Must I still pay my charged-off car loan?

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Tara Baukus Mello

Tara Baukus Mello

Dear Driving for Dollars,
I have an old auto loan I was trying to make payments on, but the company recently charged it off. Can they continue to charge interest if they have it charged off as a bad debt?
-- Tammie

Dear Tammie,
Yes, a lender can -- and often does -- charge interest on a car loan that has been charged off. A charge-off is technically an accounting issue that moves the account from the asset column to a liability. You still owe the money. It just means that lender doesn't believe you will pay. It doesn't change your original car loan terms, which is why interest continues to accrue. It also may signal that the lender is getting ready to turn over your loan to a collection agency.

If the account hasn't yet been turned over to a collection agency, you might reach out to the lender, and see if you can get it to agree to a flat amount to make the loan paid in full, and make the terms something you can manage. If it's been a long time since you've made a payment, you could look into the statute of limitations for your state to learn how much longer the lender or the collection agency can try to collect from you. Keep in mind the charge-off will remain on your credit report for seven years, and it could affect your ability to get future car loans and the interest rate you are offered.

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