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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 choices by providing you with interactive financial calculators and tools as well as publishing original and impartial content, by enabling you to conduct research and compare information for free and help you make sound financial decisions. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this site come from companies that compensate us. This compensation may impact how and where products appear on this website, for example, for example, the sequence in which they be listed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity and other home lending products. This compensation, however, does have no impact on the information we provide, or the reviews you read on this site. We do not contain the entire universe of businesses or financial offers that may be available to you. Westend61/Getty Images

4 min read published 25th October 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 Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the beginning of 2021. They are passionate about helping readers to control their finances through providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate promise

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We make sure that everything we publish is objective, accurate and trustworthy. Our loans journalists and editors focus on the points consumers care about most — various kinds of loans available and the most competitive rates, the most reliable lenders, how to pay off debt and many more — so you’ll feel safe investing your money. Editorial integrity

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If you have questions about money. Bankrate has the answers. Our experts have been helping you manage your money for over four decades. We strive to continuously give our customers the right guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate follows a strict policy, which means you can be confident that our content is honest and precise. Our award-winning editors and reporters provide honest and trustworthy content that will help you make the best financial decisions. The content we create by our editorial team is objective, factual and is not influenced through our sponsors. We’re honest about how we are able to bring quality content, competitive rates, and helpful tools to you , by describing how we make money. is an independent, advertising-supported publisher and comparison service. We are compensated for the promotion of sponsored goods or services, or by you clicking on specific links on our website. This compensation could impact how, where and in what order items appear in listing categories and categories, unless it is prohibited by law. This is the case for our mortgage or home equity products, as well as other home loan products. Other elements, such as our own rules for our website and whether a product is offered in the area you reside in or is within your personal credit score can also impact how and where products appear on this site. Although we try to offer a wide range offers, Bankrate does not include details about every credit or financial product or service. If you have an auto loan that you’ve fallen behind on, the lender could decide to charge off the loan that is, that the lender assumes you’re not going to repay the debt. The fact that you have a loan taken care of doesn’t mean that you’re no longer on the responsibility of making payments. It doesn’t alter the terms of your loan. In many instances the lender may that will seek repayment from you. Be aware of your obligations and the actions will be taken prior to and after the charge-off. What exactly is an auto loan charge-off can be During a charge-off, businesses transfer the account, for example an account, from their asset column to their liability column for accounting reasons. Most lenders do this after failing to collect the debt for a prolonged time. For records purposes this lender declares the debt insolvent. Auto loans generally have to be paid off within 120 days of the non-payment. A car loan can be paid off within 60 days when the lender is notified that the borrower has declared bankruptcy. If lenders or companies take over a debt, they’re able to write off the debt for tax purposes. However, you still owe the amount and nothing regarding the terms of the loan alters due to the lender taking this step. You remain fully accountable to pay back the debt. What happens when you take out an auto loan charge-off operates When the lender finds an auto loan debt to be uncollectible, they may decide to start the charge-off process. Certain steps of this process have an impact on you, the customer. The debt is shifted from liability to asset. The initial step in the auto loan charge-off is simply an accounting classification. The lender shifts its loan from its assets column and categorizes the loan as liability that means that the loan is no longer considered income for the lender. Instead, it’s deemed to be a loss. Notice of default. Based on the state you live in the lender could be required to mail you a notice of default and give you a chance to repay the outstanding loan. This is not the case for every state. An agency for third party collection may take over the collection process. Most of the time, when the initial lender is able to charge off the loan, it’s sent to a third-party, for example, a third-party agency that takes over pursuing the repayment of debt. The collection process could include suing you to collect. If there’s a judgement against you the amount of your wages may be garnished as repayment. The charge-off is disclosed to the credit reporting agencies. If a debt is paid off by an lender, your credit score will also take a reduction. The reason for this is that the charge-off is usually not reported to any credit bureaus. The credit report will show on your credit report as being a charge-off, which is a serious negative sign that you didn’t meet your obligation. This negative mark may remain on your report for up to seven years. There could be as much as a 100 point drop in your credit score and may have difficulty obtaining a car loan in the future. Repossession of a vehicle. With secured auto loans in which the vehicle serves as a security for the debt it could be . A vehicle for a long time. Driving a charged-off car A car loan is typically secured using the vehicle bought with the loan. If you fail to make your payments in time, the lender could take over and sell the vehicle to make up the difference. But, even if you are charged a lender takes over an auto loan, you may be able to continue driving the car at least for a brief time. Depending on where you live the lender is obliged to send a default notice and allow you to bring the loan current before repossession. In such cases it is possible to do this when you make satisfactory payments. However there are some states that do not have this obligation. If you to buy the vehicle, the vehicle isn’t a guarantee for the loan and cannot be repossessed from the lender. What should you do in the event that your car loan has been canceled your car loan is canceled there are a number of steps you can take. If your account has not yet been handed over to a collection agency, you may contact the lender and ask whether you could make a one-time payment to settle the outstanding debt. This is referred to as a consider negotiating loan conditions that are more suitable for you. You could also look into the for your state to learn how long the lender or a collection agency can continue to collect on you. The statute of limitations ranges between 3 and 10 years from the date of default, subject to the place you live. Remember that the charge-off will stay on your credit record for seven years and impact your eligibility to obtain additional auto loans. The charge-off on your loan will also affect the rates you pay for future loans Therefore, you should pay off the debt directly if you are able. If you’re experiencing financial problems it’s possible that you’re thinking of the possibility of filing for bankruptcy. All charged-off loans are required to be considered when filing for bankruptcy. What happens next is contingent on the kind of bankruptcy you choose to pursue. The options include: Reaffirming the loan and making payments. In exchange for the car, you can pay the loan in one lump amount. Surrendering the car to the creditor, who will then sell it to pay off the remaining debt and then discharge the rest. The bottom line When a vehicle loan is charged off, you’re still responsible for the repayment of the debt. After you’ve found out that a lender has canceled an auto loan then you’ll probably be dealing with a third-party collection agency. The car could be taken away or you could be sued for repayment. Accounts that are charged off can also harm ones credit scores. If you’re behind on auto loan payments, the first step is reaching out to the lender or collection company to pay off the debt or negotiate acceptable repayment terms. You may even seek a car loan settlement. If you’re being sued to repay, you must likely contact 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 editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances with concise, well-researched, and clear information that breaks down otherwise complex topics into manageable bites.

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