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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.
From tanking your credit score to losing your car, here’s what could happen if you fail to pay back your car loan:
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.
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
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.
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.
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.
A state-by-state guide to the statute of limitations on debt
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
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.
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:
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.
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. You can learn more about how repossession affects your credit score with our guide.
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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