You don't own a "free and clear" automobile if you borrow money to buy it or lease it. You get to keep driving the automobile, but your lender can repossess it if you don't make payments. Learn how the process works, the concerns, and what you can do about it before you get to that stage.
What Is Repossession and How Does It Work?
When a bank or leasing business repossesses a vehicle from a borrower who has fallen behind on payments, it does so without warning. A lender may send a driver to collect the vehicle or use a tow truck to remove it. In rare situations, lenders can remotely deactivate your car, preventing you from driving it until you settle your debt. Borrowers are usually notified when they fall behind on payments, and lenders are required to advise them of the implications. However, lenders may not provide an exact date when the vehicle will be repossessed.When is it permissible to repossess a vehicle?
You must agree to specified agreements to borrow money or lease an automobile. For example, you commit to making on-time monthly payments and maintain proper automobile insurance. If you don't match those criteria, the bank (or leasing firm) has the power to repossess your vehicle.Resulting Issues
Your credit will deteriorate, and you will most likely owe high costs in addition to losing the car. Whether you get the car back or not, repossession stays on your credit report for seven years and might reduce your credit score. 5 Below, we'll go over those issues in further depth.Your Legal Rights
Your lender may have the legal right to repossess your vehicle, but you also have rights. The specifics differ from state to state and lender to lender, so study your contracts carefully and consult with local consumer advocates. Additional rules may apply if you or a member of your family is a military member.Private Real Estate
Lenders can repossess a vehicle parked on private property, but state laws generally prohibit them from doing so without "breaching the peace." Repossession agents, for example, cannot cause damage to your property to gain access to a vehicle. They can't usually break locks to get into your garage, and they can't use (or threaten to use) physical force to steal your automobile.Price of Sale
The lender must sell your car for a "commercially reasonable" price if it is taken and sold. It doesn't have to be the highest price, but the lender must try to get the car's fair market value. Why? Because the money from the sale would be used to pay off your debt, repossessing the vehicle and "giving it away" to someone else would be unjust. Contact a local attorney if your rights have been infringed as a result of repossession. You may have the legal right to sue your lender (for example, to make them pay for the damaged property), and your lender may lose the power to collect deficiency monies from you.Deficiencies
After a repossession, things don't always end well. The earnings from the sale of your car are applied to your loan balance if your lender sells it. In many circumstances, the car sells for less than what you owe, leaving your loan unpaid. A shortfall is an amount you owe after the vehicle sells. You must pay for charges associated with repossession in addition to your loan debt. Expenses for sending a repossession agency, storing the vehicle, prepping the vehicle for sale, and other things may be included. All of these expenses are applied to your deficit balance. Expect your lender to transfer your account to a collection agency if you can't pay the sum. You can either negotiate a settlement, pay nothing, or set up a repayment plan at that moment. Your debt may be forgiven or charged off in some instances (possibly resulting in tax liability for forgiven debt).How to Keep Your Car in Good Condition
There are various options available if you wish to avoid repossession and keep your car (depending on your state and the terms of your agreement). Your lender or leasing business should go over your alternatives with you, as well as the requirements and deadlines for each.Reinstate
Would you like to press the "Reset" button? One option is to catch up on past-due payments and pay repossession fees, which will result in reinstating your loan. You'll get your automobile back and be in a position similar to what you were before the repossession (although your credit will still show the default). The car is yours as long as you follow the terms of your contract coming ahead.Redeem
Redemption could be an intriguing option if you want to put everything behind you. This necessitates repaying the debt (all past-due payments plus the outstanding loan sum) and incurring any repossession-related fees. Put another way, you purchase the vehicle and pay the legal fees. That's not easy for most people—if you had the money, you'd have paid payments—but if you've modified or upgraded your vehicle significantly, it might make sense.Bankruptcy
If you file for bankruptcy, the repossession process may be halted – at least temporarily. Your filing results in an "automatic stay," which prevents your creditors from pursuing you. 9 The process is complicated, though, and repossession is still possible with a judge's sanction. Consult with a local attorney before you stop making payments or file for bankruptcy protection.Make a bid at an auction.
Lenders may sell your car privately or at a public auction. The lender is responsible for informing you about what happens to your vehicle after it has been repossessed. You can try to attend the auction and bid on the car if it is auctioned. If you win, you'll get possession of the property and won't have to make any more payments, but you might still owe a shortfall sum.Personal belongings
You'll probably not know when a repossession agent will arrive at your house. You may step outside and discover that the automobile has vanished. Possibly, some of your possessions will be in the car if the timing is unexpected (a set of tools in the trunk or clothing in the back seat, for example). Your lender is usually not allowed to keep those items because they were not included in the original contract. Your lender should notify you of how to retrieve your possessions after repossession. However, you must move quickly because you may only have 30 days or less. What about upgrades and aftermarket parts? Although the devil is always in the details (read the fine print and consult a local attorney), it's safe to assume that anything linked to the car will not be returned to you. Before your automobile is repossessed, replace any valuable wheels, suspension, or audio systems with factory parts.Most Commonly Asked Questions
- How many car payments do you have to skip before repossessing your car?
- How long will a car repossession affect your credit score?
- Is it possible to acquire a car loan after a repossession?
