Are you in a fix and unable to make your auto loan payments? Perhaps you’ve already missed your payments for days or weeks and are wondering what’s next.
What happens if you fail to repay your debt on time and become a commercial vehicle loan defaulter?
Well, the penalties of an auto loan default come into play. But, there’s a grace period before this occurs. Also, the severity of these loan default penalties varies depending on the type of loan, terms, and lender.
Let’s talk more about commercial vehicle loan defaults below.
What Does It Mean To Default On a Loan?
To default on a loan means failing to pay back a loan as per the terms of the loan agreement.
When you borrow money from a lender, you must sign a contract agreeing to repay a specific amount, in a certain way, for a certain period. It could be daily, weekly, or monthly payments for one, two, or more years.
Defaulting happens when you fail to repay the agreed amount as regularly as you’re supposed to for several consecutive days (more about this below).
How Auto Loans Default Work
When a borrower misses their regular payment, the lender will send reminders to inform them of the contract breach.
These reminders serve as notifications that the borrower needs to take action to return to compliance or risk becoming a defaulter and getting penalized.
Usually, lenders give borrowers enough time to save the situation before categorizing them as defaulters.
The period between a borrower’s last loan payment and their categorization as a commercial vehicle loan defaulter is often called the delinquency period. It varies depending on the type of loan being repaid and the lender.
For commercial vehicle loans, borrowers have between 1 and 90 days of non-payment before it becomes a loan default.
So some lenders can set the delinquency period for their commercial vehicle loans as a minimum of 1 day, others the maximum of 90 days or anything in between. For other loans, like a mortgage, the maximum period of loan delinquency is usually 30 days.
We always advise consumers to contact their lenders when their vehicle loan is in delinquency to avoid defaulting.
Most lenders, particularly non-bank vehicle loan financing companies, are always willing to create new payment plans that their consumers can manage. You could get a payment holiday or have the vehicle loan terms extended based on your situation.
It’s essential to note that banks may not offer similar options to prevent loan defaults. Their loan repayment process and overall financial products are less flexible than alternative auto loan finance options.
Because of this, alternative commercial vehicle loan lenders, like Mission Financial Services, are changing the credit market. They’re becoming the leading finance solutions among business owners.
If the delinquency period ends before you contact your auto loan financing company and revisit the loan terms, you become a vehicle loan defaulter.
The lending company can penalize you and attempt to recover their funds according to the loan agreement.
You’ll have a 10-day grace period before you face the consequences of defaulting on your commercial vehicle loan.
What Happens If You Are a Commercial Vehicle Loan Defaulter?
If you become a car loan defaulter, your credit rating decreases drastically. It also affects your ability to get credit in the future, especially if you made a personal guarantee to repay the loan.
Loan default penalties for personal loans may differ from those for business loans. But, overall, the lender can do the following:
Repossess Your Vehicle
Vehicle repossessions are the most common penalty when car loan borrowers fail to pay their debt. This is because the vehicle acts as security for auto loans, and unless the loan gets paid in full, the car legally belongs to the lender.
Sell Your Vehicle
In this case, lenders aim to make enough money to cover the outstanding loan balance.
So if the vehicle fetches less than the principal plus interest amount owed after the sale, the lender can mark a lien on your other property to clear the debt.
This means the lenders can get court orders to repossess some of your other property and sell to clear the remaining cost. It all depends on the loan documentation.
Loan Agency Collection
Debt collectors can harass you, especially if you made a personal guarantee to pay the loan.
Can You Get A Commercial Vehicle Loan With Bad Credit?
Yes, you can get a commercial vehicle loan with bad credit. However, it might be tricky, especially now that the number of loan defaulters is growing.
Last year, vehicle loan defaults increased by 16.9% from the previous year (2021). So lenders are careful to only loan out to business owners with good credit to minimize their risk of getting losses.
Also, lending institutions are stepping back from financing vehicles. Meaning your chances of getting a car loan to purchase or repair business vehicles if you have bad credit are fewer.
Consider getting your vehicle loan from a non-bank lending institution instead of a bank. You’ll have better luck with them as some won’t check your credit score to offer you a loan.
You may have to make a down payment and present your recent bank statements plus proof of income to get approved. Ensure you have these documents when applying for a loan with alternative lenders.
An example of such a lender is Mission Financial Services. The company has specific loan products for people with bad credit scores. If you’re interested in partnering with Mission Financials, check out this article on how to get a loan for a semi-truck for step-by-step instructions on financing your trucks.
As you can tell, defaulting on your loan has a long-term negative impact on your credit. It could also affect your business’s credit and prevent you from expanding your business operations.
If you’re struggling to make your loan payments, contact your lender and request loan restructuring before you become a defaulter. Many lenders are willing to work with you to make the loan manageable and avoid the cost of dealing with defaulters.
For any questions or concerns about commercial loan defaults, contact us. We’re always available and ready to help!