When buying a car it’s understandable that many people get caught up in the excitement. They just want to get that car loan sorted, finalise the purchase, take delivery and get behind the wheel of their new drive. In the excitement, some issues may be overlooked or perhaps we don’t pay as much attention to some of the details as we should. We can all possibly relate to doing that at some stage of our lives. But we shouldn’t – finance is important.
When you have Jade Car Loans arrange your personal car loan, your Jade consultant will explain all the details of the loan and provide you with general information around loans. It’s not just part of our professional service, it is our obligation as a credit licensee and under the Responsible Lender Guidelines and the National Consumer Credit Protection Act.
One of the key issues to understand is defaults. No, not falling back to a previous position like default settings on a device. To default on your loan refers to unpaid repayments. It’s a topic to be taken seriously as it can have an impact not just on your current loan but on your financial future.
We’re taking the time to explain what a loan default is, its impacts and what you can do to avoid defaulting.
Q1: What is a Default?
A ‘default’ is an overdue or unpaid payment which is 60 days or more old. The term can apply to all types of payments – credit cards, electricity bills, phone bills and all types of loans, including car loans. If a payment is late and paid within 14 days it is classified as a Late Payment. When the debt is outstanding for 60 days it is classified as a loan default.
Both Late Payments and Default attract fees and can have serious consequences.
The consumer law sets out the process that lenders must adhere to in addressing late payments and defaults.
Q2: How does a default happen?
In most, if not all car loan contracts, the lender and borrower will agree to an automatic payment system for the monthly repayments. That is, the repayment will automatically be debited from your nominated bank account each month on the agreed date. This direct debit is set up in the final stages of finalising your car loan and requires you to sign an approval to allow the lender to deduct the monies from your account.
All Jade Car Loans have fixed monthly repayments so it will be the same amount deducted each month from your account on the same date.
A default happens when you do not have sufficient funds in that account on the set date to cover the monthly repayments for several months, ie 60 days or more.
Q3: What happens if I default?
There are different stages in the default process and how it plays out may depend on the lender and individual negotiations between the lender and borrower, so we are covering some general processes as a guide.
- Most importantly first-up – do not ignore the situation! It won’t go away unless you take the appropriate actions.
- If you miss a payment by just a few days because you had insufficient funds in your account on the set date, the lender may not take official action but is entitled to charge you a late payment fee.
- When you take out a Secured Car Loan with Jade, the fees and charges from that individual lender will be provided to you in detail.
- Default charges vary from lender to lender. To get a general idea of default and late payment fees on car loans, browse some of the major banks websites and you’ll see these fees detailed.
- If you don’t make your loan payment, you will receive some form of communication from the lender advising you that you have missed a payment and what action they want you to take to rectify the situation.
- If the required action is not satisfactorily carried out and more payments are missed, up to 60 days, the action on the part of the lender can escalate into the loan default process.
- The default is recorded on your Credit Report and will impact your Credit Score. Lenders and providers are required to report both late payments and defaults and these types of entries on your credit report are difficult and in many cases, impossible to have removed. This may impact your future by making it more difficult for you to get loans and other credit in the future.
Q4: Will I lose my car if I default?
- With a Secured Car Loan, the car is accepted as security or guarantee against the loan. So if you default on your car loan payments, the lender has the right to repossess the vehicle and sell it to recover the monies owed.
Q5: How do I avoid Defaults?
- With your car loan, the monthly repayment will be due on a set date each month. With Jade Car Loans it will be a fixed amount and the lender will automatically deduct this amount from the account you nominated.
- Key to avoiding any type of loan default or late payment is to make sure you always have sufficient funds in that bank account on the set date.
- If you’re facing financial difficulties and can’t make your monthly repayments, contact your lender to discuss the options or speak with a financial advisor about your individual circumstances.
Defaults are important and you should read all the information provided to you by your Jade consultant around consumer lending.
For more information on car loans, read more of our articles or speak with a Jade Car Loans consultant 1300 000 003