When you don't make payments on your car as you agreed to in the financial contract you signed when you bought it, eventually the financial institution, after repeated collection efforts have failed, may charge-off your car loan.
Significance
Like the failure to pay any other type debt, the charge-off of a car loan is a black mark on your credit rating.
Misconceptions
To say that an automobile loan has been charged off may give you a false feeling that that is the end of collection procedures. Actually this is only the beginning.
Effects
If the car has not been repossessed, it most certainly will be after a charge-off. The lending institution will sell it for whatever it can get.
Potential Problems
After the lending institution has sold your car, you will be liable for any amount still owed on the vehicle. You may also be liable for any legal fees connected to the repossession, collection and sale of the car.
Prevention/Solution
If you see that you are unable to make your car payments, contact the lender and try to work something out. Often this can be done, as repossession or charge-off usually costs them money.
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