If you’re struggling to keep up with car loan payments, you may have heard the terms “default” and “delinquent” thrown around. While they may sound similar, they actually refer to two different stages of missed payments.
Understanding the difference between car loan default and delinquent can help you take the necessary steps to avoid serious consequences.
Understanding Car Loan Delinquency
Car loan delinquency occurs when you fail to make a payment on your car loan on or before the due date. Typically, a payment is considered delinquent if it is more than 30 days late.
Though you’ve failed to make a payment on time, you’re still within the grace period. Depending on your lender, this grace period can be anywhere from a few days to a few weeks. If you’re able to catch up on your missed payment within this time frame, you can avoid any negative consequences.
However, if you continue to miss payments and exceed the grace period, you’ll eventually enter default. This means that you’ve failed to make payments for a prolonged period of time and are in violation of your loan agreement.
Consequences of Car Loan Delinquency
If you are delinquent on your car loan, there can be several consequences, including:
- Late fees: You may be charged a late fee if you miss your car loan payment due date.
- Damage to your credit score: Car loan delinquency can negatively impact your credit score, making it harder to obtain credit in the future.
- Legal action: In some cases, lenders may take legal action against delinquent borrowers to recover the money owed.
To avoid these consequences, it’s important to communicate with your lender if you are struggling to make your car loan payments. You may be able to negotiate a payment plan or deferment to help you catch up on missed payments.
Understanding Car Loan Default
If you’ve become delinquent on your loan and are still struggling to make your car loan payments, you may be worried about the possibility of defaulting on your loan. Understanding what car loan default is and its consequences can help you make informed decisions about your financial situation.
Typically, a car loan is considered to be in default after you have missed several payments, usually around three to six months.
Consequences of Car Loan Default
Defaulting on your car loan can have serious consequences, including:
- Repossession of your vehicle: Your lender may repossess your car if you default on your loan. This means that they will take back your car and sell it to recoup the money you owe them. Repossession can happen quickly, so it’s important to act fast if you’re in danger of defaulting.
- Damage to your credit score: Defaulting on your car loan can have a significant negative impact on your credit score. This can make it difficult to get approved for credit in the future, and can also lead to higher interest rates and fees.
- Legal action: Your lender may take legal action against you if you default on your car loan, including actions like wage garnishment.
Entering default on an auto loan is essentially the following step to becoming delinquent if the payments are not made. This is the phase where you are beyond the grace period and lenders will start to take action.
Default vs. Delinquency: Impact on Credit Score
When you become delinquent on your car loan, your credit score will decrease. This is because payment history is a top contributing factor in determining your credit score.
The longer you remain delinquent, the more your credit score will be negatively impacted.
This could eventually lead to defaulting on your car loan and will have a more significant negative impact on your credit score. A default will stay on your credit report for up to seven years and can make it difficult to obtain credit in the future.
What to Do if You Can’t Make Your Car Loan Payments
If you can’t make your car loan payments, there are several things you can do to avoid delinquency or eventual default.
- Contact your lender: Contact your lender as soon as possible. They may be able to offer you a deferment or forbearance, which will allow you to temporarily stop making payments.
- Refinance your loan: Consider refinancing your loan. This may lower your monthly payments and make it easier for you to keep up with your payments.
- Trade in your car: Think about trading in your vehicle for a more affordable one.
By following these tips and taking action if you can’t make your payments, you can avoid default and delinquency on your car loan. Remember, communication is key, so don’t be afraid to contact your lender if you’re having trouble making your payments.