If I default on my loan, besides affecting my credit and repossessing the car, what can the lender legally do? I know that if they sell the car, they will get enough to pay it off, can they take other measures to get the rest from me?
One of the biggest problems caused by the repossession of vehicles is that a large debt often remains to be paid, even after the consumer no longer owns the vehicle. When a car is repossessed or voluntarily surrendered, the lender usually auctions the vehicle and applies the amount received at auction to the balance of the loan. Whatever remains to be paid is called a deficiency balance. The former owner is responsible for the deficiency balance, which can leave the former owner on the hook for many thousands of dollars.
If you end up owing a deficiency balance after your vehicle is repossessed, your creditor can proceed with collection actions against you. You could face a lawsuit against you to collect the debt. Depending on your state's laws, if a creditor files a lawsuit and obtains a judgment against you, it may be able to garnish your wages, levy your bank accounts, and place liens on any property you own. To read more about your specific state's laws regarding what property can be taken from you to enforce judgments, I encourage you to visit the Bills.com page about collection laws.
In addition to the risk of the creditor filing a lawsuit against you, having a deficiency balance on your credit reports can significantly lower your credit score and make rebuilding your credit score very difficult. I encourage you to work with the creditor to negotiate repayment terms to pay off any deficiency balance owed on your vehicle.
If you can save or borrow a lump sum to offer a settlement to the creditor, the creditor may be willing to settle the account for significantly less than what you actually owe. Frequently, creditors will settle for as little as 30% or 40% of the balance owed. If you cannot raise a lump sum to settle the account, you should be able to negotiate an affordable repayment plan with the creditor to prevent further collection activity on the debt. Keep in mind that when a debt is settled for less than is owed, you could have to pay taxes on the forgiven debt.
While I encourage you to try to repay any deficiency balance on your vehicle, you should keep in mind that the more time that passes from the time you defaulted on the auto loan, the less impact the account will have on your credit score. Even if you are unable to resolve the delinquency balance, you should be able to rebuild your credit score over the course of the next few years, but you must be responsible with any credit that is extended to you.
To learn more about credit and ways to improve your credit score, I encourage you to visit the Bills.com Credit Solutions and Resources page. I hope that the information I have provided will help you Find. Learn. Save.