What happens if I default on car finance in NZ?

If you have missed a payment, or you know the next one is going to be missed, you are probably wondering how bad it gets and how fast. It helps to know that the process has stages, not a single trigger. Each stage is a chance to change what happens next.

This page follows the sequence in order. For the detailed rules on repossession itself, our page on whether your car can be repossessed goes into the notice, the hours and what an agent may do. For life after a default is on your file, see car finance after a default.

The sequence, in plain order

1. You miss a payment

On its own, one missed payment is a breach of the contract, not yet a default on your credit file. Your lender will normally contact you by phone, text, email or letter. It may add fees. Your contract says what they are, and the rules say they must be reasonable and relate to the lender’s costs.

For loans classed as high-cost, which means an annual interest rate of 50% or more, Consumer Protection says default fees for a missed payment must be $30 or less, and you cannot be asked to repay more than twice what you borrowed. Many car loans are not high-cost, so your contract is the document to read.

2. The lender chases

Lenders and debt collectors are allowed to ask you for payment, to set up or review a repayment plan, and to find out why a plan was not followed. They can contact you by phone, post or email before visiting in person, unless you agreed to visits. They cannot use force, harass you, mislead you about the debt, or tell your family, friends or employer about it without your permission.

Most importantly, they cannot carry on collecting or repossessing while a dispute or a hardship application is unresolved.

3. It goes on your credit file

Consumer Protection describes a default as a payment over $125 that is overdue by more than 30 days, where the lender has tried to recover the money. Once listed, it can stay on your file for five years, even after you repay in full. Repayment history may also be recorded for several years. This is what makes the next loan harder, because a future lender can see it.

4. The repossession warning notice

A lender can repossess only if the contract allows it, you have missed payments or broken another term, and it sent a warning notice at least 15 days beforehand. The notice has to say what you did wrong and how to fix it. The exception is where the lender has reasonable grounds to think the car is at risk of being hidden, damaged or sold.

5. Repossession, or a court claim

If the problem is not fixed, the lender can take the car, hire a collection agency, sell the debt, take you to court, or in some cases take money from wages or benefits where the contract allows. A court judgment is a separate entry on your credit record.

6. What remains afterwards

After a repossession and sale, any shortfall is still owed, but extra interest, fees and collection costs stop being added. We cover how the numbers work in do I still owe money after repossession.

What lenders actually want

Most lenders would rather agree a plan than repossess a car. Consumer Protection says that many lenders prefer to change the repayments than to chase missed ones. A car that has been taken and sold at auction often brings in less than the loan, so a repossession is often a poor result for the lender too.

That is why the best first move is almost always a call or an email. Say what has happened, what you can pay, and from when.

Your options, in order of effort

1. Ask for time or a smaller payment. Ask for more time to pay, a smaller amount spread over a longer period, or a repayment holiday. Extra interest and admin fees may apply, so ask what the total cost will be.
2. Apply for hardship relief. For events like losing work, serious illness or injury, a relationship breakdown or a partner’s death. Apply in writing, say which option you want, explain the event and add proof. The lender must give its decision and reasons within 20 working days and must pause repossession while it decides.
3. Bring in a free financial mentor. MoneyTalks on 0800 345 123 is free and confidential, and a mentor can speak to the lender for you.
4. Hand the car back voluntarily. Consumer Protection says that returning the vehicle means you would still owe money, but the debt would not include penalty interest or repossession costs. It is a last resort, though, not a first move.
5. Look at insolvency options if nothing else works. The Insolvency and Trustee Service can explain a No Asset Procedure, a Debt Repayment Order or bankruptcy. Secured debts such as a car loan are treated separately in bankruptcy, so get advice before choosing.

A worked example, for illustration only

Say you owe $8,000 on a car loan and your weekly payment is $90. You lose shifts and fall behind by four weeks, which is $360. The figures are made up and not a quote.

What you do	What it can mean
Nothing, hoping it sorts itself out	Fees add up, the arrears grow, a default may be listed and a warning notice may follow
Phone the lender in week one and ask for $60 a week for three months	The payment drops for a time, the loan costs somewhat more in interest overall, and the car stays with you
Apply for hardship in writing with a letter from your employer	The lender has 20 working days to decide and must pause repossession while it does

None of these is a promise of how a particular lender will respond. The pattern is what matters: the earlier and clearer you are, the more room there is.

If the debt is already a default

If a default has been listed, check whether it is correct. Confirm the amount, the date and the company. If something does not match, ask the company that listed it to investigate, and put that in writing. Lenders must not give false information to credit reporting agencies. You can ask each of Centrix, Equifax and Experian for a free report, and a request should be handled within 20 days.

Things not to do

• Do not ignore letters. The date on a warning notice matters and the clock runs from the day you receive it.
• Do not sell the car to dodge the lender. The lender usually holds a security interest in it, so selling a financed car without paying out the loan can count as the car being at risk, and the lender can move without the usual 15 days.
• Do not borrow from a high-cost lender to cover the car loan before talking to a mentor. It can move the problem and make it bigger.
• Do not sign a new deal on the spot, from a collector or a dealer. Take it away and read it first.
• Do not take legal threats at face value. Lenders cannot threaten court action without a genuine legal reason. If you are unsure, ask Community Law or a financial mentor.

If the car is the problem

Sometimes the loan is simply too big for your income, or the car is worth far less than you owe. Say so to the mentor or the lender. A different arrangement, or in some cases switching to a cheaper vehicle, might be worth discussing. We cover the options for changing a loan in refinance car loan bad credit.

Planning for the next car

After a default, the next car loan is a separate decision made by a separate lender, and nobody can promise approval. Time, a settled record and a modest loan all help. Our guide to who will lend to you with bad credit shows the kinds of lenders there are.

If you are ready to talk through your options, answer four quick questions at our check. It is not a credit application, and a broker partner can then call you. You pay us nothing, and lenders make their own decisions.

Sources

• Consumer Protection: payment problems and hardship
• Consumer Protection: debt collection and repossession
• Consumer Protection: loan for your car
• Consumer Protection: credit checks, scores and history
• Consumer Protection: bankruptcy and insolvency