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How a car loan charge-off works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct your own research and compare information for free – so that you can make informed financial decisions. Bankrate has agreements 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 website are provided by companies who pay us. This compensation could affect how and where products appear on this website, for example, for example, the order in which they appear in the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other home loan products. However, this compensation will affect the content we publish or the reviews that appear on this website. We do not include the entire universe of businesses or financial offers that may be accessible to you. Westend61/Getty Images

4 min read. Published 25 October, 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the beginning of 2021. They are committed to helping readers gain the confidence to take control of their finances with clear, well-researched facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee

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You have money questions. Bankrate can help. Our experts have helped you understand your finances for more than four years. We are constantly striving to provide consumers with the expert guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate adheres to strict standards standard of conduct, so you can rest assured that our content is honest and accurate. Our award-winning editors and journalists create honest and accurate content to help you make the right financial choices. The content created by our editorial staff is objective, factual and uninfluenced through our sponsors. We’re honest about how we are capable of bringing high-quality information, competitive rates and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for placement of sponsored products or services, or through you clicking certain hyperlinks on our site. This compensation could impact how, where and in what order items appear within listing categories and categories, unless it is prohibited by law. We also offer mortgage or home equity products, as well as other home lending products. Other factors, such as our own proprietary website rules and whether a product is available within the area you reside in or is within your own personal credit score can also impact how and where products appear on this site. We strive to offer an array of offers, Bankrate does not include specific information on each credit or financial product or service. If you’ve got an auto loan that has fallen behind the lender may eventually decide to charge off the loan, which means that the lender is assuming that you aren’t going to repay the debt. A loan charged off doesn’t mean that you’re no longer on the hook for repayment. The charge doesn’t affect the original terms of your loan. In some cases, the lender might pursue repayment with you. Be aware of your obligations and the actions will be taken prior to and after the charge-off. What an auto loan charge-off is charge-off, businesses transfer the account, for example an account, from their asset column to a liability one for accounting purposes. Most lenders do this after unsuccessfully trying to collect a debt for an extended time. For record-keeping purposes it is the lender declares the debt uncollectible. Auto loans generally have to be paid off within 120 days of the non-payment. An auto loan could be paid off in just 60 days, if the lender receives notice by the lender that the debtor has filed for bankruptcy. If lenders or companies take over a debt, they can write off the tax for. However, you still owe the money and nothing about the terms of the loan is altered as a result of the lender adopting this method. The loan remains your sole responsibility for the repayment of the loan. How an auto loan charge-off works When the lender finds an auto loan indebtedness uncollectible, it may decide to start the charge-off process. Certain steps of this process have an impact on you the customer. The debt is shifted from liability to asset. The first step of an auto loan charge-off is simply an accounting classification. The lender moves the loan from its asset column and officially categorizes it into a liability which means the loan is not considered to be income for the lender. Instead, it’s deemed a loss. Notice of default. Depending on your state, the lender may be required to issue an official notice of default, and offer you the chance to repay the outstanding amount. This is not the case for every state. A third-party collection agency may take over collection. Most of the time, when the initial lender is able to charge off the loan and then sends it to a third party, like a collection agency, who is responsible for pursuing the repayment of debt. In the collection process, they may also sue you for repayment. If there’s a judgement against you, a portion of your wages may be garnished as repayment. The charge-off will be recorded with credit agencies. Once a debt is charged off by a lender, your credit score also takes a reduction. The reason for this is that the charge-off is typically disclosed to the credit reporting agencies. The credit report will show on your credit report as a charge-off as a grave negative mark indicating you didn’t meet your obligation. This mark can be on your credit file for up to seven years. It is possible to see as high as a 100 point drop in your credit score and may have difficulty obtaining a car loan in the future. Repossession of your vehicle. When secured car loans in which the vehicle is secured by the loan the car could eventually be . A car for years. The car you have financed car loan is typically secured with the vehicle bought with the loan. If you do not make the required payments in time, the lender could take over and sell the vehicle to cover the loss. However, even when you are charged a lender is able to charge off an auto loan and you don’t pay it back, you might be able to keep driving the vehicle — at least for a brief while. Based on where you live and the state you reside in, a lender is obliged to send a default notice and allow you to get the loan up to date before repossession. In such cases you may do so if you or make satisfactory payment arrangements. But it is not the case in all states. this obligation. If you decide to purchase the vehicle, the car doesn’t back the loan and can’t be taken back by the lender. What should you do when the car loan is canceled your car loan has been charged off, there are several options to take. If your account has not yet been transferred to a collection agency, you may contact the lender and ask to pay a flat amount to settle the outstanding debt. This is referred to as a You might also attempt to negotiate loan terms that are more suitable for you. You can also research the statute of limitations for your state in order to determine how long a lender or a collection agency will continue to try and collect from you. The statute of limitations varies from three to 10-years from when you default subject to the place you live. Keep in mind that the charge-off can stay on your credit record for seven years, and will affect the ability to qualify for further automobile loans. Charge-offs on loans can also impact your future interest rates So, resolve the debt as soon as you are able. If you’re experiencing financial problems it’s possible that you’re thinking of declaring bankruptcy. All canceled loans must be included in the bankruptcy filing. The next step depends on the type of bankruptcy you pursue. Options may include: Reaffirming the loan and making payments. Redeeming the car by paying off the loan in a lump amount. Transferring the vehicle to the creditor, who will sell it to pay off the outstanding debt and then discharge the rest. The bottom line is that when the car loan is canceled but you’re still accountable to pay back the loan. When the lender has canceled an auto loan then you’ll probably have to deal with a third-party collection agency. Your car can be repossessed or you could be sued for repayment. Accounts that are charged off can also harm your credit score. If you are behind on auto loan payments the first step is contact the lender or collection agent to pay off the loan or negotiate reasonable repayment terms. You may even seek a car loan settlement. If you’re sued to repay, you must 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. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to manage their finances through providing precise, well-researched and well-researched information that breaks down otherwise complicated topics into digestible pieces.

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