Whether used for work or play, the automobile is a staple of American society. With many drivers getting on the road thanks to financing, so too is the monthly car payment. It’s not always a smooth ride though, and something like car repossession can be a big obstacle to negotiate.*
What is car repossession?
When you signed for that loan or lease, you signed a contract that gave the creditor or lessor rights until the vehicle is paid off, or until the lease ends. If you don’t fulfill your obligations, like meeting your payments, the creditor may have the right to take back your vehicle without warning, or without going through a court, to get some or all of the money owed. They may even sell the contract to another party who then repossesses the car. Creditors’ rights will vary according to the contract, and state-by-state, but here are the main scenarios that help us understand how car repossession works.
The car repossession process: Some situations
Late and missed payments
Failing to make a payment by the date it was due may be considered a default on the contract by your creditor, and is a common cause of car repossession. Once there is a default the creditor may be allowed to repossess the vehicle at any time.
Let’s say you need your car repaired to the tune of $2,000. You take your car to the repair shop, but don’t have enough money to get it out. Weeks pass by and the mechanic hasn’t heard from you. They call the creditor. In order to avoid a mechanic’s lien on the title, the creditor may elect to repossess the vehicle. If you want the car back, you may have to pay for the cost of the repairs plus the amount associated with towing and storing your car. What if you were current on your monthly car note? Once the creditor has to “retrieve” your vehicle, your car has officially been repossessed.
The car is towed
Another scenario involves getting your car towed and placed in the city or county impound. If you are current on your car payments, surely your car won’t be repossessed from the pound, right? In this case, car repossession may be an option for the creditor, as well. If your creditor decides to leave the car impounded, it’s up to you to get it out while continuing to pay your car note. If the creditor picks your car up, you must pay the fees and storage costs to get your car back. In this instance, you are sometimes given the option to roll that amount into your loan. Either way, you have to pay the piper to keep your car.
Not having the proper insurance, or letting your insurance coverage lapse, may be considered a default in some states and also lead to the car repossession process.
Voluntary car repossession
Most of the time, vehicle repossession is involuntary – it’s initiated by the creditor rather than the borrower or lessee. However, someone who thinks they are at risk of repossession may opt to tell their lender and give back the car voluntarily. In this situation, they may still have to pay off any outstanding balance, known as the deficiency balance, after the vehicle is sold.
The creditor takes the vehicle
Once a default on the contract occurs, it’s the case in most states that the creditor or their agent can repossess your car at any time and without notice, says the Federal Trade Commission (FTC). That includes coming on to your property to seize the vehicle. The creditor cannot cause a “breach of the peace,” however, which may mean using physical force, or taking the car without permission from a closed garage, depending on which state you’re in. The creditor is also not allowed to keep or sell any personal belongings left in the vehicle.
The car is sold
Once the creditor has taken the vehicle, they may decide to keep it or sell it to recoup their losses. If the vehicle is sold, your state law might enable you to bid for it, or to “redeem” the vehicle by buying it back for the full amount owed to the creditor, plus expenses associated with the repossession. Another option in certain states it to reinstate the loan. To do this and regain the vehicle, you’ll need to pay off your overdue payments and the repossession expenses, after which you can continue making payments on your car.
The sale of the vehicle might not cover the full amount owed on the financing contract, as well as expenses. What’s left over, the difference, is called the deficiency balance. Your creditor may be able to sue you in order to collect the deficiency, warns the FTC. On the other hand, the vehicle may have fetched a higher price at sale than the amount you owed, in which case the creditor must refund you the extra money.
Addressing car repossession
It’s easier to prevent car repossession than it is to deal with the car repossession process, advises the FTC. When it comes to late payment, contact your creditor when you realize you’ll miss the due date, the commission says, as they may accept a late payment and negotiate a revised payment schedule. The FTC provides further advice on how to handle vehicle repossession here.
Auto loans with bad credit†
If you’ve experienced car repossession and have bad credit, or have even been through bankruptcy, but are ready to get back on the road, there may be auto loan options available to you. RoadLoans accepts applications from consumers with all types of credit.
Apply for a car loan and get an instant decision.
* These statements are merely informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance.
RoadLoans is not a credit counseling service and makes no representations about the responsible use of consumer credit.
† “Bad” or “Poor” credit generally is considered a FICO score around 600 and below by sources including the Consumer Federation of America and National Credit Reporting Association (reported by the Associated Press), Bankrate.com, Credit.com, Investopedia, NerdWallet.com and others. The Congressional Budget Office identifies a FICO score of 620 as the “cutoff” for prime loans. FICO scores are not the sole factor in lending decisions by RoadLoans.com and Santander Consumer USA.