Auto Loan Default vs. Delinquency: Is There a Difference
For buyers who want to figure out the difference between auto loan default and delinquency, getting the answer could get them out of a jam, or at least help them to do damage control. There is generally a huge difference between being delinquent on a loan or being in default. Getting the terms straight is the first step to negotiating with a lender to stop some very negative financial situations.
What Is Auto Loan Delinquency?
Essentially, delinquency on an auto loan is simply being late with payments. How delinquent a borrower is represents how long their total past due amount has been unpaid. In other words, a customer who has previously paid on his or her loan, but who has left one payment unpaid for 15 days past the due date is 15 days delinquent on the loan.
Consumer agencies, credit agencies and even media outlets track auto loan delinquency across the country to see how long the average consumer has let their car loan payments slip. Being late on an auto loan is a temporary condition, one that can often be easily fixed by making a payment.
What Is Auto Loan Default?
Being “in default” on a loan means that the loan agreement is broken. Some financial experts use the term default for any situation where the loan is delinquent. This is sometimes called a technical default. However, in the vast majority of cases, any affects of being in default on a loan will only occur when the lender has notified the borrower that they are terminating the loan agreement because of nonpayment. This typically occurs after an auto loan has been delinquent for 30, 60 or 90 days or more. Many lenders will not recognize a loan as in default after 30 days, because there may be a grace period for the borrower to make their payment.
More about Auto Loan Default
Default on an auto loan is generally not good for either the borrower or the lender. As soon as a loan has been identified as in default, the lender can pursue a car repossession and a charge off. The lender will typically take back the vehicle with repossession, resell it, and charge the borrower for the balance. The lender may take this unpaid amount, place it in collections, and consider it a charge off for tax purposes. That means it is an amount of money that the lender expects to lose. This will remain on the borrower's credit report and negatively impact their ability to get loans in the future.
In some cases, a borrower may declare bankruptcy in order to be free of a debt. Collection agencies may attempt to get the borrower to pay what they owe, and bankruptcy is often a means of dealing with multiple creditors who demand money.
In many cases, some damage control on the part of a borrower can prevent a lot of these negative situations from happening. Being vigilant about auto loan delinquency can prevent you from being found in default, and help you to keep the vehicle that you invested in.