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What Is the First Payment Default Rule on an Auto Loan in CA?

The First Payment Default Rule is an important aspect of auto loans in California. This provision mandates that the first payment on an auto loan must be made at the time of taking out the loan, and is intended to safeguard lenders against possible losses and ensure that borrowers are committed to their loan responsibilities.

In California, the First Payment Default Rule is codified in the state’s Commercial Code Section 9607. This section indicates that borrowers must make the initial payment on their auto loan at the moment they sign the loan agreement, before taking possession of the vehicle. This is because the first payment on a motor vehicle loan is due when the loan is executed.

The rationale behind this rule is simple: lenders want to make sure that borrowers are serious about their loan obligations. By requiring the first payment upfront, lenders are better able to ensure that borrowers are committed to making their payments on time and in full.

It’s important to note that the First Payment Default Rule applies only to auto loans and not to other types of loans. Additionally, it only applies to loans that are secured by a motor vehicle. This means that if you take out a personal loan to buy a car, the First Payment Default Rule may not apply.

There are some exceptions to the First Payment Default Rule. For example, if you are refinancing an existing auto loan, the first payment may be due at a later date. Similarly, if you are purchasing a vehicle from a private seller and obtaining financing through a lender, the first payment may not be due at the time of the loan agreement.

It’s also worth noting that lenders may have their own policies regarding the First Payment Default Rule. Some lenders may require a larger down payment or a higher credit score to offset the risk associated with the first payment default.

In conclusion, borrowers must make their first payment on an auto loan at the time they sign the loan agreement to comply with California’s Commercial Code provision known as the First Payment Default Rule. This rule aims to safeguard lenders from potential losses and verify borrowers’ commitment to fulfilling their loan obligations.It’s important for borrowers to understand this rule when taking out an auto loan in California.


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