What Is the First Payment Default Rule on an Auto Loan?

The lender for your auto loan sets several rules in the terms of the agreement. One of these is often a first payment default rule that accelerates your loan going into default when you are late on your first payment. Pay attention to these rules to avoid having your car repossessed shortly after you buy it.


Auto Loan Default

Your auto loan will go into default when you fail to make payments as agreed in the terms of the loan. Ordinarily, it takes anywhere from 90 to 120 days of failing to pay or underpaying before the loan will be in default, according to Cars Direct. However, many lenders set a different timetable for default for the first payment on the loan.


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First Payment

Lenders often include in the loan agreement that the loan will be in default if the first payment is late. In some cases a payment is late if it is not received by the due date. Other lenders include a grace period of five to ten days before the loan enters default from a missed first payment. Strict rules apply to the first payment because missing this payment is a sign of an irresponsible borrower or fraud.



When you miss the first payment and your loan goes into default, the lender will repossess your car. At this point you have a few options. You might be able to reinstate the loan by paying the amount of your late payment, late fees and the lender's costs incurred while repossessing the vehicle. If you do not try to reinstate your loan, the lender will sell the car and require payment from you for any remaining loan balance that the sale of the car did not cover.



To avoid first payment default, make your first payment on an auto loan as soon as you can, even if the deadline is still weeks away. This will keep you from forgetting about the payment when it comes due. If you are paying through an electronic transfer, call your lender on the day it is due and make sure that the transfer was set up properly and went through. And of course, before signing a car loan, crunch the numbers to ensure that you can afford your loan payment.