How to Manage a Car Loan

By: Tristin Hopper

Car Loan Default

Whether it's due to job loss, divorce or even an accounting error -- the day might come when you'll default on your car payments. Every loan will have its own rules regarding a default, but in most cases, a default can prompt an immediate repossession of your car.

Across much of the United States, defaulted cars can be seized from your property without notice -- at your expense. As long as repossession agents return the personal belongings found inside the car, the procedure is completely legal.


Once your car has been repossessed, you may be able to get it back by paying off the balance of the loan -- as well as any towing or storage fees. Failing that, the lender will usually decide to sell the car at auction.

Even after the car is auctioned off, you may still find yourself owing a "deficiency." Say that you owe $5,000 on a car that gets repossessed. If the creditor sells the car for $3,500, that means you still owe $1,500 on the car. Lenders may decide to sue you for the remaining amount.

Defaulting on an auto loan is extremely damaging to a credit rating. Following repossession, it may take up to 7 years before your credit rating is stable enough for you to obtain another loan [source: Melo].

So, what should you do if you find yourself thinking of tree air fresheners, Harry Dean Stanton and Emilio Estevez, and all of a sudden someone says, "Repo Man"? Hot foot it over to the next section to find out.