What Happens When You Can’t Pay an Auto Loan?

Initial Missed Payment

When you can’t pay only one month’s worth on your auto loan, lenders typically just assess you a late fee. They may contact you to remind you that your payment is due, or to work with you and figure out when you can make your payment.

30 Days Late

Once you are a month behind on your car loan, your lender goes ahead and reports your payment lapse to major credit bureaus such as Equifax, Transunion and Experian. At this point, your credit takes a ding, but you still have your car and really aren’t in too much legal hot water, as long as you can come up with your payment and the late fees you’ve acquired.

Default

In most states, you enter into a default period once your auto loan payment is 90 days late. During this time period, your lender will send you an official Notice of Default. This is a letter that explains that you have not met the terms of your loan. The Notice of Default may give terms for how you can rectify your loan standing, such as paying everything that is late plus all late fees. The Notice of Default also introduces the idea that the lender is about to start repossession proceedings and civil suits to acquire what is owed.

Repossession

If you ignore the Notice of Default, the lender will send a repossession agent to come get your vehicle. These agents have the right to bring police officers with them to make the transfer of possession safe, but they also can just have your car towed away.

Renegotiation

After the lender takes back your car, they give you one last chance to redeem yourself and pay everything you owe, including any fees associated with repossession. If you can pay everything, they give your car back.

Vehicle Sale

If you can’t pay the lender what you owe during the renegotiation period, the lender has the legal right to sell your vehicle. Once they sell your vehicle, they subtract the amount of the sale from everything you owe them to get a new balance for your account.

Legal Action

If you don’t meet the lender’s payment terms after your vehicle is sold, the lender may sue you for the amount you owe. If you lose the suit, you’ll have to pay not only your account balance, but also reimbursement against the lender’s legal costs.

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