What happens if you default on a car loan?

Answered by Car Loans Expert Jim on April 7, 2021

I've never financed a car before, so I want to know what I can expect if things go south.

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Jim

Car Loans Expert

“Default, or failure to make payments on a car loan, can result in swift, unpleasant consequences for the borrower.

Remember, a car loan is a “secured” loan, meaning the lender has the right to repossess the asset (in this case, your car) for the purpose of selling it to raise some or all of what your outstanding loan balance is.

Before that happens, the lender will likely initiate the following collection activities:

  • Reporting your late/missed payment to the credit bureaus. Even if you do eventually pay what you owe, the late payment will have been recorded already and your credit score will suffer.

  • Making increasingly insistent phone calls, sending emails and text messages, and/or even making personal visits demanding immediate payment.

Your problems won’t stop with repossession of the vehicle. You may still owe any balance not paid off by the sold car. This is often the case with newer cars, which depreciate quickly after the buyer takes delivery. And since you paid mostly interest in the early payments, you may still owe most of the original loan amount.

Before you default, you may want to consider selling your car in a private sale. Private sales tend to net more money than trading in with a dealer, so even if the sale doesn’t cover all of your outstanding balance, it can still save you some money. “


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