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How a car loan charge-off works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive tools and financial calculators, publishing original and objective content. This allows users to conduct research and compare data for free and help you make financial decisions with confidence. 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 offers that appear on this site come from companies who pay us. This compensation can affect the way and when products are featured on the site, such as such things as the sequence in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage home equity, mortgage and other home lending products. This compensation, however, does have no impact on the information we provide, or the reviews that you read on this site. We do not cover the entire universe of businesses or financial offerings that could 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 Credit.com. 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 feel confident to manage their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee

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This compensation could influence the manner, place and in what order products appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage home equity, mortgage and other products for home loans. Other elements, such as our own proprietary website rules and whether or not a product is offered in your area or at your own personal credit score could also affect the manner in which products appear on this website. We strive to offer the most diverse selection of products, Bankrate does not include information about every financial or credit product or service. If you’ve got an auto loan that you’ve fallen behind on the lender might decide to charge off the loan that is, the lender assumes you’re not going to be able to pay the debt. The fact that you have a loan charged off does not mean that you’re free of the hook for repayment. It doesn’t alter the terms of your loan. In many instances the lender might be pursuing repayment with you. Be aware of your obligations and the steps will happen before and following the charge-off. What exactly is an auto loan charge-off is During a charge-off, businesses transfer the account, for example an account, from their asset column to their liability column for accounting purposes. The majority of lenders make this move after failing to collect the debt over a long period. For record-keeping purposes, the lender is declaring the debt insolvent. Auto loans generally have to be paid off after 120 days of non-payment. An auto loan may be charged off in just 60 days if the lender is notified of the fact that the borrower filed for bankruptcy. If lenders or companies take over a debt, they’re able to write it off for tax purposes. But, you’re still obligated to pay the money and nothing about the conditions of the loan is altered because of a lender adopting this method. You are still fully responsible for the repayment of the loan. How does an auto loan charge-off operates When an lender considers an auto loan debt to be uncollectible, they can choose to begin the process of charge-off. Some of this process’s steps impact you as the person who is the borrower. The debt is shifted from liability to asset. The first step of an automatic loan charge-off is just an accounting classification. The lender shifts its loan from its assets column, and then officially classifies it as a liability, that means that the loan is not considered to be income for the lender. Instead, it’s considered a loss. Notice of default. In accordance with your state the lender could be required to issue an official notice of default, and provide you with a opportunity to pay off the loan. Not every state requires this. A third-party collection agency may assume the responsibility of the collection. Often when the original lender is able to charge off a loan the loan is then transferred to a third party like a collection agency, who takes over pursuing the debt’s repayment. Collection efforts may include suing you for repayment. If there’s a judgment against you, a portion of your earnings could be garnished as repayment. The charge-off will be disclosed to the credit reporting agencies. When a debt is taken off by the lender your credit score also takes a reduction. This is because the charge-off will be reported to all credit bureaus. The credit report will show on your credit profile as being a charge-off, which is a serious negative sign that you did not fulfill the obligation. This negative mark may be on your credit report for as long as seven years. There could be as much as a 100-point drop of your credit rating and may have difficulty obtaining an auto loan in the future. Repossession of your vehicle. With secured auto loans, when the vehicle secures the debt, the car may ultimately be . A car that has been in use for many years. Driving a charged-off car A car loan is typically secured using the vehicle bought with the loan. If you do not make the required payments, the lender could take over and sell the car to make up the difference. But, even if a lender takes over an auto loan and you don’t pay it back, you might be able to keep driving the car — at least for a brief time. Based on where you live the lender is required to issue an automatic default notice and give you to make the loan up to date before repossession. In these situations it is possible to do this when you make satisfactory payment arrangements. However there are some states that do not have this condition. If you purchase the vehicle, the car does not guarantee the loan and isn’t able to be repossessed to the lender. What should you do in the event that your vehicle loan is charged off When your vehicle loan has been charged off there are a number of steps you can take. If your account has not yet been turned over to a collection company, you can contact the lender and ask to make a one-time payment to clear up the outstanding debt. This is referred to as a You might also attempt to negotiate loan terms that are more manageable for you. It is also possible to research the laws for your state to learn how long the lender or collection agency can continue to pursue collection from you. The time limit for a statute of limitations is between 3 and 10-years from when you default dependent on the location you reside in. Be aware that the charge-off will remain on your credit report for seven years and impact the ability to qualify for further auto loans. Loan charge-offs will also affect the rates you pay for future loans Therefore, you should pay off the debt immediately if you can. If you’re struggling financially, you may be considering the possibility of filing for bankruptcy. All charged-off loans should be included in the bankruptcy filing. What happens next is contingent on the type of bankruptcy you pursue. The options include: Reaffirming the loan and continuing to make the payments. Redeeming the car by paying the loan in a lump sum. Surrendering the car to the creditor who will then sell it to pay off the outstanding debt and then discharge the rest. The bottom line is that when you get a car loan is canceled however, you’ll still be responsible for the repayment of the debt. After you’ve found out that a lender has charged off an auto loan then you’ll probably need to negotiate with a collection agency that is a third party. The car could be taken away or you could be sued for repayment. Charged-off accounts also damage the credit rating. If you are behind on auto loan payments, the first step is calling the lender or collection company to pay off the debt or negotiate manageable repayment terms. You may even seek a car loan settlement. If you’re being sued for repayment, you should probably consult an attorney.

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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 Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to manage their finances by providing clear, well-researched details that cut complex subjects into bite-sized pieces.

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