An auto loan document outlines your payment terms. There should be no remaining balance when a car loan matures, assuming that you were making the monthly payments as scheduled. A typical maturity on a car loan is 48 months, or longer for new vehicle financing. You have to complete all your payments to have the account settled as paid in full.
Auto Loans
When financing your car auto, read your loan documents carefully. The most important items to note are the interest rate, down payment and any other upfront fees that may alter the original selling price of the vehicle such as taxes. Signing the loan documents means that you agree to make payments on time as stipulated in the loan contract. On a new car loan, a bank can extend the payment terms to 72 months (six years) or more; however, the typical length of an auto loan is 48 to 60 months.
Delinquency
As the loan matures, the outstanding balance will approach zero. However, if you are delinquent (considered over 30 days past due), the bank will charge additional interest and late fees that will cause the payoff balance to increase. Therefore, it is important that you make your payments on time or within the grace period before late charges begin to accrue.
Credit Reporting
The bank will pursue you for the outstanding balance after the car loan matures. Rather than show on your credit report as paid off, the car loan will show as an open balance. It will reflect delinquent payment information as well. According to FICO, payment history accounts for 35 percent of your credit score. Late payments remain on your credit report for 7 years, dropping your score dramatically.
Repossession
If the bank cannot collect the remaining balance from you, it can escalate matters further by repossessing the vehicle. A car loan is a secured debt giving the lender the right to repossess the vehicle if you fail to pay. The loan documents outline the bank's security interest. The bank is required to notify you of an impending repossession.If you cannot reach some kind of payment agreement, the bank will sell your car at an auction to recover as much value for the car as possible.
Considerations
If you still owe on your car loan after the payment term, contact the auto lender to inquire about making a payment arrangement. Even if you receive a notice of repossession, you can still work out a payment plan with the bank. The bank is willing to work with you because repossessed vehicles usually sell for less than what the car is worth.
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