CNBC estimates that the average American faces a $523 car payment each month. This expense is downright crippling to many people. Considering all the other debt you probably have each month such as your student loans and mortgage, it’s very easy to fall behind on your payments. The trouble is, defaulting on the auto loan payments leads to some serious consequences.
That’s why you must know what to do if your car is repossessed and how you can avoid it. Remember, if you need legal advice, this isn’t it. Consult an attorney.
What Is Repossession?
During repossession, the bank or lender takes your vehicle away. This can occur without warning, but typically the lender sends you signs it is coming. They either choose to send a driver to get your car or they tow it with a truck. Sometimes, the vehicle can be disabled with a remote so you can’t drive it until your payments are made!
How Many Payments Can Be Missed Before Repossession Occurs?
Each state has different regulations regarding repossession. Most states allow the process to begin at any time, without any notice, after you miss one payment. You could be facing repossession right away if the lender chooses to act on it.
Plus, if you are granted a 30-day extension from the lender, that only means 30 days from the payment due date. It is not 30 days from the request in most cases. Some lenders are more lenient than others, but you don’t want to bank on them being understanding.
If repossession occurs, the company will likely auction your vehicle to attempt to recuperate their losses. If the sale amount is less than your owed amount, you may still owe the difference.
Do You Still Have to Make Payments if Your Car is Repossessed?
Many people believe that once their car is repossessed, they don’t have to pay back the loan, but that’s simply not true. If the car was sold and the money made was less than what was owed, you are usually still responsible for paying the remaining balance.
Let’s say you owe $8,000 on your car. The creditor repossesses it and sells it at auction for $6,000. This means you are still liable for the other $2,000. The lender will send you notification of what is owed and you will be responsible for making those payments. If you don’t, you might face legal action.
How Do I Get My Car Back After Repossession?
If you would rather get your car back once it’s been repossessed, you have a few options. With any of these, you will not want to hesitate to make your decision right away.
1. Negotiate with your lender to get the car back.
Often, the lender would rather work with you than auction the car – especially because auctions usually don’t generate anywhere near what the vehicle and the loan are worth. See what agreement you can make.
2. Reinstate the loan or redeem the car (if allowed in your state).
Until the car is sold, you can “redeem” the car by paying the entire balance of the loan plus applicable fees. If your state allows the loan to be reinstated, you can pay off the overdue amount, plus fees to bring the loan current and regain possession of your car.
3. Wait for the auction and bid on it.
It’s important to note that there’s no law about how long you have to wait until the bank sells your car. Technically, the bank must give you a “reasonable time” for you to decide what to do next. Typically, a minimum of ten days’ notice is provided, but some states, like California, require 15 days. That means on the 16th day they could sell your car to someone else.
How Bad Does Repossession Hurt Your Credit?
You might think repossession is a temporary thing that will be forgotten about. Unfortunately, repossession is going to hit your credit in multiple ways. First, you have late payments. These will stick to your credit report up to seven years after the fact. Credit bureaus will also include a note about the repossession for seven years as well.
After the auction, if your car loan is in collections, that will show on your report as well as possibly on VIN Checks. Remember, this sticks around for years after you pay the loan. Finally, consider the court judgments. Any judgment ordering you to pay the balance will be on your report as well.
5 Steps to Take if Your Car is Repossessed
You have some things to do when your car is repossessed. These steps are meant to protect you.
1. Record any damage
When the repo company shows up, some laws protect you. For example, they aren’t allowed to disturb the peace, damage your property or use excessive force. If you believe they have violated these guidelines, you might be entitled to reimbursement.
Make sure you take photos of any damage that occurs and then speak with your attorney. It’s also helpful if you have “before repo” pictures of the car to back up your claims.
2. Gather information
While you have a car loan, the vehicle isn’t technically yours. Until you pay the debt, the bank owns your car and can take it back anytime they want. That’s where all those memes come from. Once repossession begins, you’ll want to contact the creditor and find out what you need to do. Whether you decide to go to the auction or reinstate your loan, you want to know all your options.
3. Clean out your belongings
No matter what you decide to do, don’t forget to get all your belongings out of the vehicle. Once the car has been repossessed, you’ll receive notification about where it is. Then, claim your belongings before they become subject to damage or theft that the yard won’t be liable for.
4. Consider reclaiming the car
It’s going to be best for you to recover your car – legally, of course. You could be stuck paying for it, so you might as well have the car to use. Reinstating the loan is the easiest option if it’s available to you. You might also redeem the car or buy it back at the auction. Refer to the options listed above.
5. Check your finances
As you evaluate these options, make sure you have the funds needed to pay for your car. You don’t want to negotiate a new loan payment with the creditor only to be in this situation again next month. If you can’t make the payments work, you might have to let the car go and call it a loss.
The creditor will attempt to sell the car at a fair market price. Then, you’ll be responsible for the difference, but this should be far less than the original car loan. The good news is, if the creditor sells your car for more than what you owe, you might be entitled to all or some of the difference.
Obviously, the best thing you could do is avoid repossession in the first place – but that’s easier said than done. We would just suggest you find a less expensive car or find another way to make it through. It’s better to drive a clunker for a while that’s yours than destroy your credit to drive a shiny car.
Consider that a repossession may appear on VIN Checks obtained by future buyers of your vehicle. Use those services to see if your repossession has appeared on your car’s history. If you need title replacement we offer those services for cars, motorcycles, and almost anything with wheels. Click the links to learn more.
We are not attorneys. This article is not legal advice. Cover image source
About the Author
Brian Jones is an ASE Certified Master Tech that lives outside of Dallas, TX with his wife and children. He has a passion for old muscle cars, big pickup trucks and anything motorsport related. In his spare time, he does a lot of traveling and writing for dealerships across the country through CarBlogWriters.com.