Your Lender Goes Out of Business: What Happens to Your Auto Loan

When a lender goes out of business, they have a responsibility to transfer their borrowers' existing loans to another entity.

Two men having a handshake over a clipboard with a pen, car keys and moneyAdobe Stock


Banks and other lenders are just as prone to economic changes as their borrowers, which means it's possible for your auto loan lender to face bankruptcy or insolvency. If your lender goes out of business, you may be wondering whether you'll have to pay back the amount you borrowed to purchase your vehicle.

You will likely still owe the remaining balance of your loan, but the institution you make payments to could change. Therefore, it's important to find out who your new lender is and learn how to make payments so you can continue reducing your loan amount without penalty.

Who Owns Your Car Loan?

If your bank or other lender goes out of business, there are a few different ways your loan could be handled moving forward. Your lender may continue to collect loan payments until all of their existing loans have been paid. In this case, you will continue to pay your same lender, but you won't be able to take out another loan with the same institution.

Lenders often sell loans as a way to pay off creditors when they go out of business. If your car loan is sold to another lender, your new lender will most likely have you pick up your payments where you left off and continue doing business with you according to your contract. They will also most likely contact you so that they can not only notify you of the change, but also provide any necessary information about your loan.

Occasionally, the Federal Debt Insurance Corporation (FDIC) may take temporary control over your loan until it can be sold to another lender or bank. After your original lender has closed, the FDIC will contact you to let you know where to send future payments. Your potential new lender will contact you as well, if applicable.

Paying Off Your Auto Loan

Even if your lender goes under, you are still likely responsible for paying back the remaining balance of your loan. While the conditions of your loan should stay the same, the lender who will be receiving your future loan payments might change. If a change does take place, keep an eye on your loan payments to ensure the new owner of your auto loan is holding to the agreed-upon conditions in your original contract.

When you're contacted about repaying the remainder of your loan after your original lender has gone under, you should also consider asking for proof that the new company legally owns your loan. While unlikely, scammers may take your lender shutting down as an opportunity to steal money from borrowers like you.

Once you've established your new lender, it's important to stay on top of your repayment schedule. Payments more than 30 days overdue can negatively affect your credit score, even if you are dealing with a switch in lenders.

What to Do if Your Lender Fails

If your auto loan lender goes out of business, staying proactive with your loan may help you avoid potential credit issues. Consider following these steps:

  • Contact both your new and existing lenders to find out what you should do to keep in good standing with your loan.
  • After determining who has ownership of your loan and confirming your loan terms, keep up with your payments as planned.
  • Print out and retain any previous financial documents, such as payment records, loan agreements, or any other relevant documentation.
  • Open all letters and emails related to your loan transfer to ensure you don't miss any important information.
  • If you're comfortable doing so, set up automatic payments with your new lender to avoid potentially missing payments.

It's also important to keep your contact information up to date with your lender so you can stay on top of any further changes regarding your loan as well as any new lender guidelines.

This site is for educational purposes only. The third parties listed are not affiliated with Capital One and are solely responsible for their opinions, products and services. Capital One does not provide, endorse or guarantee any third-party product, service, information or recommendation listed above. The information presented in this article is believed to be accurate at the time of publication, but is subject to change. The images shown are for illustration purposes only and may not be an exact representation of the product. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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Elliot Rieth
Elliot Rieth is a writer who was born and raised in Michigan, the center of the American automotive industry. With a background in the industry that spans from sales to digital marketing, Elliot has years of experience working directly with dealers and OEMs to create digital content and educate potential customers. When Elliot isn’t writing about horsepower or EVs, he can be found with his two greyhounds enjoying a new book or record.