Military Auto Loans And The SCRA (Servicemembers Civil Relief Act)

female military member working on a laptop

The auto lending and the SCRA landscape in the United States is characterized by many millions of borrowers, with almost 44 percent of Americans taking out auto loans. The additional fact that interest rates are higher for used cars, long-term loans, and those with low credit scores adds to the complexity. This creates a challenging situation that can worsen over time should payments be missed or default occurs.

The magnitude of the auto lending problem can be gauged by the fact that according to a February 2019 article by the Washington Post, there are 7 million Americans who are at least 3 months behind on their car payments across the country. Fortunately, auto lenders may work with military servicemembers under certain circumstances, as outlined in the Servicemembers Civil Relief Act (SCRA).

What is the SCRA?

The SCRA is an important consideration for auto finance companies when a loan becomes delinquent. It provides active duty servicemembers with protections that must be respected to avoid legal repercussions, as per the guidelines of the consumer financial protection bureau. This means active duty military service personnel can’t be subject to collection proceedings, repossession of a vehicle, foreclosure, or the loans incurred prior without first obtaining a court order. As such, auto finance companies serving active duty military personnel must stay apprised of all regulations surrounding the SCRA in order to remain compliant and protect their interests.

Auto Lending Under SCRA

SCRA Auto Lending

Those who work in the auto finance industry should be aware of the following rules and regulations:

Interest rates

The SCRA caps interest rates on motor vehicle leases taken out before entering military service at six percent. Borrower’s military service are expected to notify their auto finance company in writing, along with accompanying proof of military orders, to get the rate adjusted.

As an added layer of security for both borrowers and lenders, it’s important for motor vehicle companies to regularly check for borrowers’ military status and adjust their interest rates accordingly. This process is often referred to as “scrubbing,” meaning that motor vehicle companies must keep abreast of their customers’ active duty service in order to provide the best service possible while mitigating risk.


The consumer financial protection act provides servicemembers with additional protections from repossession of their vehicles while they are on active duty. In some cases, a court order may be required to repossess a servicemember’s vehicle.

However, the court has the authority to make an alternative or additional decision regarding the repossession, such as making creditors return payments made on loan before granting repossession or staying car repossession proceedings altogether.

In some cases, the court may even require that the creditor pay servicemembers the difference in value between their car and the remaining debt balance. These SCRA protections far exceed those of their civilian counterparts and provide valuable scrapes for servicemembers while they are away protecting our nation.

Repossession for breach of auto lease

Repossession of a vehicle leased prior to military service is an unfortunate reality for military families. According to the SCRA, military servicemembers are protected from terminating contracts due to nonpayment or breach without a court order. If military servicemembers can demonstrate how active military service hinders their ability to comply with contract terms, the court may issue a stay of repossession to allow them more time for compliance. 

Lease termination rights

A servicemember who signed a lease before going on active duty may cancel that lease without penalty. An active-duty servicemember who signs an auto lease is generally required to abide by that lease. But not if they get PCS orders outside of the continental U.S. or orders to deploy.

Ignorance of auto lending and SCRA laws is no excuse!

US Army personnel holding a child and smiling

It’s important for anyone in an industry that deals with servicemembers keep an eye on the laws. Violations — even unintentional — can result in fines and penalties. Keeping informed and updated on the latest regulations and laws regarding auto lending to servicemembers is the best way to ensure that both lenders and their borrowers are protected. It’s a responsibility of utmost importance and one that we can all take part in ensuring our servicemen and women receive the protection they deserve.

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