Sunday, June 10, 2012

What Happens to Your Car Loan when the Lender Changes Ownership?

Your car loan terms should not change when your car lender changes ownership. In fact, you may not even notice the difference on your end. The debt simply transfers into new ownership, and the new owner then receives your payment. All you need to do is wait for instructions on repaying the loan under its new ownership. This can be a little confusing, but there should not ultimately be any issues.

Loans are Assets
It may be hard to think of things in these terms, but your loan is actually an asset to the lender. It is a source of income that will continue to be received for the life of the loan. As such, your lender can sell this asset for immediate liquidity. This usually happens when a lender itself is experiencing problems with debt. This can also occur if your lending bank fails, meaning it needs to sell its assets before closing its doors. In both cases, a new lender can purchase the asset and begin profiting.
Assets are Sold
There are a number of different lenders who may consider purchasing a loan. These include traditional banks, which is typically the case when a bank fails, or independent investors looking for a new revenue stream. In any case, the lender makes a bid on the loan. This sum is typically more than the initial lender paid you, but it is less than the lender would make if it kept the loan in its portfolio. When a bank sales, it may even sell a loan for a loss. The new lender just got a great deal. The lender can begin collecting your monthly payments each month and soon collect more than it spent in purchasing the loan.
Loans enter Grace Period
While the two lenders work out this deal, you may be stuck without an official lender of record. This only truly occurs when your lending bank fails. In that case, a sale can take longer. The FDIC will step in to handle the sale of all loans, and you may go a few months without an official lender. During this period of time, you do not have to make loan payments; this is called a grace period. You should be aware the payments will be due at the end of the grace period. You should save the funds you would typically send in to pay the loan.
New Lender Takes Over
Once the new lender takes over the loan, the lender has a short period of time in which to notify you of the procedure to continue with loan payment. At this point, you will send in the payments that have come due during the grace period. The loan terms will be constant since the new lender purchased the loan as is. The lender may offer you the chance to renegotiate the terms of the loan at this time. You do not have to renegotiate; if you do, be aware the lender may try to get you to agree to more expensive terms. 
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