Defaults: Car Finance Jargon Busters
So what does it mean if you have defaulted on your car finance repayments? And if you have "defaulted" what does that actually mean? 🤔 Missing car finance repayments is a serious matter. Not only will it be stressful for the borrower knowing that they are behind on their financial obligation but it could also lead to them defaulting on the loan. When the borrower fails to pay back what they owe, the lender could send a notice of default which means that the car finance agreement has been broken. So what are the consequences of a car finance default and how can you avoid being in this situation? Find out with this car finance jargon buster guide.
What is a Notice of Default?
If you have a car finance agreement, it is a contract between you and the lender where you agree to repay your loan every month for a set number of months. The contract states the amount you have to pay, when the due dates are, and other important details you need to know so you don’t miss any payments.
But what if you encounter some issues that affect your financial status and your ability to repay the car finance company what you owe? If you don’t act fast and inform the lender about this problem, you might end up missing payments. If you fail to repay the loan for three to six months, the lender would be forced to send you a notice of default.
The notice is a formal letter informing you about your financial obligation with the car finance company. The letter will state a specific period, such as 14 days for example, where you need to respond to their demand. It’s important to get in touch with the car finance company because ignoring the notice of default could lead to more serious legal consequences.
Steps to Take Upon Receiving a Default Notice
When you receive a notice of default from your car finance company, it doesn’t automatically mean you have already defaulted on the car finance agreement. It is a warning that you are close to defaulting on your loan because you’ve missed several payments. While it can be quite frightening to receive a default notice, know that this is the lender’s way of giving you a chance to get back on track with your financial responsibilities.
Don’t Panic
The first thing to remember upon receiving a notice of default is to not panic. Usually, when we panic, we just freeze and do not do anything about it. Bear in mind that the sooner you act, the better it would be for you because you can do something and avoid getting into some serious mess with the car finance company. Typically, you will have 14 days to respond to a notice of default.
Check the Default Notice
Don’t be afraid to open the letter. It’s important to read it as soon as you get it so you can check if everything stated in the notice is correct. Review everything, from your personal details to the amount you owe the car finance company. If you see any errors, get in touch with the lender as soon as you can.
Pay the Required Amount
If there are no mistakes, check how much you are required to pay so you can meet the demands of the lender. Review your finances and pay the amount if you can so your account with the car finance company won’t default. If this is possible for you to do, then you don’t have to worry about things getting worse. You only have to make sure that you’ll make the repayments on time in the future.
Request for a New Payment Plan
If you’re in a really bad financial state and can’t afford to repay the required amount, contact the car finance company and ask if you can request a new payment plan. If things go well and the lender agrees, then they might be able to arrange a repayment plan whereby the amount you have to pay every month will be smaller. What’s important is for you to explain to them your situation. Be honest and let them know you’re willing to pay back the amount you owe.
Ignoring the Notice is a Bad Move
Some borrowers could be in a really bad state financially that it’s difficult to face things like a notice of default. However, ignoring it is a bad move and could only lead to more serious problems and a lot of stress.
If you don’t respond to the default notice from the lender within the given time frame, it’s possible that a debt collection agency will be the one to demand repayment from you. The lender could also take you to court and it’s possible that you end up with a county court judgment. Also, the car finance company can take back or repossess the vehicle so they can sell it and get back the money they’ve lost.
Will a Default Affect My Credit Score?
A default notice alone won’t do anything to your credit score, if you take action immediately, respond, and pay the required amount, then there’s nothing to worry about. You just have to make sure to not miss any payment anymore. However, since you’ve failed to make payments on time previously, then that’s going to negatively affect your credit score.
What happens if you don’t pay and allow your account to go on default? The default will be recorded in your credit history and it will stay there for six years. Having this on your credit report can affect your ability to get credit from other financial institutions so do what you can to avoid this situation.
Takeaway
A notice of default is a serious matter and shouldn’t be taken lightly. A default notice is the lender’s way of informing you that you can still do something about your late payments. The sooner you respond, the better it will be for you. As much as possible, don’t allow things to get worse because defaulting on a car finance agreement can lead to legal issues and affect your capability of getting a loan or other financing products in the future. Most of all do contact your lender - you will maybe be surprised that they will do their best to help you! 👍
