What could happen to your credit if you default on an auto loan?

Answer

It depends on what you mean by default. Many auto lenders call your payment "in default" after 30 days. So we'll call that "default". If you go more than that and they end up reposessing your car, we'll call that reposession.

The severity of both depends on what other credit you have on your bureau. For example, a 60 year old man with 12 houses paid as agreed in their life, 22 cars paid off, 40 credit cards paid off, 8 active tradelines and a score of 800 is barely going to be touched by a single 30 day late payment. Their 800 score will maybe be hurt by a few points which will bounce back up in a couple months. Likewise, a person with no credit score that had a bankruptcy and foreclosure and a repo after the bankruptcy who then has been carefully working their way up to a 550 score for the last 10 months with this car as their only tradeline could have their score completely wiped out for several months.

Reposession is another thing entirely. Anyone will be hurt considerably more by a reposession, but it is not unrecoverable. A lot depends on the borrower's overall credit profile like before. The 1 reposession may or may not hurt the score dramatically. It WILL affect your ability to go out and buy another car though. Most likely, even if your score remains in the higher numbers, you will not have trouble obtaining credit at most places - except for buying a car. If you had a reposession 3 months ago, they will require a sizable down payment for conventional financing and you will not qualify for the best terms and rate incentives available to others with even lower scores but no reposession.

Once they take your car, it is not over. At that point, it continues to report as late on the bureau until the car is sold at auction. If your car was reposessed in March and you were 3 months behind at the time, and they don;t sell until September, you will be a full 9 months behind on your bureau which is bad. Also, once it sells, if they do not sell for enough to pay off the balance, you will be hit with a deficiency balance. This wil be money you still owe them. They will obtain a judgement and then, if necessary, garnish your wages to pay it.

Hope this helps! Kevin Freels Evansville, IN

First answer by Megaquark. Last edit by Megaquark. Contributor trust: 158 [recommend contributor]. Question popularity: 20 [recommend question]