Most people avail car loans from banks to buy their dream cars. Car loans have taken off in India in recent times, as disposable income rises. In 2018, car loans witnessed a growth rate of 18-20%, which is a huge increase. While taking a car loan is not too difficult with the relaxed eligibility criteria, some people knowingly default on car loans, while others just don’t have the money to repay. Economists are of the opinion that the sluggish job market and slowing economy could lead to more car defaults.
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Be ready to face the consequences in case of delayed or missed car loan repayments:
How good is your credit score? It has to be more than 750 to get the car loan sanctioned easily. Banks send information on customer borrowing and repayments regularly to credit information bureaus, which in turn provide credit scores which are impacted by several factors, including delayed car loan EMIs. When payments are delayed for a time period of less than 3 months (90 days), such delayed payments are considered to be minor defaults.
On the contrary, if payments have been reported to be late by more than 90 days, such cases are considered major defaults. Your credit score gets temporarily affected in case of minor defaults. If it’s a major default, the loan account is tagged under Non Performing Assets or NPAs. As a result, you are more likely to be denied a car loan by the banks.
See Also: How to Choose Best Car Loan
When you avail a car loan, you enter into a contract that gives the lender (bank) the right to your car until the last installment is paid. Car hypothecation is a practice where you pledge the car to the bank when applying for the car loan. You get to drive the car and it’s in your possession. The bank can seize the car if a borrower defaults on car loan repayments. If repossession takes place, it is a serious hit to your credibility. It is going to be a red mark in your credit report for 7 years. Not all banks have the same terms and conditions with regard to repossession. However, don’t default on the car loan if you want any loans in the future.
See Also: How to Apply for Car Loan?
It must be noted that your loan account may go into default after a single or multiple missed payments on the basis of the loan category and the lender. Car loans in default are sent to the debt collection department of the bank or sold to a third-party. The collection charges are added to the outstanding balance. You may also have to face a default judgment. As far as car loans are concerned, default is the difference between the selling price of a car and the due amount. If you owe Rs 3 Lakh at the time of repossession and the resale value of the car is just Rs 2,50,000, then you have to pay the difference of Rs 50,000. The bank will collect this amount from you.
See Also: How To Refinance A Car Loan?
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