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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 better financial choices by providing you with interactive tools and financial calculators that provide objective and original content, by enabling users to conduct research and compare information for free – so that you can make informed financial decisions. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation may impact how and where products appear on this site, including such things as the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity and other home lending products. This compensation, however, does have no impact on the content we publish or the reviews you read on this site. We do not include the universe of companies or financial deals that might be accessible 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 writing and editing for Bankrate since the end of 2021. They are dedicated to helping their readers gain the confidence to take control of their finances through providing clear, well-researched information that breaks down otherwise complex subjects into digestible pieces. The Bankrate promises

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You have money questions. Bankrate has answers. Our experts have been helping you manage your money for over four years. We continually strive to provide consumers with the expert guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate follows a strict standard of conduct, so you can rest assured that our information is trustworthy and precise. Our award-winning editors and reporters provide honest and trustworthy information to assist you in making the best financial decisions. The content we create by our editorial team is objective, truthful and is not influenced by our advertisers. We’re open regarding how we’re in a position to provide quality content, competitive rates, and useful tools to you , by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products andservices or through you clicking specific links on our site. This compensation could impact how, where and in what order products are listed, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, like 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 may also influence the way and place products are listed on this site. While we strive to provide the most diverse selection of products, Bankrate does not include information about every credit or financial products or services. If you’ve got an auto loan that has fallen behind, the lender may eventually decide to take over the loan, which means the lender believes that you won’t be able to pay back the loan. A loan cancelled doesn’t mean that you’re no longer on the obligation to pay. And it doesn’t change the terms of your loan. In many instances, the lender might pursue repayment with you. Know your obligations and what steps will happen before and after the charge-off. What an auto loan charge-off is During a charge-off, businesses transfer an account, like an asset, from their column to a liability for accounting purposes. Often lenders take this step after failing to collect on a debt for an extended time. For record-keeping purposes, the lender declares the debt uncollectible. Auto loans typically have to be paid off after 120 days of nonpayment. An auto loan could be paid off within 60 days when the lender receives notice that the borrower has filed for bankruptcy. When companies or lenders charge off a debt, they can write off the tax for. However, you still owe the amount and nothing regarding the conditions of the loan is altered as a result of a lender adopting this method. You remain fully accountable for repaying the loan. How an auto loan charge-off operates When a lender finds an auto loan debt to be uncollectible, they can choose to begin the charge-off process. Certain steps of this process impact you, the person who is the borrower. The debt is shifted from asset to liability. The first step of the auto loan charge-off is just one of the classifications used in accounting. The lender shifts its loan from its assets column and categorizes the loan as liability, which means the loan is not considered to be income for the lender. Instead, it is considered as a loss. Notification of default. Based on the state you live in, the lender could be required to mail you a notice of default and offer you the chance to repay the amount. It is not mandatory for every state. A third-party collection agency may be able to take over the collection process. In most cases, when the original lender charges off a loan, it’s sent to a third party such as , which will pursue the repayment of debt. The collection process could include suing you to collect. If there’s a judgment against your then a portion of your wages may be garnished to pay. The charge-off is reported to credit bureaus. If a debt is paid off by the lender your credit score will also take a drop. This is because the charge-off is usually disclosed to the credit reporting agencies. The charge-off will appear on your credit profile as being a charge-off as a grave negative sign that you didn’t meet the obligation. This negative mark may be on your credit report for up to seven years. There could be as much as a 100-point decline on your score and may have difficulty obtaining an auto loan in the future. Vehicle repossession. When secured car loans in which the vehicle is secured by the loan the car could eventually 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 purchased through the loan. If you fail to make your payments and the lender could take over and sell the car to make up the difference. But, even if the lender is able to charge off an auto loan in some cases, you could be able to keep driving the car at least for a brief time. Based on the location you reside in the lender is required to issue an automatic default notice and give you to bring the loan current before repossession. In these instances, you can when you make satisfactory arrangement for payment. However, not all states have this condition. If you decide to purchase the vehicle, the vehicle isn’t a guarantee for the loan and isn’t able to be repossessed to the lender. What should you do in the event that your vehicle loan has been canceled your vehicle loan was repaid, there are several options to take. If the loan hasn’t yet been transferred to a collection agency you can contact the lender and ask whether you could pay a lump sum to pay off the outstanding debt. This is referred to as a try to negotiate loan terms that are more manageable for you. You can also research the laws for your state to learn how long the lender or a collection agency has to try and collect from you. The statute of limitations ranges between three to 10 , from the time of your default dependent on the location you reside in. Be aware that the charge-off will be on your credit file for seven years and impact your eligibility to obtain additional automobile loans. The charge-off on your loan will also affect the rates you pay for future loans So, resolve the debt immediately if you are able to. If you’re struggling financially, you may be considering the possibility of filing for bankruptcy. All discharged loans should be included when filing for bankruptcy. What happens next is contingent on the kind of bankruptcy you choose to pursue. There are options for reaffirming the loan and continuing to make payments. Redeeming the car by paying the loan in one lump amount. Transferring the vehicle to the creditor who will sell it in order to pay off the outstanding debt, and release the remaining. The bottom line When you get a vehicle loan is discharged but you’re still accountable to pay back the loan. After the lender has paid off an auto loan it’s likely that you’ll have to deal with a third-party collection company. The car could be taken away, or you could be sued to recover the loan. Charged-off accounts also damage ones credit scores. If you are behind on auto loan payments the first step is reaching out to the lender or collection agent 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 likely contact 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down otherwise complicated topics into digestible pieces.

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