Owning a car through the car loan route is simple and easy process that many people prefer over saving money to buy one. There are many circumstances when such customers are unable to repay the installments of loan in time leading to a default situation. There is a lot of anomaly in understanding the technicalities that involved in a car loan default and its remedial action. The financiers as well as the customers do not follow any clearly defined path to resolve the issue resulting in a lot of bad blood being created which can be avoided through better understanding of the situation.
When does a default happen?
The very definition of a default in car loan repayment has not been laid down categorically. Thus the matter is open to interpretation and thereby creates confusion. Technically a default occurs when the burrower fails to pay up a certain number of installments. The exact number of missed payments is as specified in the loan agreement. The financiers allow 2 or 3 months overdue in payments before initiating any action. The loan agreement clearly states the course of action that each party is permitted to undertake in case such a situation arises.
What to do?
In case a default in payment has occurred due to reasons beyond the control of the burrower then it is in best interest of both parties to mutually discuss and resolve the issues amicably. The customer may try out some of the ideas discusses below to wriggle out of the situation.
- Negotiate with the financier to extend the repayment tenure so as to provide adequate opportunity to you to make all the payments. Increasing the tenure by an year could bring down the EMIs drastically which will make it easier to repay on time.
- Explore the option of being allowed to make a deferred payment so that you have some amount of flexibility in your hands that will make it possible to repay on time.
- The due date of payments every month can be changed permanently to a more suitable one by which the burrower can make them payments comfortably.
- The penal interest that financiers apply on the defaulted amount often becomes major hindrance for the customer to continue further payment. Request the financier to waive off as much portion of the penalties as possible in order to make it feasible for continuing the further payments.
What if Nothing Works?
When none of the above solutions work then the default is supposed to have taken place legally and the financier then has the right to take legal action as per the clauses in the loan agreement. The banks usually send adequate notices for the burrower to make good the outstanding payments failing which they seek permission of the courts to possess the vehicle.
In case one is pushed into a situation wherein the default is unavoidable then one must refer to some of the directives that have been issued by the RBI for protection of customers in such cases and the guidelines that the financiers are required to follow while initiating such recovery actions. Any forceful or illegal possession of the vehicle or undue harassment of the customer can be challenged in court subsequently.