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What happens when you default on a car loan

And steps you can take to avoid repossession.

Falling behind on your car loan payments not only damages your credit score, but could also cause you to lose your car. And if you had a cosigner on your loan, they’ll be hit with the same repercussions. But there are steps you can take to avoid repossession when you’re facing default.

How do I know if my car loan is in default?

Your car loan could be considered in default after only one missed payment, but it varies by provider. Typically, most lenders won’t take steps to repossess your car until you’re 90 days late on a repayment. Your loan agreement should detail how many days you have to miss before your loan to go into default.

4 consequences of defaulting on your car loan

From tanking your credit score to losing your car, here’s what could happen if you fail to pay back your car loan:

1. Your credit score will take a hit.

Late repayments on your car loan will likely lower your credit score. But going into default will add another negative mark to your credit report. Your credit score could take an even greater hit if your car is repossessed, if your account is sent to collections or your lender sues you — dropping as much as 100 points in some cases.

2. Your car may be repossessed and sold.

In most states, your car can be repossessed once your loan goes into default. However, your lender is required to notify you beforehand and give you the chance to catch up on payments first. If you’re unable to get out of default, your lender will likely seize your car and sell it at a fair market price.
What to do if your car is repossessed

3. You may still owe your lender after your car is repossessed.

If your lender sold your car for less than your outstanding loan balance, you’ll be on the hook to repay the difference — called the deficiency balance. You’ll also be responsible for paying any costs associated with repossessing your car.

4. Your remaining debt could be sent to collections.

Fail to repay the deficiency balance? Your lender might sell your debt to a third-party collection agency, which tries to get you to pay up. If you don’t, there’s a chance the agency could sue you for repayment.

What is the statute of limitations on car loans?

The statute of limitations on car loans varies by state, ranging anywhere from three to 15 years. It all depends on whether your state considers your car loan contract to be a promissory note or written contract. Once the statute of limitations on your car loan passes, your lender no longer has the right to sue you for repayment.

Will filing for bankruptcy discharge my car loan?

Probably not. In most cases, you’ll either need to surrender your car to your lender or continue to pay off your car loan according to a modified repayment plan. Learn more about how it works with our guide to keeping your car during bankruptcy.

Everything you need to know about filing for bankruptcy

How will defaulting on my car loan affect my cosigner?

If a family member or friend cosigned your car loan, they’re legally responsible for paying back your loan should you default. If they fail to do so, your cosigner will be hit with the same consequence you’re facing, including a lower credit score and the risk of being sued over an unpaid deficiency balance.

I defaulted on my car loan. What can I do?

If you received a notice from your lender that your car loan is in default, you still have a few options to prevent your car from being repossessed. These include:

  • Contact your lender to set up a new payment plan. Your lender may be willing to adjust your payment plan to make it more manageable — especially if you have proof of economic hardship. If you’re able to come to an agreement on a revised plan, make sure you get it in writing.
  • Refinance your car loan with another lender. If your credit score hasn’t taken a huge hit, you may be able to refinance your car loan with another lender. Even if you can’t qualify for a lower rate, extending the term can make for smaller monthly payments.
  • Sell your car and pay off your loan in full. This is ideal if you owe less than your car is worth — you may even be able to make a profit from the sale. However, this may not be the best choice if your car loan is upside down.
  • Surrender your car to your lender. If repossession is on the horizon and you’ve exhausted all other options, you can voluntarily turn your car over to your lender. While this will still count as a repossession on your credit report, you won’t be responsible for paying repossession fees.

Compare car loan refinancing options

1 - 2 of 2
Name Product Filter Values Minimum credit score APR Loan term Requirements
Upstart Auto loan refinance
6.96% to 29.99%
2 to 7 years
Annual income of at least $12,000, 18+ years old, vehicle is less than 12 years old and has less than 140,000 miles,No bankruptcies or public records on credit report within the past 3 years,No accounts that are currently in collections
LendingClub Auto Refinancing
Fair or better credit
3.99% to 24.99%
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
Lower your monthly car payments and save on interest through a fast and easy online application process.

Bottom line

At the very least, defaulting on your car loan will cause your credit score to take a hit. You could also end up losing your car — or worse, getting sued. If you’re worried about defaulting or already have, there are steps you can take to get your finances back on track.

Learn more about your options with our guide to car loan refinancing.

Frequently asked questions

What’s the difference between car loan delinquency and default?

While it varies by lender, your car loan could be considered delinquent after just one late payment. However, it normally takes several missed payments before a lender will consider you car loan to be in default.

How long will a repossession stay on my credit report?
A repossession stays on your credit report for up to seven years from the date of your first missed payment.

What fees do I have to pay when my car is repossessed?
It depends on where you live and the terms of your car loan contract. Typically, you’ll have to pay tow truck fees for the cost of repossessing your vehicle, along with the costs involved with storing and selling it.

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