What Happens If a Car Loan Is Charged Off?

Updated June 12, 2023

When your car loan is charged off, that means the lender no longer believes you will repay the loan, and they may sell your account to 澳洲幸运5官方开奖结果体彩网:collection agencies or 澳洲幸运5官方开奖结果体彩网:debt buyers. You still legally have to repay the loan, and it can significantly damage your cred🔥it. You will likely also have your car repossessed during the pro🅠cess.

Learn more about how loan ch🌳arge-offs work and about the consequences of having a loan🌸 charged off.

Key Takeaways

A loan charge-off will usually result in a negative impact on your 澳洲幸运5官方开奖结果体彩网:credit report for several years.
Charge-offs usually occur 120 to 180 days after you become delinquent on making a loan payment according to the terms.
Charge-offs can remain on your credit reports for seven years.
You are still legally obligated to repay a loan that has been charged off.

Why Do Lenders Charge Off Car Loans?

When lenders charge off a loan, th꧂ey do not forgive the loan. Instead, they charge off loans for accounting purposes, but you are still legally obligated to repay the loan. Current car loans in good standing show up on lenders’ ledgers as assets. When a lender marks a loan as charged off, it is reflected as a loss in the lenders’ books so that the business no longer depends on the repayment of the car loan.

Lenders often charge off car loans that are past due by 120 to 180 days. But they can decide to charge off an account at any time if they believe the debt is uncollectible, or even if you declare bankruptcy.

Understanding the Car Loan Charge-Off Process

When you fail to make payments on a car loan, the charge-off process usually entails these main steps:

You miss payments: With a car loan, you become 澳洲幸运5官方开奖结果体彩网:delinquent when you miss your payments. When you are delinquent—meaning 30 days or more late—the lender will report the delinquency to the 澳洲幸运5官方开奖结果体彩网:credit bureaus, which can significantly hurt your credit.
The lender attempts to repossess the vehicle: In some states, the lender can repossess the vehicle as soon as you miss a payment. Depending on where you live, the lender may have to give you a warning first, but they don’t need a court order to repossess your car.
You have a limited time to come up with the money: Once the car is repossessed, you usually have a few days to pay the lender what you owe along with added late fees. Otherwise, your car is sold at auction.
The lender sells the vehicle: The lender will sell the vehicle to recoup some of their money. If the car sells for less than you owe, you still owe the remaining balance.
The lender charges off the account: A charge-off can happen before your loan is repossessed and sold. Charge-offs also commonly occur after repossession because the lender will be less likely to expect you to repay the loan when you don’t have the vehicle.

What Happens After a Car Loan Charge-Off?

When the lender charges off the account, you still owe the money. However, the lender may sell the account to a collection agency or debt buyer, and that company will try to collect the money that you owed. And the amount will likely be higher than you previously owed after collection fees and other costs are added.

Warning

A car loan repossession or 澳洲幸运5官方开奖结果体彩网:charge-off status will be reported to 澳洲幸运5官方开奖结果体彩网:the three major credit bureaus and will stay on your credit reports for seven years. It can significantly damage your credit. As a result, lenders will be less likely to approve you for other forms of credit, including car loans, and less likely to offer you their best terms.

What to Do If Your Car Loan Is Charged Off

Once the loan is charged off and sold to a collection agency, the agency will pursue repayment. You still are legally obligated to repay the loan. Here are the some potentiaꦰl outcomes:

The collection agency may agree to a payment plan: Avoiding the collection agency won’t make them go away. Instead, communicate what you can afford to pay. The company may be willing to accept a payment plan for the remaining balance.
The collection agency may 澳洲幸运5官方开奖结果体彩网:settle for less than you owe: The collection agency likely bought your account for far less than the balance, so you may have some room to negotiate. They may be willing to settle the account for less than you owe. If the agency agrees to settle for a smaller amount, get confirmation in writing that the account is paid in full and closed.
They may pursue a legal judgment: If the collection agency is unable to collect payments from you, they can take you to court. If they get a legal judgment against you, they can take additional steps to collect the money owed, including wage garnishment.

If your car loan is charged off, work with the 澳洲幸运5官方开奖结果体彩网:collection agency to come up with a plan for repayment and get any agreements in writing. Alternatively, 澳洲幸运5官方开奖结果体彩网:bankruptcy can be an option for discharging a vehicle loan charge-off.

Can You Drive a Vehicle in Charge-Off?

In most cases, the car will be 澳洲幸运5官方开奖结果体彩网:repossessed before it is charged off. However, there may be some situations where you have a few days before you receive notice of the charge-off and the vehicle’s repossession. So there may be a few days where you can drive the car. If you used an 澳洲幸运5官方开奖结果体彩网:unsecured loan to buy the vehicle, such as a personal loan, the car is not used as collateral, so the lender cannot seize the vehicle without a court order. In that sceꦆnario, you could drive the car even if the loan has been charged off.

How Long Does a Car Charge-Off Stay on Your Credit?

A car loan default and charge-off will remain on your credit report for seven years. Negative information cannot be removed early from a credit report if it is accurate. But you can dispute any inaccurate information.

Can I Get Insurance for a Car That Has Been Charged Off?

If the car loan was charged off but you still have the vehicle, you can technically get car insurance. But in most states, insurers can review your credit r﷽eport to determine whether to issue you a policy and decide your premiums. A car loan default and charge-off will substantially damage your credit, so it may be difficult to find an insurance company willing to work with you.

Which Is Worse, a Car Loan Charge-Off or a Repossession?

Car loan charge-offs and repossessions are terms that refer to very different processes, and they both have significant negative effects on your credit. A car loan charge-off is when the lender has determined that you likely won’t repay the loan and classifies the account as a liability rather than an asset. With a repossession, the lender can seize the vehicle before or after a charge-off, and then sell it to recoup some of their money.

Can I Get the Title for a Car That Has Been Charged Off?

Generally, you cannot get the title for the case that has been charged off until the loan is either paid in full or if you reach a 澳洲幸运5官方开奖结果体彩网:settlement with the collection agency that now owns the loan.

The Bottom Line

If your car loan is in default and is charged off, that doesn’t mean the loan is eliminate🦋d. You still owe the balance and other fees, and the collection agency that takes over the loan can take severe measures to recoup the money. To avoid further damage to your finances, work with the collection agency to come up with a payment plan or settlement amount so you can move forward.