Auto Loans and Bad Credit: What You Need to Know about What Shouldn’t Happen

You did it; you secured a loan despite your bad credit. Rejoice! Rejoice! So does everything else just magically fall into place? Sadly, it won’t. It’s up to you to pay off this loan and succeed with getting a car. Otherwise, either delinquency or even default could ruin things for you.

Delinquency

So what’s the big deal with delinquency? What is it anyway? Well, think about it this way. If you’re a delinquent, you don’t follow the rules. When you were setting up this auto loan with the lender, you agreed to his or her terms and conditions, one of which is the date of your monthly payments. If you don’t pay on the date that was agreed upon, then you loan would become delinquent. It’s pretty bad since you’re risking your interest rate of having to increase, you’re sure to pay a penalty for paying later than the set date, plus you’re not doing your credit score any favors.

Default

When you hear that someone has won by default, you know that it’s because the opponent dropped out. This is quite similar. If you haven’t been paying for your loan every month or even don’t pay it in full for a while, then your loan is considered defaulted. Usually default means not paying or underpaying for 90-120 days. When defaulted, the lender can repossess it and try to sell it to make up for his or her losses. If there’s still a balance left over, then you still hold responsibility for that.

Oh Great, I’m Late. Now What Do I Do?

If you think you’re going to be late with a payment, or already are, then you need to give your lender a call and tell them. They can defer it for you or work with you some other way. However, you absolutely must try your best to make your payments on time. You know what happens with this one. Because you’re late, you are going to have to pay a late fee as well as see you interest rate climb up a bit. Don’t fret though. If you make on-time and consistent payments for quite some time after that, your lender may consider lowering your interest rate back to the way it was.

I Feel Like I Have to Default. What Now?

Well, it’s probably better to take voluntary repossession as opposed to a forced one. If luck turns for the worse for you and something suddenly comes up resulting in you knowing you can’t pay the way you did anymore, the first thing you could do is to try and refinance the loan. This may help you save enough money with the lower interest rate that would allow you to pay off the new loan and keep the car.

Another option is to sell the car for the remaining balance. If that can’t work out either, then call the lender and explain the situation to them. They would of course ask for the car back, it’d show on your credit report and make it harder to find loans in the future which is bad, but better than repossession.

Default and delinquency are quite different. It’s easier to survive delinquency and it wouldn’t be as harsh to your credit record as default could be. This is why it is important to go through terms and conditions when picking out loans. If you know the terms and conditions well and follow them as agreed upon, then it would be easier to get through your loan and avoid any extra payments or damage to your credit.