Car Loan Default – All You Need To Know

By | June 8, 2019

Confused about what qualifies as a Car Loan default? Relax; here’s all you need to know!
Car loan default - what, when and how


Car Loans are popular for their convenience, but what happens if you don’t stick to the repayment terms? You do not want to default on your Car Loan for obvious reasons. One, it will destroy your credit history and hurt your Credit Score, and two, the bank might recover your car! But when does a default actually happen? Does making a deferred payment or skipping the it for a month or so constitute a default? Will your car be repossessed then? Find out the answers below.

When Does A Default Happen?

Technically, a Car Loan default happens when a customer repeatedly fails to make the agreed Car Loan payments to the lender/bank that lent the money for its purchase. But is there a prescribed number of payment failures mentioned? Yes. Usually, the Car Loan agreement that you signed with your lender/bank will have these terms clearly spelt out. Everything about your Car Loan, your loan repayment obligations and when you are in default are usually explained here. The agreement may also provide the risks involved and the possible solutions in case of a default.

Though the term ‘default’ has no universal definition to it and differs from case to case, the general meaning of ‘default’ is if you are 30, 60 or 90 days late on not making one or more payments. Having said this, it is vital to know what you should be doing when you wake up to the fact that you might have big difficulties in making your Car Loan payment for the month and avoid being tagged a customer at ‘default.’

The problem starts when you’re afraid you won’t be able to make the Car Loan payment and start to avoid the lender/bank. Never do this. Most lenders/banks will work with payment issues on a case-to-case basis. So, the moment you see trouble in making your Car Loan payment, call up your lender/bank and be honest and explain the reason for the delay in payment. They might have heard the excuse a thousand times before but being straightforward could work in your favour and bring about a mutually-beneficial adjusted term.

Additional Reading: How To Apply For A Used Car Loan

Apart from this, there are many other options available to you. Don’t give up on your car until you try all of these.

  1. Try to talk to your lender/bank to extend your Car Loan duration. For instance, if you had originally taken a Car Loan for 36 months you could request it to be extended to 48 months. This will ensure your monthly commitment is reduced.
  2. Ask your lender/bank if he would consider allowing you to make a deferred payment. It means you will be allowed to skip the current month’s payment and make it at a later date. Explain to him that having a month’s jump on the payment will give you the much-needed flexibility that you need.
  3. See if you can convince your lender/bank to change the payment due date permanently.
  4. Charges are often levied on your late payments. If you feel that these accumulated late charges are actually putting a strain on you and preventing you from making timely payments, ask your lender/bank to waive these fees. If it would help you make a timely payment, the lender/bank might agree.

What If None Of The Above Options Works Out?

As said, if the payments are not made as per your agreement, it is deemed to be a default. The obvious fallout of this is that the lender/bank might repossess your car. Depending on your loan agreement, the lender/bank will send you a written notice of default asking you to pay the remaining balance on your Car Loan or face repossession. If the notice is not honoured within the time mentioned in it, your car will be repossessed.

What Do The Banks Do With Such Cars? How Do They Get Their Money Back?

As said, a repossessed car is often sold at an auction to pay off your default loan amount. The auction details are well advertised and done in a commercially reasonable manner. Usually, the lender/bank informs you or the customer at default about the place and timing of the auction so that if you want to bid or just see how the auction goes you can do so.

Your troubles might not end when the repossessed car is sold off at an auction! There could be other serious fallouts of this default for you. Your credit record will take a beating and if it does you might not be in a position to avail any new loans for the next 7 years. This might force you to get into the bad credit market where the interest rates are ominously high!

Additional Reading: Your Quick Guide To Used Car Loans

Next, you might face a default judgment. Default is the difference between the value of the car at the time the lender/bank sells it and the actual outstanding loan balance that you owe on the Car Loan. For instance, if you owe Rs. 4,00,000 to the lender/bank at the time of repossessing but the car only sells for Rs. 3,00,000, you will have to pay the difference of Rs. 1,00,000 to the lender/bank. If not, the lender/bank could move the court to claim it.

On the flipside, if the car is sold off at a higher price than the money owed by you to the lender/bank, you will be reimbursed with the surplus amount.

Can A Regular Car Buyer With Funds Purchase A Repossessed Car At A Discounted Price? How Does This Process Work?

Certainly! Repossessed cars are often sold at a discounted price for obvious reasons, mostly because it is technically not a new car and up for only a resale. As said, repossessed cars are sold at an auction which is advertised. So if you are interested in buying repossessed cars then you can refer to these adverts or also call auction houses or local lenders/banks that repossess cars or local used car dealers. In some cases, you can buy repossessed cars online as some small lenders do it online.

Additional Reading: Top Reasons Why A Car Is A Great Investment

All information including the preferred payment mode, the correct form to be filled, etc. is usually available in the adverts or the lenders/banks, auction houses or local used car dealers or at the place where the auction takes place.

It is advisable to examine the repossessed car before buying it. You can take the help of someone, like a car expert, for this. It is also better to look at the vehicle history report if it is available. A thorough check of the car interiors for defects and if possible taking a test drive will go a long way in ensuring that you buy a car in good condition.

Thinking about getting yourself a new set of wheels? We can help you out with the finances.

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24 thoughts on “Car Loan Default – All You Need To Know

  1. Avatarfull tilt poker code

    This blog is very good and informative. It is pretty hard task but your post and experience provide and teach me how to handle and make it more simple and manageable.Thanks for the tips. Today I am furtunate and I find a lot of nice posts.

  2. AvatarAayushi

    I have a question, can anyone help me sorting out?
    I booked a car on dated 12th of january 2017. As per the rules….. I deposited an advance amount, and all my documents,and id. The showroom seller told me that he would take few days for processing.
    On 20th of january I paid my downpayment money.
    I signed all the checks.
    They brought the car by themselve to my home on 22nd of january.
    But they didnt fetched me signing of any agreement documents.
    They told me that the financer would come after few days for all legal banking criterias. Till now all Fine.
    On 25th of january they told me that there is bank statement problem.
    And now they r saying that if the banking thing doesn’t work, they will take the car away.
    … ¤¤¤ My bank statement is just fine and is upto date with sufficient amount.
    Then where is the problem?

    1. AvatarTeam BankBazaar

      Hi Aayushi, Try talking to the seller and your bank to understand exactly what the issue is. If you are unable to sort it out we suggest that you get legal counsel or consult your financial advisor. Cheers, Team BankBazaar

  3. AvatarSham

    My car loan with HDFC bank.EMI THROGH ECS. THREE ECS RETURNED ON EMI DATE.BUT THAT EMI PAID AFTER WITH PENAL CHARGES.MARCH 2017 EMI NOT PAID FULLY BUT PAID IN CASH RS.3000, So In April 2017 outstanding due EMI one and half .that is March half and April full one EMI dues with me. But middle of April bank repossess the vehicle with his recovery agencies,the agency man argued rudely with my wife and with me, ( loan holder my wife ) and there no any written notice of repossession only gundadardi behaviour with us.We request them we talk with bank tomorrow morning.This repossession action take at night approximately 9 to 10 PM.after action I talk with Bank Authority,but he is given any answer. There were no repo order,no sighing on any paper from agency for taking charge of vehicle,no police permittion letter giving for action.I have ask you can one and half EMI outstanding,action of repossession is right or wrong?

    1. AvatarTeam BankBazaar

      Hi Sham,
      Usually banks take action if you have outstanding EMIs of over 90 days. It is required that they inform about the repossession of the vehicle. They should send you a notice for non-payment and give you time to pay. In case you don’t repay within the notice period, your vehicle will be repossessed. We suggest that you take the help of a legal counsel to sort this issue out.
      Team BankBazaar.

  4. AvatarPritam Ghosh

    I missed my last payment for 20 days what could I do now? Please help me. I have a loan with Mahindra nd Mahindra finance.

    1. AvatarTeam BankBazaar

      Hi Pritam Ghosh,

      You can speak to your bank and ask them to deduct the EMI from your account now. They should be able to initiate a debit. If not, you can make a cheque payment to your loan account.

      Team BankBazaar

  5. AvatarRaghavendra


    I have not paid 2 EMIs currently, the people who call identifying as HDFC bank are threatning to take back my car. I have informed by end of month ill be paying the remaining balance as well as the late payment penalty, but they are still threatning to take back car block my PAN card, my accounts etc..
    Please advise if they can repossess car for just 2 EMI default.

    1. AvatarTeam BankBazaar

      Hi Raghavendra,

      This purely depends on the terms and conditions that you agreed to while applying for the loan. We suggest you read it and cross check if this was mentioned in any clause. You can take it up from there.

      If the terms and conditions do not mention anything about repossession of asset on non-payment, then you can seek legal help to deal with the bank.

      All the best.

      Team BankBazaar

  6. AvatarCar loans Auckland

    Very great information. It’s really a nice and helpful piece of info. I’m happy that you shared this helpful information with us. Thanks for sharing this information.

  7. AvatarRohan

    Hello, i cant able to pay my icici car emi regularly for 5 months . I payed emi, but after the date with panelty. I got legal notice to pay extra 10k for due payment of emi’ that possible that they can take car for just because of due payment of emi .

    1. AvatarTeam BankBazaar

      Hi Rohan,

      Sorry to hear this. This will depend on the terms and conditions that you signed up for while taking your car loan with ICICI Bank. We wish you all the best.

      Team BankBazaar

  8. AvatarK Kumar

    Hello, My car was seized without any notice on 7th Dec. 2016, but I took a signed letter from the recovery agent who came on behalf of then SBH. The next day I sent a mail to the bank manager and the DGM and also visited the branch. The manager informed me that the car would be auctioned within 3 months and he was not flexible for any kind of part payment other than pay the outstanding EMI with late payment fee. later in the month of sept. 2017 SBI has sent me a notice stating that my car would be seized if I don’t clear my outstanding amount which I stopped paying since my car was already seized. On 22nd Dec. 2017 I received another notice stating that my car was seized on 14/09/2017 and that it would be auctioned on 29th Dec. 2017. I had sent a mail immediately to the branch manager and the DGM stating that my car was seized a year back and now I would like to know the why it was kept in banks custody for so long which would have brought down the car’s value. Now that the auction has been done and the buyer of the car has been calling me up for the RC. I would like to know if I can take any action for the delay in keeping my car for more than a year by the bank as they may charge parking charges and other charges. Regards, K Kumar

    1. AvatarTeam BankBazaar

      Hi K Kumar, Your car was probably seized because you failed to make your repayments on time. We’re not sure if taking action against the bank for keeping the car for so long makes for a convincing case since you’ve defaulted on your Car Loan. We advise you to get in touch with your legal counsel if you still want to pursue this case.
      Cheers, Team BankBazaar.

  9. Avatarmeet

    Sir mere frnd ne car mahindra finance ke trf se le hai loan pe bt usne ye car agy kisi or ko sale krdi …2nd party ne bola tha ke wo installment pay kr dainge bt unhone nai ke bnk ke trf se 8-9 mahino baad muje notice aya hai ke muje 397000 ke paymnt krni hogi 10 din ka time diya hai or gaddi wapis krne ko bola nai to arrest krne ko bola muje kya krna chahiye kya ye money installment me ho payege ya nai plz hlp me

    1. AvatarTeam BankBazaar

      Hi Meet, We’d suggest that you approach the lender and speak to them about your situation. If it doesn’t work out, it is better to seek legal advice on this matter. Cheers, Team BankBazaar

  10. AvatarSaurabh gupta

    Hello Sir,
    I have a 4months EMI due from last 10 months, infact I am paying monthly emi regularly but couldn’t clear all the amount at once as I suffered huge loss in my business due to note ban and GST implications. I lost my whole business and came in a small job. I request SBI to gave me 3 months relaxation and extend my loan for three months as I am paying my EMI regularly .Today I got a call from bank representative that you have only two days time. Either you pay the full emi amount or you surrender your car. My current outstanding is 4 lacs and my current Car cost is around 3.5 lacs. So kindly suggest should I surrender my car or is there any other option. And if I surrender my car should I have to pay something or is there any other consequences.

    1. AvatarTeam BankBazaar

      Hi Saurabh, Please contact SBI (or rather visit the branch) and explain your situation to them. It is always better to talk and come to a mutually beneficial solution. If it doesn’t help, then as per the terms and conditions attached to the loan offered, you may have to surrender your car. One main consequence is that the loan default will show up in your credit report and this can hurt your credit score, thereby negatively affecting your chances of getting a loan in the future. Cheers, Team BankBazaar

  11. AvatarSatya

    I purchased a T permit car for Tata Finance 1 year paid EMI and my financial problem than I can’t paid EMI and I surrender my car and Tata finance sell the car without inform me.
    I received letter from lawyer he said pay for outstanding amount otherwise your personal property we sell .
    Company already take my vechial currently not have job or money to pay. kindly help me and give suggestions.

    1. AvatarTeam BankBazaar

      Hi Satya,

      We are sorry about your situation. We suggest that you take the help of your legal counsel or speak to the bank to explain your situation.

      Team BankBazaar

  12. Avatarraj

    i am in a deep dilemma, last month i got divorced and had to pay her certain amount. In the meantime, i bought a new car and paying EMI without any defaults. Due to divorce, i had to take another loan to pay her and due to which i have 2 loans which is killing me. Now, i am thinking to surrender the car and take care of my personal loan. I would like to know the consequences, I am surrendering the 1.5 year old car to the bank without defaulting any payments. I also foresee to buy a new flat soon. Please gide.

    1. Team BankBazaarTeam BankBazaar

      Hi Raj,

      Thanks for writing in. We’re so sorry to hear of your dilemma.
      Voluntarily surrendering your vehicle may be slightly better than having it repossessed. In this case, if you are unable to make the loan payments, you can hand over the vehicle to the lender and it will be sold to service as much of the outstanding debt as possible. Voluntarily returning the vehicle also shows that you’re taking some responsibility for the debt you owe.
      The proceeds from the sale of the car will go towards the balance you still owe on the loan. If there is still a huge balance amount remaining after the sale and you aren’t able to pay it off, the lender might hand it over to a collection agency. This may result in a collection account being added to your credit history.
      In case the balance amount after the sale of the car is minimal, it is the discretion of the lender to forgo the unpaid balance. In this case, the forgone amount will likely be counted as additional income, which means you will have to pay tax on it.
      In the event that you voluntarily surrender the vehicle, your credit report will still indicate that. It will be listed as a voluntary surrender and any remaining balance will continue to be reported. Though both repossession and voluntary surrender are negative for your Credit Score, voluntary surrender might hurt your Credit Score slightly less than repossession.
      If you’re on the lookout for loans to purchase a flat, click here to explore Home Loans. Hope this helps!

      Team BankBazaar


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