What to do if i am unable to pay my car loan

690 votes

Avoiding the lender bank will make your situation worst and depending on your loan agreement the lender bank will classify your loan as non-performing asset (NPA) and send you a written notice of default asking your make the remaining balance on your car loan or face repossession. In such situation, you will face a legal consequences for repayment of your car loan and your repossessed car might be sold at an auction to pay of your default loan amount. And this is not an end, as you might face a default judgement wherein you lender bank could move the court to claim any remaining outstanding loan balance that you owe on the car loan even after the auction. Beside your credit record will be adversely affected. Worst, the lender bank may also file a criminal proceeding under Negotiable Instrument Act for cheque bounce. If you have already received a NPA notice, I suggest you call us for assistance or any other attorney specialized in this field. Proper defending is very imperative in such type of cases.

Since you already made your mind to get rid of your car loan, you cannot enter a transaction with any seller without a 'No Objection Certificate' (NOC) from lender bank. The NOC can only be obtained after foreclosure or after you have paid off your loan. I suggest you speak with your bank and tell them about your situation, try to work with them. Banks are always there to help you out in such situation. Give them a genuine reason. Ask them to waive any accumulated late charges.
The best way to deal with the situation is to first liquidate the loan through own funds or cash raised through a personal loan. Thereafter one can dispose the car at the best possible price and pay off the personal loan immediately. The only loss incurred in such an option includes the personal loan processing fee and the EMI for a month. But this process will fetch maximum value for a used car still under finance.

The other option is to find someone who trusts you to buy the car buy first paying off the outstanding dues. However this method has its own problems apart from the fact that finding such a customer may not be easy under such circumstances. Additionally anyone who intends to bail you out would obviously want huge discounts in the pricing. The actual transfer of ownership will take about a month as the bank will take 2 weeks to give the NOC followed by 2 weeks by the RTO to remove the hypothecation entry in the RC.

You can also ask your lender bank to make an arrangement of a tripartite agreement with you and the new buyer wherein the ownership is till retained with the bank and the only the loan liability is transferred to the new borrower till the outstanding amount is liquidated. However you will still be responsible against any defaults in the future as the car is a moveable property whose hypothecation continues with the bank against you as the original buyer. The banks will charge some amount of additional processing fees and legal charges for entering into such an arrangement.

If your financial situation is really bad, then you may need to file for bankruptcy to free yourself from the loan commitment.

Disclaimer: Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company.

Advocate Robert D Rozario LawRato

878 votes

General rule is you have to pay debt of finance company.the car is hypothecated to the financed company and the finance company has right to take possession of the said car due to non payment of debt.but sometime the finance company agree to OTS of the loan account.

Advocate Debasis Mitra LawRato

417 votes

If you find yourself unable to pay your car loan, it's essential to understand your rights and the consequences. Here's what you should know:

1. Communication with Lender: The first step is to communicate with your lender. Inform them about your financial difficulties and explore the possibility of restructuring your loan or modifying the repayment terms. Many lenders are willing to work with borrowers facing financial challenges.
2. Legal Action: Defaulting on a car loan is a serious matter, but it typically doesn't lead to criminal action. It is considered a civil matter. However, the lender has the right to take legal action to recover the outstanding amount.
3. Repossession: If you consistently fail to make payments, the lender may repossess your car. In India, banks can take action if you have outstanding EMIs for over 90 days.
4. NPA Rules: Non-Performing Asset (NPA) rules apply to car loans as well. Once your loan is classified as an NPA, the lender can initiate recovery procedures.
5. Impact on Credit Score: Loan default can significantly affect your credit score, making it challenging to secure loans or credit in the future.
6. Legal Options: If you believe the lender has violated any rules or you have a genuine dispute, you can consult with a legal expert for advice on your rights and possible legal remedies.
7. Avoiding Default: To avoid default, plan your finances carefully and prioritize loan payments. Consider emergency funds or insurance that covers loan payments in case of job loss or emergencies.
8. Selling the Car: As a last resort, if you cannot afford the loan, you may consider selling the car to repay the outstanding loan amount.

Advocate Chikirsha Mohanty LawRato