Statute of Limitations in North Carolina on Auto Loan Default

A statute of limitations is a rule of law that prescribes a certain period of time within which a plaintiff must file his civil lawsuit in court. Each state establishes its own limitation period for various causes of action, e.g., negligence, fraud and breach of contract. North Carolina has established a statute of limitations period for actions by creditors to recover the default balance due on an automobile loan.

Identification

An automobile loan is a legally binding contract in which the creditor loans the borrower a lump sum for the purchase of a vehicle, and the borrower promises to pay back a specified sum each month by a certain date. The loan agreement is a written document (usually a promissory note), and it contains the essential terms and conditions of the contract, including the interest rate as well as the incidents and consequences of default. The appropriate limitations period for an automobile loan would be that period set by North Carolina for breach of contract actions.

North Carolina Limitations Period

Chapter 1 1-52.1 of the North Carolina Code of Civil Procedure has established a three-year limitations period for bringing civil actions based on breach of contract. The statute of limitations clock begins ticking on the date the debtor defaulted on the automobile loan, and it stops on the day the creditor files a civil action in court. A suit by a creditor that is filed outside the designated limitations period is considered time-barred and may be dismissed. A creditor whose complaint is dismissed for failure to comply with the applicable statute of limitations period has no further legal recourse against the debtor.

Considerations

The court does not monitor civil actions filed for compliance with the statute of limitations. A debtor who has defaulted on his automobile loan obligation is responsible for raising the issue of the statute of limitations as a defense to the civil action filed against him by the creditor when the debtor answers the complaint filed by the creditor. Once properly raised, the debtor can request the court to dismiss the action.

Misconceptions

The statute of limitations does not extinguish the debt; it merely prohibits the creditor from enforcing payment through the legal system. Even though a civil action for repayment has been dismissed for being filed outside the relevant statute of limitations period, a creditor in North Carolina may continue with collection activity; though, as a practical matter, such efforts may be futile.

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How to Cosign for a Car

A borrower who does not qualify for a car loan may be able to receive an approval by applying with a cosigner. A cosigner is often necessary when a borrower has no prior credit history, or when the borrower has a bad credit rating. The creditworthiness of the cosigner will determine whether or not a lender approves the car loan request. The monthly payment on the loan may affect the cosigner's decision to sign for the borrower, since the cosigner must be confident in the borrower's ability to make the payments on time.

Instructions

1

Talk with the borrower and ask why he needs you to cosign for the car loan. Find out if the reason is due to the borrower having bad credit, and ask what he is doing to repair his credit rating. If the borrower is not trying to repair any bad credit, you may want to consider denying his request to cosign until he shows that he is responsible for his debts. If the borrower is currently paying back his past-due debts, praise him for being responsible, but also let him know that he must not fall behind on the car loan that you cosign for.

2

Review the borrower's car purchase paperwork before you agree to cosign for a loan. Check the sales price to decide if the borrower is getting a fair deal on the car. Go online and search for a free car valuation website to help you determine the value of the car in relation to the purchase price.

3

Contact a lender and ask to speak with a car loan officer. Explain the reason for your call and set up a time to meet with the loan officer to fill out an application. Take a copy of your most recent pay stub with you to give to the loan officer. Make sure the borrower also takes a copy of a recent pay stub to the appointment.

4

Take the borrower with you when you meet with the loan officer. Ask the loan officer to explain what will happen if the loan payments are not made on time. Make sure the borrower understands that your credit rating is at risk when you are the cosigner on the loan. Have the borrower complete a loan application, then fill out your section of the application. Give the loan officer the pay stub copies and find out when you can expect to receive a decision on the application.

5

Review the loan terms once you receive an approval from the loan officer. Close on the loan and then go with the borrower to pick up the car. Take the loan check with you to give to the seller, unless the loan officer is handling the transaction. Reiterate to the borrower that you are also responsible for making the payments even though you will not be driving the car. Tell the borrower that you want to inspect the car each month to make sure it remains in good condition.

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Should I Sell My Upside-Down Car to Get Out of Debt?

If you have a car loan you can eliminate from your current debt, do so to decrease your monthly expenses. Unless you have a zero-percent loan, you are paying unnecessary money toward interest. Because your loan amount is more than your vehicle's sale value, you must come up with extra cash to satisfy your loan amount. Consider the process of selling your upside-car to determine if it can benefit you.

Satisfying Your Loan

If you're upside-down in your car, you must pay to satisfy the loan balance after you receive your sales price to release the vehicle's lien. Most states do not allow transfer of vehicle ownership while a loan exists, so paying off the loan is necessary, not optional. In states that do allow title transfers while a lien exists, most buyers are knowledgeable enough to avoid a title with a lien holder. If someone takes ownership of your car and you don't pay the loan, the bank can repossess the vehicle from the new owner.

Determining Sales Value

Because of the wealth of information available online, many buyers use online sources to make sure prices are fair. Use Internet appraisal guides to determine a reasonable sale price. Go to NADAGuides.com, the Kelley Blue Book website and Edmunds.com to assess your vehicle's private-sale value. Keep your selling price relevant to the appraisal value to interest buyers. It is highly unlikely you'll receive phone calls from potential buyers if you are requesting a higher price than other sellers.

Loan Payoff

Call your bank to determine your loan's payoff amount. Deduct your value from the payoff amount to so you know how much money you must come up with on your own to satisfy the loan after the sale. Contact your bank to find out its lien-release process. If you sell your vehicle and the lender is local, you can arrange to go to the bank with the buyer and satisfy the loan, allowing you to receive the lien release to give to the new owner.

Another Option

If you're unable to come up with the extra money you need to satisfy your loan, consider leasing a car. You can roll money over to a vehicle lease, although you must follow the mileage and term requirements that a lease entails. At the end of your lease term, you can simply walk away from the car and payment without concern for vehicle value. If you currently have a high interest rate or a lot of time left on the loan, this option can prove beneficial. Talk to a dealer to find out if the option is worthwhile.

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Can You Terminate a Vehicle Lease?

You can terminate a car lease and break your contract. Terminating the contract may prove expensive, so you may want to explore other options before you decide to do so. Termination details are outlined in your lease contract. Expect to pay a termination fee and any payments remaining on the lease contract.

Determining Fees

To determine the cost of terminating your lease, review your contract or call your leasing bank. You can expect to pay a termination fee, which usually exceeds $1,000; the actual cost differs by bank. Expect to also pay any payments due for the remainder of your lease. Most leasing banks do not offer a payment plan to terminate the contract, which means you'll have to pay the termination costs before you turn in your vehicle.

Other Fees

Expect to pay any over-mileage or wear-and-tear fees that apply to your vehicle lease. If you went over your mileage allowance, you'll pay 10 to 20 cents per mile. Your contract lists your over-mileage charges. If your vehicle is damaged or has wear that exceeds your bank-specified allowance, expect to pay fees for repair or loss of value. Once you return your vehicle, the leasing bank inspects it to determine if additional fees apply. Terminating the contact does not wave these fees; expect to receive a bill shortly after your vehicle's return if owe additional money.

Returning the Vehicle

Once you arrange your vehicle's lease termination, you will bring it to a bank-specified location for drop off. Depending on your bank, this may include a dealership or auction. Upon return, expect to fill out paperwork that states your vehicle mileage, personal information and a list of items you returned with the vehicle, such as keys and owner's manual. Read all paperwork over before signing and obtain copies for your records. Your drop off location will not inspect the car. Any fees due are determined once the vehicle has been collected by the bank from the drop off location.

Other Options

A lease termination can prove expensive, especially if your contract is new. Explore your other options, such as a lease transfer. You can advertise your lease for assumption if your bank allows it. You may lose your original down payment amount, but your loss may prove cheaper than the cost of termination. Check with your leasing bank to determine if a lease transfer is possible. If you want to pursue another vehicle purchase, you can also sell your vehicle or trade it in for your lease purchase amount. You can contact your leasing bank at any time to obtain the car's purchase cost.

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Can You Still Purchase a Vehicle With a Suspended License?

If you have your license suspended temporarily, it could inhibit your ability to buy a car. Whether you will be able to buy a car while your license is suspended depends on how you will pay for the car and what the laws are in the state in which you reside.

State Laws

Some states require you to have a driver's license when you purchase a car and register it. Other states do not look at whether you have a valid driver's license when buying a vehicle. For example, in California, you do not have to have an active driver's license before you can purchase a car. Check your state law or call a local auto dealership to find out the requirements in your area.

Paying For the Car

If you do not have an active driver's license you may not be eligible to finance the car. In this case, you would have to pay cash to purchase the vehicle. Many auto lenders require you to provide proof that you have a valid license before you can get a loan. If you were to drive without a license and get arrested, you may then be ineligible to drive for some time. This increases the chances of default on the loan.

Auto Insurance

If your license is suspended you may not be able to get auto insurance. Most insurance companies will only provide insurance on a vehicle when you show your driver's license. If you do not get auto insurance, you may not be able to register the vehicle in your state. In this case, you will not be able to buy the vehicle until your license is active again.

Considerations

If you are paying cash and purchasing the vehicle for someone else, you may not need to worry about whether you have a license. The dealership will not care who the car is being registered to as long as they get paid. For example, if your license is suspended and you are buying the car for your child, you could pay for it and then have the car registered in your child's name.

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How Big of a Car Loan Should I Take Out?

Car loan terms are commonly offered for as few as 24 months and as many as 84 months. While a longer term can warrant a lower payment, it may not prove to be your most beneficial financial option. Additionally, a borrower's term and finance amount is based on credit, so you may not have all terms or the lowest rate options available to you. Consider your present and future finances before you purchase a car.

Your Budget

Before determining how big of a car loan you should take out, figure your monthly budget and the amount you can comfortably put toward a vehicle payment. DMV.org suggests budgeting all of your monthly expenses below 45 percent of your gross monthly income. This amount includes your costs for living, such as food, gas and insurance payments. Once you figure your budget, enter in your vehicle pricing information into an auto loan calculator (Edmunds.com and the MSN Autos website offer one for free). This can help you determine your maximum loan amount to shop within your means.

Terms and Rates

Usually, lenders offer the same interest rate for loan periods up to 60 months. If you plan to borrow for a longer period, consider your future intentions and total payback amount. Seven years is a long time to own a car, and although it may lower your car payment for the vehicle you want, you will pay a higher interest rate. A shorter term lets you can create equity in your vehicle sooner, allowing you to trade or sell privately when the time is right. Again, use an auto loan calculator to gauge the differences in payment and overall payback amount.

Get a Preapproval

Get a pre-approval before you set out to shop. This way, you'll know your interest rate and the amount you can hope to borrow. You can pursue a pre-approval through any local bank by going in to fill out a loan application or calling to speak to the lending department. Dealerships can mark up interest rates for profit, as much as 3 percent in some circumstances. If you plan to shop at dealers, having a pre-approval with you ensures the rate you already obtained, although the dealer may attempt to beat it to save you money. Without a pre-approval, you might not know the real rate you qualify for.

Money Down

In most states, you can expect to pay taxes on your vehicle purchase. You can finance this amount, but it may not prove worth it. Other fees include title, registration, inspection and document fees or an extended warranty if shopping at a dealership. If you finance your extra costs, you will be paying interest on them, as well. Every $1,000 you finance costs you about an extra $20 per month (with a fair interest rate) in car payment. In states where taxes and document fees are high, you might be looking at a $60 increase in payment if you finance extra fees.

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How to Calculate an Automobile Payoff & Late Payment

Staying on top of your finances is critical when dealing with loans of any type, and one of the best ways to ensure proper and consistent management of your finances is to become familiar with loans. Car loans are often considered too difficult to understand, but with basic math, or the use of an online calculator, the average automotive borrower should have all the tools necessary to be informed and financially responsible. Calculating your automotive payoff and understanding the impact of late payments are two important ways to increase your familiarity with auto loans.

Instructions

1

Assemble the data pertaining to your loan from your loan information paperwork, including your remaining principal, interest rate, monthly payment, length of the loan, and how often interest is compounded (usually monthly). Write all this information down.

2

Divide your annual interest rate percentage by 12 and multiply it by your remaining principal. This is the amount of interest that will be applied to your loan this month. Add it to your principal and subtract your monthly payment. Write this new value down on paper next to the month and year. Repeat this process for each month of the loan, writing down the values as you go to ensure accuracy.

3

Total up all the monthly payments to find your total payoff amount. Subtract the original principal from the total payoff to find your overall interest paid.

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