Financing a vehicle purchase is relatively common. Most people do not have enough in savings to purchase a used vehicle, let alone a brand-new one. They can obtain loans to finance a vehicle purchase the same day that they start looking for options at a dealership.
Many dealerships offer competitive financing options with relatively low down payments. People can even get cash back when purchasing a vehicle, which can seem very tempting around the holidays or when finances are tight. Unfortunately, lenders feel comfortable extending those offers in part because they know people cannot afford to default on vehicle loans.
Adults generally require independent transportation to take care of their families and maintain their jobs. Yet, they often need to prioritize vehicle-related bills above other expenses, like credit card payments or even utilities. What happens if someone does not keep up-to-date on their payments for a financed vehicle?
The lender may repossess the vehicle
A vehicle loan is a secured loan where the car that someone purchases serves as the collateral property for the loan. If someone defaults on their car loan, their lender can repossess the vehicle. Some people have unrealistic directions about that process. They may wrongfully assume that the lender has to provide them with advance notice of the repossession. However, that is not actually true. Repossession is very different than foreclosure, and lenders have no obligation to provide prior notice before repossessing a finance vehicle. Someone might come out of their home in the morning to head to work, only to discover that their car is no longer in the driveway.
Bankruptcy can help
Someone who has missed car loan payments could be at risk of vehicle repossession at any time. Thankfully, it is possible to avoid repossession by halting collection activity altogether. Someone who files for bankruptcy has an automatic stay that can prevent collection efforts including vehicle repossession attempts. A bankruptcy can eliminate other debts that put pressure on someone’s budget and may even help them negotiate better terms for their vehicle loan in the future.
Understanding what could happen after missing car loan payments may help people protect the resources in which they have made significant investments.