If you've struggled to keep up with making payments toward your car loan, you might get a warning from your lender that repossession could occur unless you resolve the situation quickly. When your vehicle gets repossessed, the lender takes it back with the goal of auctioning it off eventually to help cover the cost of your car loan. This leaves you without a vehicle to get around in as well as other challenges to your credit and finances. The good news is that you can consider various routes to get your car back as long as the lender hasn't sold it yet. Take a look at how the car repossession process works, how it impacts you and how you can recover from the situation.
Basics of Car Repossession
The risk of having your car taken away through repossession stems from terms in the contract you sign to take out an auto loan. When you submitted your application, the lenders weighed different factors like your credit history and income to decide whether you would present a low or at least tolerable amount of risk as a borrower. Once you got approved for a specific loan term, the lender probably put their name on your car title and won't fully release it to you until your debt was paid off. In the meantime, they had the right to repossess your car if you didn't hold up your end of the deal and fell behind on your payments without any alternate payment arrangement in place.
State laws determine how soon your lender can act with repossession after you miss a car payment, but you'll often get contacted to try to work something out. This could involve paying temporarily lower monthly payments, catching up with a lump sum payment or even getting a brief deferment if you have a situation that would warrant it. If these things aren't possible, your lender may proceed with plans to take your vehicle – or even disable it remotely first – with the hopes of selling it for a price that can at least pay off the rest of your car loan. After the car gets taken by the repo man, you have a short timeframe to act.
While many repossessions take place without the car owner's desire to give up the vehicle, there's another type called voluntary repossession. Rather than waiting for the lender to send a repossession notice and have a tow truck or repo man come to get your car, you might realize sooner that you just can't afford to pay for the car anymore and take the car to the lender to voluntarily surrender it. This option can be less stressful than going outside one day and finding your vehicle missing, and it can even reduce the costs associated with involuntary car repo.
Read More: Repossession or Charge-Off, What Is Worse?
Exploring the Car Repossession Process
As you've learned, the car repo process can start as soon as you default on your car payments. Depending on where you live, your lender may have to send one or more notices of your default balance as well as warnings about any next steps like car repossession. However, this isn't always the case since borrowers are expected to closely monitor their car loan and follow all the terms in the contract.
When repossession does take place, you might not even know since someone may come to get your car anywhere and anytime – even if you're asleep or at work. Once the lender has your car, they'll let you know when they plan to sell the vehicle, and you can work toward getting the car back if it's financially viable and done quickly. While the lender has to price the vehicle at a fair price based on the current market, keep in mind it could sell for below the current loan balance, and this means you may need to pay money plus lose your car.
After the lender sells your car to someone else, you lose the chance to get it back and will need to deal with further consequences to your credit, finances and life.
How Repossession Impacts Your Vehicle
Vehicle repossession involuntarily leads to inconvenience since you can no longer use it to get where you need to go, whether you travel for work or leisure. If your car had a device on it to disable it remotely in case of nonpayment, you might be unable to use the car even before the repo person comes to get it. Therefore, the repo process can add a lot of stress to your life. In cases of voluntary repossession, you can have some time to prepare before giving up the car, but you still have to go through the hassle of arranging for new transportation.
Unfortunately, a car repossession can make it harder to get another vehicle to lease or buy. Lenders and dealerships will see you as a risk due to the situation and the impact it's had on your credit. This might lead to needing to pay cash for an inexpensive used vehicle to use in the meantime or working with car dealerships that help people in tough financial situations. If approved for a car loan, you can expect a higher interest rate than someone without the negative credit impact of repossession.
Read More: Used Car Buyer's Checklist
How Repossession Impacts Your Credit
Whether you voluntarily give up your car or have the lender take it away without your approval, you can expect the repossession to have an impact on your credit standing for around seven years. When a lender checks your credit report to assess your approval for a loan, they'll see the repossession listed on your credit reports with other actions like collections accounts and bankruptcies. They'll also see your payment history showing missed payments as well as any deficiency balance you still owe to the lender.
Your credit score will also get impacted both due to the missed payments that led to the repossession and the collections action the lender had to take in the process. WalletHub mentions you could see a minimum credit score drop of 100 points in the case of a voluntary repossession. If you continue to owe the lender money and don't handle the situation quickly, you can continue to see a negative impact on your credit score.
It's important to note that your repossession will also impact the credit of any co-signer on the loan. This means both of you will have negative marks on your credit reports, lower credit scores and difficulties getting credit in the future.
How Repossession Affects Other Assets
If you're wondering whether your lender can claim personal property you had in your vehicle, the good news is that you should be able to get these items back since lenders don't usually have the legal right to take them. However, you'll need to be proactive since some lenders may require that you contact them about claiming personal property while others will notify you. Be aware, though, that items attached to the vehicle such as upgraded parts usually don't get returned since they've become part of the car itself.
Unfortunately, a repossession could put other assets at risk like your bank accounts and paychecks when you still have a deficiency balance. This would happen if your remaining car loan balance exceeds the value of your vehicle, and you'd still owe the lender whatever the difference between the loan balance and amount they get for selling your car. Depending on the situation and laws where you live, this can lead to a lawsuit in court to get a judgment that can impact you in ways such as bank account seizure and paycheck garnishment.
Getting Your Car Back
If you've had your car repossessed and would like to try to get it back, here are some important steps and considerations:
- Consider your financial situation: At a minimum, getting your car back will require handing over the cash for all the past-due payments as well as paying the repossession costs associated with the repo process. So, you'll need to determine if you can afford to pay that amount to catch up as well as make timely loan payments. In some cases, you might even need to pay off the whole loan plus all associated repo fees or try to purchase your car back at an auction, and these options would put a heavy burden on your finances. If you've struggled with car payments and don't have all the money, you might decide it's better to let the car go and find a more affordable option for transportation.
- Call your lender quickly: The public auction for your repossessed car could take place in as little as one or two weeks, and your lender should give you a specific timeframe. So, you'll want to reach out to your lender to find out your options quickly as well as verify the reason for repossession. Your lender will likely discuss options for both paying off the full loan or reinstating it with the default payments caught up. If you explain the situation and can provide evidence that you'll be able to make your payments on time in the future, your lender may be willing to set you up with a new payment plan.
- Reinstate the loan: If this option exists in your state's law or your car loan contract, it can be the cheapest way to get your car back. You'd need to first get enough money to bring the account current and handle the repo fees, and then the lender would give you the car back. Your car loan would resume with you making the rest of the payments for your loan term.
- Pay off the loan: This costly option requires paying the whole loan off plus the repossession expenses involved so that you can get your car back. It offers the benefits of no longer having a car loan to pay and possibly seeing a smaller impact on your credit score, but it can be challenging without substantial funds set aside.
- Bid on the car: If it's too late to pay off or reinstate the loan, you could attend your vehicle's public auction sale and bid on it. You'd need to have enough money saved up to do this and successfully win the bid. You could end up paying more than the car's value or still end up with a deficiency balance if you bid less than the loan amount.
Moving Forward After a Repossession
Whether you get your car back or not, you can expect to have some credit issues to deal with after your repossession, and you'll want to work on fixing your credit so that you can get auto loans and other types of credit moving forward. This means avoiding late or missed payments on any line of credit you have, avoiding raising your total debt further and keeping an eye on your credit reports. Since the repo stays on your credit record for several years, you can expect it to take time to see the positive effects of good credit management on your credit score.
If you struggle with buying a car after repossession since you can't do so with cash, weigh the pros and cons of using alternate financing methods like pursuing an in-house car loan or finding a co-signer. Using in-house financing could get you a used car with a higher interest rate if you can show sufficient income, while using a co-signer might get you a traditional car loan with a better rate.
Read More: Advantages & Disadvantages of a Co-signer
Avoiding Another Car Repossession
When you finance another vehicle, be aware of some options you have if you struggle with your payments. Your first step should be notifying your lender of the issues and trying to work out a payment plan. If you only expect to have repayment issues for a month or so, then you could ask about a car payment deferment and discuss any costs involved. If you find yourself deep in debt overall, then you might talk to an attorney about filing for bankruptcy since this could help you avoid repossession.
- Lexington Law: How to Remove a Repossession from Credit Report
- WalletHub: How Voluntary Repossession Affects Your Credit
- Auto Credit Express: The Difference Between Voluntary and Involuntary Repossession
- NerdWallet: How to Recover From a Car Repossession in 5 Steps
- The Bankruptcy Site: Deficiency After Car Repossession: Will I Still Owe Money?
- Nolo: The Bank Repossessed My Car. How Much Time Do I Have To Get It Back?
- Suburban Auto Finance: Buying a Car After Repossession
- Federal Trade Commission: Vehicle Repossession
- The Balance: How Repossession Works: When the Bank Takes Your Car
- Nolo: Can I Get My Repossessed Car Back?
- Buchalter & Pelphrey: How to Avoid Car Repossession?
- Experian: Credit Repair: How to “Fix” Your Credit Yourself
- Federal Trade Commission. "Vehicle Repossession." Accessed Sept. 30, 2020.
- Experian. "How Long Does It Take for a Repossession to Come off Your Credit?" Accessed Sept. 30, 2020.
- Nolo. "Deficiency Judgment." Accessed Sept. 30, 2020.
- Experian. "What is a Buy Here, Pay Here Dealership." Accessed Sept. 30, 2020.
- Georgia Department of Banking and Finance. "Repossession (Vehicles)." Accessed Dec. 20, 2019.
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.