When purchasing a car on credit you need to make timely payments each month or else you risk losing your car in a vehicle repossession. That’s why it’s important to only take on a loan you are sure you can afford. It’s also a good idea to have savings just in case you run into temporary financial issues. You should do everything within your power to make sure you don’t default on your auto loan. Nobody likes getting their car taken away. But the loss of your vehicle isn’t the last of your problems. Here are several consequences of a repossession.
Loss Of Vehicle
When you fall behind on your payments your vehicle may be repossessed. This is the single most damaging consequence of missing payments. Your car is not just a shiny toy. It is a tool you use to drive to work, to visit family, to go to the doctor and to drop off your kids at school. If your car is taken from you and you manage to get current on your account you may get your car back, but expect to pay hefty additional fees.
Loss Of Funds
If you’ve been paying let’s say $400 a month and are 25 months into a 60 month loan and then you stop paying, your car will be taken from you. This means you’ve paid $10,000 thus far (principal and interest combined). What do you think happens to all of that money? You guessed it, they keep it, you lose it. So not only do they get your car, but they get all the funds you’ve been paying for all these months (or years).
Expect a car repossession to wreak havoc on your credit score. The moment you miss your first payment, expect a significant drop. Then once you’ve defaulted and the car is taken, you can expect a devastating result. When you have a vehicle repossession on your credit report it is extremely difficult to get another car loan in the future. It will take years of timely payments to repair your credit score.
Let’s say you were laid off and did not have the money to pay for your car. You barely had enough to cover rent. So you miss your car payments and your credit score is hurt. Then your vehicle is repossessed. Now you’ve hit rock bottom. Not so fast. It can get even worse. Let’s say you owe bought a $20,000 shiny new truck. You made payments on it and you now owe $15,000. Then you default on the loan and they take your truck away. Afterward, it is sold at auction to the high bidder for just $10,000. The bank has lost $5,000 on the transaction. You still owe that money. The amount you owe will be reported on your credit report and if need be, they will sue you in court for the balance.