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How a car loan charge-off works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering you interactive financial calculators and tools as well as publishing original and impartial content. We also allow you to conduct your own research and compare data for free to help you make informed financial decisions. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation can affect the way and when products are featured on this website, for example for instance, the order in which they may appear within the listing categories, except where prohibited by law. Our mortgage or home equity products, as well as other products for home loans. This compensation, however, does not influence the content we publish or the reviews appear on this website. We do not contain the universe of companies or financial offers that may be open to you. Westend61/Getty Images

4 min read published October 25, 2022

Written by Mia Taylor Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping their readers to manage their finances by providing precise, well-researched, and well-written information that breaks down complex subjects into digestible pieces. The Bankrate promise

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Therefore, this compensation may affect the way, location and when products are listed, except where prohibited by law. We also offer mortgage home equity, mortgage and other products for home loans. Other factors, such as our own website rules and whether the product is available in the area you reside in or is within your personal credit score can also impact the manner in which products appear on this website. We strive to offer the most diverse selection of products, Bankrate does not include details about every credit or financial products or services. If you’ve got an auto loan that you’ve fallen behind on the lender might decide to take over the loan that is, that the lender assumes you’re not going to repay the debt. The fact that you have a loan cancelled does not mean that you’re free of the responsibility of making payments. And it doesn’t change the original terms of your loan. In many cases, the lender might seek repayment from you. Be aware of your obligations and the actions will be taken prior to and following the charge-off. What exactly is an auto loan charge-off is charge-off, companies transfer an account, such as an asset, from their column to a liability one for accounting reasons. Most lenders do this after failing to collect on the debt for a prolonged time. To keep records, the lender declares the debt uncollectible. Auto loans generally have to be paid off after 120 days of non-payment. A car loan can be paid off in as little as 60 days, if the lender is notified of the fact that the borrower filed for bankruptcy. When companies or lenders take over a debt, they are able to write off the debt for tax purposes. But, you’re still obligated to pay the debt and nothing in the terms of the loan alters due to a lender making this move. You are still fully responsible to pay back the loan. How an auto loan charge-off operates When the lender finds an auto loan debt uncollectible, it may decide to start the charge-off process. Certain steps of this process have an impact on you, the borrower. The debt is shifted from liability to asset. Step one of the auto loan charge-off is just one of the classifications used in accounting. The lender moves the loan from its assets column and officially categorizes the loan as liability that means that the loan is not considered to be income for the lender. Instead, it is considered a loss. Notice of default. In accordance with your state the lender may be required to issue a notice of default and give you a chance to repay the loan. Not every state requires this. A third-party collection agency could take over the collection. Often when the original lender is able to charge off a loan, it’s sent to a third-party, like a collection agency, who will pursue the debt’s repayment. The collection process could include suing you for repayment. If there’s a judgment against your then a portion of your earnings could be garnished as repayment. The charge-off will be recorded with credit agencies. If a debt is paid off by a lender, your credit score will also take a hit. This is because the charge-off will be not reported to any credit bureaus. The account will be listed on your credit profile as a charge-off, which is a serious negative mark indicating you failed to meet your obligation. This mark can remain on your report for up to seven years. It is possible to see as high as a 100-point decline in your credit score. You can have trouble securing the car loan in the future. Vehicle repossession. When secured car loans, when the vehicle is secured by the loan, the car may ultimately be . A car for years. The car you have financed car loan is typically secured with the vehicle purchased through the loan. If you don’t make payments in time, the lender can repossess and sell the vehicle to pay for the loss. However, even when the lender is able to charge off an auto loan in some cases, you could be able to drive the car at the very least, for a short time. Based on the location you reside in, a lender is obliged to send a default notice and allow you the opportunity to make the loan up to date before repossession. In these instances, you can be granted a loan if you can make acceptable payment arrangements. But it is not the case in all states. this obligation. If you decide to purchase the vehicle, it does not guarantee the loan and isn’t able to be repossessed to the lender. What should you do if the car loan has been canceled your car loan has been charged off there are a number of options to take. If your account has not yet been handed over to a collection company, you can contact the lender and inquire to pay a flat amount to settle the loan. This type of payment is known as a You might also consider negotiating loan conditions that are more feasible for you. You could also look into the statute of limitations for your state in order to learn how long the lender or a collection agency will continue to collect on you. The time limit for a statute of limitations is between 3 and 10 years from the date of default subject to the place you live. Remember that the charge-off will be on your credit file for seven years and impact your ability to get more automobile loans. Loan charge-offs will also affect the rates you pay for future loans, so resolve the debt directly if you can. If you’re struggling financially You may think about declaring bankruptcy. All canceled loans should be included when filing bankruptcy. What happens next depends on the kind of bankruptcy you choose to pursue. The options include: Reaffirming the loan and continuing to make the payments. Redeeming the car by paying the loan in one lump sum. Transferring the vehicle to the creditor who will then sell it to pay off the outstanding debt and discharge the remainder. The bottom line When a vehicle loan is charged off but you’re still accountable for repaying the debt. After a lender has canceled an auto loan, you’ll likely be dealing with a third-party collection agency. Your car can be repossessed or you may be sued for repayment. Charged-off accounts also damage ones credit scores. If you’re in arrears with auto loan payments The first step is to try reaching out to your lender or collection agency to pay off the loan or negotiate reasonable repayment terms. You may even seek a car loan settlement. If you’re being sued to repay, you must most likely speak with an attorney.


Written by Contributing Writer Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation’s leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to control their finances through providing concise, well-researched, and clear details that cut complex subjects into bite-sized pieces.

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