What Kind of SOL Is a Car Loan?

Your state maintains a statute of limitations that protects consumers from facing lawsuits over particularly old debts. The statute of limitations doesn't always prevent lawsuits, but it does provide you with an affirmative defense in the event a lender sues. Every state's statute differs, but most states' statute of limitations (SOL) falls within the three- to six-year range. Car loans only fall under the statute of limitations under certain circumstances.

Secured Debt

A vehicle loan is a secured debt. If you stop paying your lender, the lender has the right to repossess the collateral that the loan was originally based on. In this case, the collateral is your car. There is no statute of limitations on a lender's right to seize its collateral. After repossessing the car, the lender sells the vehicle. The lender's goal is to sell the vehicle for enough money to cover the remainder of your loan. If this does not occur, the statute of limitations for your state comes into play.

Deficiency After Repossession

Sometimes a car is worth less than the borrower owes his lender. In other cases, a poor market for the vehicle leaves the lender unable to recover what the debtor owes through selling the car. Whatever the case may be, if your lender does not recover the full loan amount through the sale, you remain responsible for paying the balance. The balance you owe, known as the "deficiency," is no longer secured by the vehicle. Because the deficiency is an unsecured debt, it is subject to your state's statute of limitations, and the lender must honor the statute of limitations when collecting the deficiency.

Applicability

If the lender cannot collect the deficiency from you, it may opt to sell the debt rather than filing a lawsuit against you. Any collection agency that purchases the deficiency leftover after your repossession must also adhere to the statute of limitations for lawsuits in your state. The statute of limitations applies to all creditors who purchase the debt, not just the account's original lender.

Payments

The statute of limitations is subject to change depending on when and if you made any payments on the deficiency after the repossession. Because the statute of limitations begins to time out after your most recent payment, submitting a payment to either your original lender or any collection agency that purchased the auto loan deficiency will reset the clock. Withholding payments after that point could leave you subject to a lawsuit even if your state's statute expired before you began making payments.