What if none of the above options works out?

If the payments are not made as mentioned in the agreement, then it is deemed as default. The apparent fallout of this is that the lender/bank might repossess the loaned car. Depending on the loan agreement, the lender/bank will send the borrower a written notice of default asking them to make the payment of the remaining balance on the car loan or face repossession of the car. If the notice is not honored within the time mentioned in it, the loaned car will be repossessed.

What do banks do with repossessed cars?

A repossessed car is often sold at an auction to pay off the default loan amount. The auction details are well advertised and done in a commercial manner. Usually, the lender/bank informs the customer at default about the place and timing of the auction so that if they want to bid or just see how the auction goes they can do so.

Borrower's troubles do not end when the repossessed car is sold off at an auction. There could be other serious fallouts of the default for them. The borrower's credit record will be affected and the borrower might not be in a position to avail any new loans for the next 7 years. This might force them to get into the bad credit market where the interest rates are threateningly high!

The borrower might also have to face a default judgment. A default is the difference between the value of the car at the time the lender/bank sells it and the actual outstanding loan balance that the borrower owes on the car loan. If not, the lender/bank could move to the court to claim it.

On the other side, if the car is sold off at a higher price than the money owed by the borrower to the lender/bank, the surplus amount will be reimbursed.