What Happens After a Default Car Loan?

What Happens After a Default Car Loan?

A default car finance loan occurs whenever you discover you are no longer able to pay for your car loan. Defaulting is not always the best solution to your current financial problems. If you default on a car loan, it can have long term effects on your credit history and make it difficult for your to obtain another car loan once your financial situation improves.

Unfortunately, a default car finance loan is something that can occur to anyone, considering the changes to economic conditions. With the number of job losses and slowdown in the economy increasing in recent years, it has created financial strain for many people. Should you find yourself struggling with your car loan and other financial obligations, defaulting on a car loan is not always the right choice.

Another Option besides Defaulting on a Car Loan

One viable option which can help you avoid default car finance is to consider refinancing your existing car loan. If the car loan is not an in-house car loan where the dealer financed the loan, car dealers might be willing to assist you in order to avoid a fault. Most dealers receive a small amount of the interest you pay the lender. If you default, it hurts the dealer's earnings.

Rather than see you default, they are more willing to explore refinancing the existing car loan and reducing your payments, where they are more affordable. Even if you are not entirely sure you would be able to afford a refinanced car payment, it still does not hurt to talk to your car dealer before default car finance occurs. You would be surprised by how many dealers actually can provide a good solution to your current financial situation.

How Does a Default Car Loan Affect Credit?

The impact a default car finance loan has on your credit is it lowers your credit score. It also shows you defaulted on a previous car loan. As such, lenders are not only hesitant to approve you for credit on car loans, but it also diminishes your chances of obtaining credit elsewhere, for other purposes. Lenders consider your bad credit a higher risk they otherwise want to avoid.

In addition, most car loans obtained from a Credit Reference Provider licensed under the National Credit Act are reported and recorded on your credit report.    If you defaulted on your car loan, besides lowering your credit score, the defaulted car loan may remain on your credit history for up to seven years.

 

A Default Car Loan Results in Repossession

If you decided not to pursue refinancing your existing car loan, or were unable to get approval for a refinanced car loan, the lender may repossess the car. The car will be held by the financier for at least 21 days. In that time you may be able to get the car back if the loan is brought back up to date or an agreement is reached.  However if you are unable to reach agreement with the lender, the car will be sold for the best possible price at that point in time. Any principal car payments made up to the time the car was repossessed, will off-set the amount borrowed  

If the car is sold for more than you owe, then you are entitled to a refund. However if the cars sells for less, you will be responsible to make up the shortfall. Failure to  make this payment when it is due may result in a Default being lodged against your credit file for the amount  outstanding.

Fortunately, even if you had default car finance in the past, there are licensed Credit Reference Providers who do provide assistance in obtaining a car loan and improving your credit. Just remember, you are going to have to demonstrate to the car dealer and lender you are financially able to make your new car payments going forward.

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