Can You Break a Car Loan with Military Orders? Here’s How
The Servicemembers Civil Relief Act (SCRA) grants active-duty service members several protections, including the ability to break a lease agreement without penalties. Under certain circumstances, they’re even permitted to break a car loan. We’ll discuss this in more detail in this article.
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Does the SCRA Cover Car Loans?
Yes, the SCRA can affect loans in two ways: interest rate cap and lease termination eligibility. This is provided that the service member satisfies the conditions for each protection.
How to Be Eligible to Break Car Loan
The SCRA can impact car loans in two ways:
- Six percent interest rate limit: The SCRA mandates that the interest rate for pre-service debt, including car loans, should be charged a maximum of six percent interest rate. This covers both military personnel rendering military service and their spouses.
- Lease termination: According to the Consumer Financial Protection Bureau, active duty servicemembers can terminate an auto lease agreement entered before or during active military service. This is provided that either of these conditions are met:
- The lease agreement was signed 180 days before entering military service.
- The service member received PCS orders (permanent change of stations) from inside the continental United States to overseas. Alternatively, that person must have been sent to a military operation for at least 180 days.
Terminating a Car Lease vs a Car Loan
Understanding the difference between a car lease and a car loan is vital. A car loan allows you to purchase a vehicle by paying for it over time. Meanwhile, a car lease allows a person to use the car for a period.
The SCRA specifically stipulates that lease termination is possible if the agreement was signed at least 180 days before that person entered active duty service. Alternatively, they must have received PCS orders or are required to join a military unit for at least 180 days.
How to Terminate a Car Contract
In case the conditions of active duty military service are met, the service member must follow these steps to end the contract legally:
- Prepare a written notice stipulating the intention to terminate the car loan or lease.
- Provide a copy of one’s deployment orders or evidence that they’re on active duty.
- Deliver the written notice to the appropriate party through a private carrier, certified mail with return receipt via the US Post Office, or electronically.
- Return the car within 15 days after the written notice has been delivered.
Other Auto-Related SCRA Protections
Aside from the interest rate limit and lease termination, the SCRA offers the following auto-related benefits:
- Protection from repossession: Without a court order, repossessing a service member’s personal property, including vehicles, is illegal.
- Ability to stay proceedings: Let’s say the service member is accused of breaching a car contract and is ordered to appear in court for civil proceedings. They can request a stay if their military duty prevents them from appearing.
Consequences of Violating the SCRA
Violation of the SCRA can have severe repercussions. While not honoring SCRA protections may not call for jail time, the financial penalties can be severe. Companies may be required to pay hundreds of thousands in fines if found guilty.
Seeking Legal Assistance
If a service member encounters legal problems, including car-related concerns, they should consult their base’s legal assistance office. Alternatively, they can contact experienced military lawyers who have dealt with similar cases. Seeking expert help can spare service members from possible problems so they can focus on their duties.
Verifying Active Duty Status with SCRACVS
Should a service member choose to activate SCRA protections, they need to present evidence that they’re on active duty service. This is where SCRACVS can help. Sign up today quickly and verify your military status promptly.
FAQs
What does the Soldiers and Sailors Act cover?
Now known as the Servicemembers Civil Relief Act, this federal law grants several legal and financial protections that permit service members to focus on their active duty military service.
Can You Get Out Of A Car Loan With Military Orders?
Yes, getting out of a car loan is possible as long as you satisfy SCRA conditions.
What are the benefits of SCRA?
The SCRA offers several benefits, including interest rate limits, lease termination without penalties, the ability to stay civil proceedings, and protection from repossession.
