What Happens If I Don't Pay My Car Loan?

Before you decide to stop paying your car loan, due perhaps to your inability to afford your vehicle or lack of desire to hang on to it, understand the consequences.

Late Notices and Calls

If you stop making payments on your car loan, your finance company will begin to send you late notices and phone calls. If ignored, the frequency of phone calls made by your financier will increase, with you receiving calls at your home, job and at some point to your listed references until communication is established.

Payment Plan Option

Your finance company will attempt to work with you by establishing a payment plan to help you catch up on missed payments.

Final Notice

Once attempts to contact you and work out a repayment plan have been exhausted or become unfulfilled on your behalf, your finance company will send you a final notice regarding their intended action to recoup payment and late fees for your car loan.

Repossession

If you ignore attempts to work out a solution, your finance company will initiate the process to retrieve your vehicle. After vehicle repossession, you will have the opportunity to pay off the balance of your car loan before the vehicle is sold. If your car is sold, you'll be responsible for the remaining balance plus any fees associated with storing your vehicle after it was repossessed.

Judgements

You're not off the hook simply because your car was sold. If you avoid paying off the remaining balance of your car loan, finance companies will resort to seeking legal action by filing a judgement against you through the courts to recoup the remaining balance.

Wage Garnishment

If you fail to respond to the judgement or appear in court, you run the risk of having your wages garnished to pay off the loan balance. By law, your wages can be garnished up to 25 percent of your disposable earnings.

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How to Sell a Financed Car

If you're looking to buy a new automobile or get rid of your car payment, you might be interested in how to sell a financed car. Selling a financed automobile is different than selling a paid-off car, and some car sellers don't make any money off of the deal. Yet, if you're hoping to purchase a new car, selling the vehicle yourself is often better than trading in the car.

Instructions

1

Contact your creditor. Call your auto lender and ask for your pay-off balance. In order to sell a financed car, you'll need to acquire enough cash to pay off your current loan balance. Knowing the pay-off balance can help you determine the asking price.

2

Determine your vehicle's worth. After learning your pay-off balance, check Kelley's Blue Book to find out how much your vehicle is worth. If your car is worth more than your loan balance, you can sell the car for more than you owe and make a profit.

3

Prepare the automobile. To receive your asking price, prepare to sell the automobile by cleaning the interior and exterior and making minor repairs. Order a vehicle history report from Carfax (see Resources) and show this information to potential buyers.

4

Place classified ads. Attract potential buyers by placing ads in local newspapers or circulars. Include detailed information about the vehicle such as the make, model, year and asking price. If you have an assumable auto loan, mention this in the ad.

5

Obtain a Bill of Sale. Download a Bill of Sale form from the DMV's official website (see Resources). This form is necessary to complete and legalize the sale. Without this form, it's impossible to transfer ownership of the car. After the buyer presents a check, both the seller and the buyer sign the Bill of Sale. Make a copy for your records and give the buyer the original copy.

6

Pay off the vehicle loan. Cash the buyer's check and use this money to pay off your auto lender. The lender will send you the vehicle title and a letter stating that the debt has been paid.

7

Sign over the title to the new owner. After receiving the title from your auto lender in the mail, sign over the title to the new car owner.

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How to Make a Payment on an Existing Car Loan

If you just bought a car and don't know who to make your payment to or which form of payment to send, you should contact your loan provider to ensure you follow your lender's guidelines. Doing so can decrease confusion and ensure your timely payment is correctly applied to your loan. Most banks do not accept a credit card for payment; cash, balance transfers, check or money orders are commonly accepted. If your lender is local, you can go in to the bank to make your payment.

Instructions

1

Call the dealership you bought your car from if you are unsure who your loan provider is. Ask a dealer representative for the name and phone number of your bank. Also ask when your first payment is due; most are due within 30 to 45 days of purchase, and if it is too soon, your bank may not have processed your paperwork yet.

2

Call your bank and follow the prompts to reach its customer service department. Have your loan account number ready; if you do not have it, have your Social Security number ready. Also have your vehicle identification number (VIN) ready in case it's needed; you can find the VIN on any of your vehicle paperwork or insurance card.

3

Ask the bank representative where to make your payment, how much is due (to verify if necessary), which forms of payment are accepted and if the bank offers an online payment method. If so, you may need to set up an online account, which the representative can help you with.

4

Follow the bank's payment requirements by obtaining the form of payment it needs, whether you need to write a check or obtain cash or a money order. If sending in the payment, make sure your check or money order lists your account number on it so the payment is correctly applied to your loan.

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Things to Consider When Leasing Car

Leasing a car gives you an alternative to buying the vehicle. A lease is similar to renting a vehicle long-term in that you don't actually own the car. At the end of the lease, you have the option to turn in the vehicle or purchase it. Lease payments are generally lower than the car payments would be for the same vehicle, but you should analyze all of the terms to ensure you understand the agreement.

Time Frame

The length of a lease varies depending on the terms. The minimum is typically around 2 years, but a 3-year lease is most common. A 3-year time frame works well for a lease because you will likely turn in the car at the end of the agreement. A longer lease term increases the chances of mechanical issues with the vehicle. Because most warranties on lease vehicles only last 3 years, you save yourself the worry and money for car problems that could occur if you keep the vehicle longer.

Fees

Like a car loan, a lease requires you to submit a monthly payment. This amount stays the same for the length of the lease. You pay for the taxes and registration for the vehicle when you lease it. The dealership may also require a down payment or the first month's payment upon leasing the vehicle. Total up all of the fees and monthly payments to determine how much you will end up paying over the entire term.

Mileage

A lease comes with a certain number of covered miles per year. If you go over the total number of miles allotted for the length of the lease, you pay more when you turn in the vehicle. Estimate the number of miles you will drive the vehicle in the time you will have it. Compare that number with the mileage allowed under the lease. If you estimate you will drive more, negotiate a higher amount of miles. Check on the charge for going over so you have an idea of what you might end up paying should you exceed the limit. You may also have to pay fees for excessive wear such as major dents in the body or tears in the upholstery.

Insurance Requirements

Check on the insurance requirements to fulfill your part of the lease. Since you aren't the owner of the vehicle, you must abide by the limits and type of insurance mandated by the leasing company. Gap insurance is often required. This type of insurance will cover what you still owe on the lease if that amount exceeds the value of the vehicle.

Cancellation and End-of-Lease Options

Once you sign the lease agreement, you are usually under obligation until the end of the lease. If the agreement has a cancellation option, it will likely cost you a high penalty. Read the terms carefully so you understand the consequences of ending the lease early.

Your agreement should also spell out the end-of-lease options. Most people choose to turn in the leased vehicle. The process involves an inspection of the vehicle and paying any outstanding fees. The other option is to purchase the vehicle. Your lease agreement may state a pay-off amount if you decide to purchase it.

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How Can a Person Having Bad Credit Get a Car Loan?

No matter how you look at it, bad credit means most lenders want nothing to do with you. Some creditors, however, specialize in auto loans for people with bad credit---called subprime borrowers. Going to a subprime lender typically results in a tough decision, because he might offer a loan, but at a highly undesirable rate.

Subprime Lender

The most likely source of a car loan for a borrower with bad credit is a dealership that has a loan officer who deals with subprime consumers. Any subprime lender must charge a higher rate to a bad credit customer than a regular buyer to make up for the higher risk. The subprime lender may even demand a large upfront down payment.

Cosigner

A bad credit car loan provider probably hopes that any customer with terrible credit comes in with significant collateral or a cosigner. A cosigner agrees to take over payments if the primary account holder cannot meet them. The lender might not offer a loan if the cosigner has poor credit or a heavy debt burden. If the cosigner has good credit, the lender will likely tender an offer.

Considerations

You might not have terrible credit. Usually, anything in the range of 580 to 640 is an acceptable credit score. This probably won't garner the lowest rate the lender can offer, but you likely do not need a cosigner or large down payment. The best way to find out your score is to shop around. The credit scoring formula counts all auto loan inquiries in a 45-day period a single inquiry, so it harms your score far less than if you were shopping for a credit card.

Tip

The car dealership usually just helps you acquire a car loan through a traditional bank, but add on extra charges as a commission. Edmunds suggests going to banks or the lending institution, which probably saves you money. Also, securing financing on your own gives you more leverage, because you do not depend on the dealership for the loan.

Benefits of Rebuilding Your Credit

High-interest bad-credit car loans increase the chance of your loan going "under water"---you owe more money on the loan than the car's fair market value. Cleaning up your credit report months before going to the auto dealer increases your chance at approval and saves you money over the life of the loan. Start by eliminating debt and paying bills when they are due, this will eventually outweigh most of the negative items. You might need to open a new account to build history. Look for a department store card or a credit card backed by a security deposit, because these generally have the lowest standards.

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What If I Don't Get the Title When I Purchase the Vehicle & the Lien Holder Must Send for It?

Anyone should be very wary of purchasing a vehicle when the seller does not have the title. The title to a car represents proof that a person legally owns the vehicle and has the right to sell it. If someone is selling you a vehicle without a title, you have no way of knowing if it is clear of outstanding liens. Lien holders send for the title if you live in a title-holding state. In non-title holding states, you have to apply for a lost title at the Department of Motor Vehicles or Secretary of State's Office.

Vehicle Financing Titles

If you buy a car using a loan, the lien holder is the bank or financing company that services your loan. In a non-title holding state, you will receive the title to your vehicle with the name, address and phone number of the lien holder printed on the front of the title. If you live in a title holding state, the DMV sends the vehicle title to the lien holder where it will remain until you pay off the loan.

Title Holding States

If the seller does not have the title to his car when you purchased it, it could be that he paid off the loan and the lien holder has not yet provided the new title showing the release of lien. If this is the case, the lien holder will receive the new title and mail it to the seller. The seller will then have to transfer the title to you. You must then take the title to your local DMV or SOS and complete a title transfer.

Power of Attorney

If the seller has not yet received the title when she sold you the car because she has not received a new title showing the release of lien, she can complete a Power of Attorney with Odometer Disclosure form. This form allows you, the buyer, to sign off the seller's interest on the car. The seller must complete the odometer information on the form and contact her lien holder to request that the new title be sent to you and not to her.

Considerations

If the seller is using proceeds from the sale of the car to pay off the remainder of her loan, ask her for a pay off balance and write a check directly to her financing company to pay off the loan. Then, write a check to her for the difference between the payoff balance and the purchase price of the car. The lien holder will still have to send for a new title, but doing it this way ensures that the seller can legally sell the vehicle and the lien holder will mail the new title to you and not to the seller.

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Is an Early Car Lease Termination Bad for Your Credit?

An early car lease termination is not bad for your credit, as the early lease termination requires you to pay an agreed-upon amount to end the lease ahead of its scheduled maturation date. However, if you simply stop paying your lease payment instead of formally terminating the lease with the lender, your credit score will fall, and the vehicle could even be repossessed.

Remaining Lease Payments

The largest component of a lease early termination that must be satisfied is the remaining lease payments. Per the lease agreement, if you choose to end the lease early, you will be held responsible for all remaining lease payments. This makes it difficult to get out of a lease in the early months, as very few payments have been applied to the account. For example, on a 36 month lease with payments of $400, the remaining balance after a year is $9,600, and this amount must be paid to terminate the lease early.

Excess Mileage

Additional charges will be levied if you have driven the vehicle more than the total allowable contracted mileage. The cost per mile varies between leasing companies but is normally between 15 and 25 cents per mile. In the case of high overage charges, it is sometimes cheaper to do an early lease termination and get out of the vehicle before the mileage gets out of hand, especially if you drive a lot. If you make long trips and have to pay 25 cents for each mile driven in addition to your monthly payment, the cost of not doing an early termination could be higher than ending the lease.

Disposition Fee

The disposition fee, also known as a disposal fee, is charged by most leasing companies. Although some consumers consider the fee a needless charge, it is included in the lease agreement, and the monies are used to offset the expenses encountered by a leasing company when handling leased vehicles that must be taken to the auction and sold to other dealerships.

Early Lease Termination Considerations

If you choose to end your lease early and get a new vehicle from a dealership, have the salesperson contact your leasing company to verify the early termination amount. If the remaining early termination charges are to be rolled into a new loan or lease and the dealership is handling the payoff, be sure to get a written guarantee that the dealership will handle the payoff. Dealerships often have payoff confirmation worksheets or similar forms that can be given to a client in order to put promises in writing.

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