection activities to third-party collectors.
Notice of Default
If you do not make full payment of past due amounts and late fees, the lender may hire a third party to repossess the vehicle. Some states, including Ohio, require lenders to send a notice of default to borrowers after repossession, giving them an opportunity to cure a default by paying past-due amounts and late fees by a specified date to regain possession of the vehicle. Partial payment typically will not cure a default or prevent the lender from continuing collection activities or pursuing recovery through a civil suit.
Civil Suit
If the account remains past due after the notice of default has expired, and the lender believes that you will not voluntarily bring the account current, it may file a civil suit in the county in which you reside. The court will issue a summons notifying you of the suit, either in person or via mail, depending on state laws. Before the hearing, which is usually at least 28 days after the notice of suit, you may contest the suit. If you do not successfully contest the suit or attend the hearing, the court may enter a default judgment against you. If this happens, the lender can garnish your wages, freeze your bank accounts and place liens on any real estate or valuable personal property you own.
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