What Happens If Your Car Payments Go Into Default?

When you get behind on your car payments, the loan will eventually go into default. When this occurs, your car could be repossessed and your credit will be negatively affected. You can expect plenty of phone calls from a collection agency as well as notices in the mail.

Collection Agency

When you go into default, the lender will most likely contract with a collection agency to attempt to collect the debt. The collection agency will call you frequently as well as mail you notices. The collection agency will try to reach you to get you to pay back the debt. If you do not communicate with the collection agency or the lender, they will assume that you have no plans on repaying the debt.

Repossession

After the collection agency attempts to get you to pay and you ignore the request, your car will most likely be repossessed. Every state has different laws when it comes to determining at what point your car could be repossessed. Some states will allow your car to be repossessed after one month while in others, it might take as long as three or four months. A car repossession company will most likely be contracted to take back your car.

Lawsuit

In some cases, the lender may take additional action against you. The lender could potentially file a lawsuit against you to collect the money that you owe. The judge in the case could decide to garnish your wages or require you to pay through some other means. If the amount that you owe is much greater than the value of the car, the lender is more likely to take this approach.

Redemption

In some states, when a lender takes your car through repossession, the lender must tell you what it will be doing with the car. If your car will be sold at an auction, the lender must notify you of the time and place of the auction. This way, you can actually bid on the car. If the car is sold through other means, you might have the right to buy back your car for the amount that is owed.

Modification

Instead of going through the repossession process, you may be able to negotiate with your creditor. Lenders do not want to have to repossess the car because it means that they will lose the regular payments and the interest that you have been paying. The lender may be willing to offer additional payment arrangements so that you can avoid default. For example, the lender might lower your interest rate or extend the repayment term to make your payment more affordable.