Auto Loan Charge Offs and Car Repossession

When a car customer with a lot of financing can't pay on time, an auto loan charge off might happen. However, most agree that it is in the best interest of the customer to see that it doesn't. Auto loan senders have the system on their side when a buyer puts themselves in a "default" situation by not making the payments that they agreed to. Often, when a default occurs, the lender ends up with the car and whatever cash has been paid, while the customer just ends up with bad credit.

Many times, an auto loan charge off will go hand in hand with a car repossession, and both of these events can happen quickly; when the driver least expects them. Car financing companies and other lenders can legally pick up a vehicle from the street or even a property owner's driveway. In fact, many times, the auto loan lender has the title to the vehicle, or a lien on the title until the last payment has been made.

As an alternative to repossession, a car loan company can freeze the vehicle, but usually, it's more in their interest to do an actual repossession to get the vehicle back into inventory.

Some car buyers mistakenly think that because the vehicle has been repossessed, the debt is canceled, but this is not the case. A charge off does not let someone loose from the responsibility of paying the money. However, it does put them in what most people would agree is a decidedly detrimental position. The driver no longer has the vehicle they paid money on, sometimes for many months. They also still owe an amount of money that is due in-full immediately. The charge-off balance will generally be the difference between what the buyer promised to pay and the amount that the lender can re-sell the car for. Many times, this will be a significant amount of money.

With that in mind, experts counsel those involved in auto loans to do anything and everything they can to protect their investment. Some say drivers who are late making their payments, and without accessible cash, should raid savings and investments, sell assets or somehow raise the cash in the short term to avoid losing out in a charge off situation.

When a charge off has been done, it may look like the damage is done, and the situation may seem to be completely in deadlock. But, some auto loan companies may be willing to make a trade: in exchange for payments up front, the lender can make an attempt to take the bad mark off of the customer's credit report. Otherwise, it would seem that the debt-ridden car buyer would have little reason to pay up for the charge off amount. Generally, after the charge off, the negotiations begin about how to address the situation. Alternately, the lender walks away with everything and the debtor does their own "charge off" by starting over again from square one, using public transit or walking.