So what would happen?
Unluckily, failure to pay car loan is not as clean as you seem to think. First, yes, they do repossess the car, so now you do not have a vehicle. Second, they do sell the car, but here is the problem - if the price the bank gets for the car does not cover the loan plus any costs incurred while repossessing the car, you still owe money. And since cars drop in value very quickly, unless you are 60% or more into the loan, selling the car will probably not cover the balance plus costs. Then, the credit company/bank reports the default to the credit bureaus where it sits on your record for the next 7 years. If you then fail to pay off the balance (if there is one - see selling the car), the debt continues to be reported as an open and defaulted account - which means no loans, credit cards, mortgages for the 7 years. If the defaulted loan is paid off, it still gets reported, but at least it is marked as paid so it might only hurt your credit for 3 or 4 years. Next, one of two things will happen - the bank will either sue you for the balance or the bank will turn the remaining debt over to a debt collector. If the bank sues, they will most likely win and receive a judgment, meaning the court orders you to pay the remaining debt. This judgment also goes on your credit report (making your chances of getting credit even worse) where it stays for 10 years. Also, most states allow the creditor to renew the judgment for an additional 10 years,- in this case, it trashes your credit for a total of 20 years. If you fail to reach an agreement with teh credit on paying back the loan or if you reach an agreement but fail to follow through, the credit can then go back to the court and ask for remedies - the usual remedy is wage garnishment where your employer will be legally required to deduct up to 25% of your pay and send to the credit until such time as the debt is paid off. And just so you know, each of these steps can incur costs (cost of hiring the re-po guy, cost of filing for the judgment, interest continues to accrue, other court costs, lawyer costs) which the court can charge back to you - adding thousands of dollars to your debt.
The only way you'd go to prison for not paying a debt is if you did it frequently with the intent to defraud your creditors. There are no debtor's prisons anymore in the USA (and in most other first-world countries.) Your credit will be trashed, your ability to get loans in the future would be erased--but prison? Not likely anymore. You will not have an easy time in this day and age with credit or purchases, but they no longer throw you in jail for non-payment of debts. Except for one--if you don't pay child support that has been ordered by a court, you CAN go to jail. But child support orders are not debts or loans--they are obligations.
If they don't get all of their money back when the car is sold they can get a court judgement against you. That lets them garnish your wages, seize property or put a lien on property. If they get a lien they get their money when you sell that property. In the meantime you'll never get another loan or be able to open a bank account (because they'll seize any money you have in the bank.) The court judgement stand for the rest of your life and gets transferred to your estate after you die.
You are half right. They take the car back and sell it at auction for less than wholesale value and then pursue you for the deficit. A repossession will ruin your credit and can make it difficult to rent of buy.
the lender will take it, sell it at auction it and chase you for what you still owe. Only a moron or someone who has no other choice would let a repo happen if there is any equity present.
