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Cars depreciate, often dipping in value below what's owed on them still. And selling at an action usually recoups less than the optimal sale price as well.
The car is a security on the debt. If the car is repossessed, that doesn't erase the debt.
Look at it from the perspective of real estate. It often happens that when a home owner doesn't pay the mortgage for consecutive months then the bank will foreclose. Maybe the principle of the mortgage amount is higher than the value of the home; this happened a lot a few years ago due to sub-prime lending. The amount owed to the bank is reduced by the amount which the bank sells the home.
Let's say that my home is worth a half mil, and I have a $100,000 mortgage which I can't pay. The bank can seize the home and sell it, take their $100,000 and then they still have to give me back the rest.
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Yes, they can do that. If you owe $8,000 for a car loan with the car a collateral, they seize the car and sell it for $5,000, you still owe them $3,000. They can report this to credit agencies and take you to court for it.
At that point, it was paid but you owed on the loan still. I'm afraid that posting something with a credit agency isn't proof of payment, nor is it proof of a debt.
Anything else about this to discuss?
I'm not sure if you've had a chance to read our discussion. Is there more to talk about? Any new developments? I'm still here.