What Happens When You Default on an RV Loan?
An RV is a major investment. (Image: Digital Vision./Photodisc/Getty Images)Avoiding Default
Defaulting on an RV loan has serious consequences. Besides losing your RV, your credit score is affected negatively, and you will most likely still owe the bank money. It is best to avoid defaulting on your RV loan. To avoid default, first contact the lender that holds the loan. According to TD Bank, “Time is of the essence” when trying to prevent a loan default. Call the lender as soon as you realize you are unable to make the loan payments. Ask for a loan modification or a short sale. For a loan modification, the lender defers payments and restructures the loan to bring you current and give you affordable payments. If a loan modification is not an option, a short sale may be. A short sale is useful when you owe more on the RV loan than the RV is worth. In a short sale, the lender agrees to accept a reduced pay off amount, which enables you to sell the RV at market value and still fully pay off the loan.
Repossession
If you are unable to make arrangements with the lender to prevent defaulting on your loan, the lender will repossess (take) your RV. Depending on your contract, repossession can happen as soon as one day after your payment is due. It is rare for a repossession to happen so soon, however. A repo person can take your RV without notifying you, but cannot break the law while doing so. For instance, if the RV is parked inside a private locked facility, the repo person cannot break into the building to gain access to the RV.
The Sale of the RV
After your RV is repossessed, expect to receive a letter in the mail from the lender notifying you of the repossession and your rights. For instance, you have the right to recover personal belongings that were inside your RV at the time of repossession. Check your state laws to determine the amount of time the lender is required to give you to pick up your personal belongings. Depending on your state, you may have the right to pay off the loan to get the RV back. The time you are given to recover the RV by paying off the loan is limited, however. Check with your state laws to determine the time frame. If you do not pay off the loan, the lender will sell the RV at an auction or privately. In some states, you have a right to attend the auction and bid on the RV.
Collection
The lender rarely sells the RV for anywhere near the loan amount, which leaves you still in debt. This is especially true when the RV is sold at an auction. In addition, the lender adds repossession fees onto the loan balance. After the sale, the lender deducts the RV sale price from the loan balance and repo fees to determine what you still owe. The lender will attempt to collect the remaining balance from you. If you used your home or another piece of property as security for the RV loan, the lender will place a lien on that property. The lender will also sue you in court for the remaining balance. With a court judgment against you, the lender can get the court's permission to levy (take money from) your bank account and garnish your wages. The only ways to stop the bank levy and wage garnishment is to pay off the debt, ask the court for relief (available if your income is low enough), or file bankruptcy.
Credit
The repossession and lawsuit are reported to the credit bureau, which can seriously lower your credit score. A lawsuit remains on your credit file for 10 years. Future lenders will be less likely to offer you loans with a repo and judgment on your credit report.
