Auto loan delinquency: What it is and how it impacts you
Quick insights
- Auto loan delinquency occurs when you miss a payment towards your auto loan on its due date, though some lenders may allow a grace period.
- Auto loan delinquency can turn into auto loan default if payments continue to be missed, leading to more severe consequences such as repossession of your car.
- Communicating with your lender can help you navigate the steps you can take to help prevent delinquency or avoid falling into default.
Life happens—financial responsibilities build up, unexpected situations occur and honest mistakes can result in missing a payment towards your auto loan, potentially leading to loan delinquency or default. Let’s explore what these terms mean, how they can affect you and what you can do.
What is auto loan delinquency?
Loan delinquency is when a borrower misses a payment on their loan payment due date and does not make a payment within the grace period after the payment was supposed to be made (about 10 to 15 days, but can vary by lender). This same logic applies to auto loans. If you miss your auto loan payment and don’t make it within a certain period, this is considered an auto loan delinquency.
Once a lender deems a payment delinquent, this gets reported to the credit bureaus—Equifax(R), Experian(TM) and TransUnion(R). Loan delinquencies are negative marks that can appear on your credit report and may negatively affect your credit score.
Sometimes lenders offer a grace period—this is often stated in your loan agreement. The grace period is the time after your payment due date in which you can still make your payment and not go into delinquency and the duration can vary by lender.
If you know that you’ll be unable to make a payment, contacting your lender as soon as you can may help avoid becoming delinquent.
Auto loan delinquency vs. auto loan default
While both loan delinquency and loan default are serious, missing a payment for a short period of time has different consequences than if you miss them over longer periods of time. Let’s breakdown the difference between delinquency and default below:
- Auto loan delinquency occurs if you miss your payments for a short period of time (for example, about 30 days).
- Auto loan default occurs if you do not fulfill the terms of the loan agreement by consistently missing payments or failing to make them entirely over a longer period of time (for example, 90 days or more). Note that delinquency comes first before falling into loan default.
Defaulting on a loan can have more serious consequences than delinquency. It may lead to repossession of your vehicle and can have a bigger impact on your credit score than delinquency.
Consequences of auto loan delinquency
The consequences of auto loan delinquency can vary depending on your lender and terms, but may include:
- Late fees, adding to the cost of the loan
- Negative impact to credit score, which can make it more difficult to secure lines of credit or better terms in the future
- Risk of loan default and repossession if delinquency continues without attempts to make the  delinquent payments
What to do if you can't make your car payment
There could be many different reasons why you’ve missed a payment, from dealing with sudden, unexpected expenses to making an honest mistake and forgetting. This is where communicating with your lender can be helpful. Letting your lender know as soon as possible about a missed payment and painting a clear picture of why it was missed may help open the door to discussing payment plans. This may help protect you from having further damage to your credit score and can help you avoid making more missed payments, which can lead to loan default and repossession.
In some cases, you may consider refinancing your current auto loan, which could potentially help you obtain a lower interest rate or monthly payment, to help prevent further missed payments. Finally, selling your car may be necessary in order to help pay off the loan and avoid accumulating more fees or damage to your credit score.
In conclusion
Like other loans, it’s important to make your payments on time. If you know you are likely to miss a payment, it may be helpful to contact your lender and discuss your options. While auto loan delinquency comes with consequences, you can avoid further harm to your credit and financial situation by taking proactive steps to circumvent auto loan default.
