While auto financing companies all have different practices when it comes to drafting the terms of car loan contracts, for the most part an auto loan is considered in default as soon as you miss a scheduled payment. Some lenders will give you a grace period, especially if you contact them in advance of a missed payment. However, an auto finance company may be within its rights to start repossession proceedings as soon as you stop paying for your vehicle.
Read Your Contract
An auto loan agreement is often a small print, jargon-rich document that is challenging for the average consumer to follow. It's a good idea, however, to know and understand the basic elements of what's in your contract before you sign the agreement. Regardless of what the salesman or finance manager tells you, it's the terms of the contract that are legally binding. Take time to read through the document, ask questions and even request time for a lawyer to review it before signing if there's anything you don't fully comprehend. This is vital to understanding what your rights are and what the finance company can and will do if your loan goes into default.
Pay Your Bill
Make sure you understand when your payments are due and make those payments on time every month. If you have a hard time remembering due dates, think about paying your bill online or making an electronic transfer to ensure you're covered. Your lender likely will send you a payment reminder or a coupon book that makes it easier to send in your payment. Having a solid payment history not only will result in a good credit rating, it also will give you some bargaining power if you find you can’t pay one month and need to request an extension.
If You Can't Pay
If for any reason you can't pay your scheduled car payment on time, call your loan service provider and speak to a customer service representative. Explain your situation and ask what options you have. Sometimes, the auto lender will let you skip a payment, tack on an extra payment to the end of your loan or even restructure your debt so it’s more affordable. There’s usually a small fee associated with this, but it's better than missing a payment, getting a late mark on your credit report or defaulting on your loan.
If you default on your loan, your creditor will call you and send you notices that you're behind on your debt. According to Edmunds, this usually happens within 30 days. It's a pain for an auto lender to repossess your car, so they'll probably work with you to get your payments back up to date. However, the company usually is within its legal rights to repossess the vehicle if they choose. At that point, you may have the option of coming current on back payments and reimbursing the company for costs associated with the repossession. If this isn't possible, or the company doesn't offer the option, your car will be sold at auto auction and you’ll be responsible for any outstanding balance that remains after the sale.
The timetable from missed payment to loan default to car repossession varies. It typically takes several months of missed payments to trigger each action, but you can’t rely on this extended grace period. If you have any question about how long you have to take action, talk to your lender directly and consult your contract paperwork for details.
Lisa McQuerrey has been an award-winning writer and author for more than 25 years. She specializes in business, finance, workplace/career and education. Publications she’s written for include Southwest Exchange and InBusiness Las Vegas.