Understanding Car Repossession
Having your car repossessed can be an extremely stressful and confusing situation. This article provides an overview of the car repossession process, your rights and options, and tips for avoiding repossession in the first place.
What is Car Repossession?
Car repossession is when a lender takes back a car from someone who has defaulted on their auto loan or lease. Defaulting means you have failed to make payments as agreed upon in your loan or lease contract.If you fall behind on payments, the lender has the legal right to take the car back and sell it in order to recoup their losses. They may hire a repossession company to physically take the vehicle from you. This can happen without warning once you are considered in default .
Common Reasons for Repossession
There are a few common situations that can lead to car repossession :
- Missed payments: The most common reason is failing to make your monthly car payments on time. If you miss payments, the lender can repossess the vehicle once you are considered in default. This varies by state but is often after missing 2-3 payments.
- Insurance lapse: Your loan or lease requires you to maintain auto insurance on the vehicle. If your policy lapses, the lender may repossess the car.
- Exceeding mileage limits: If you have a car lease, it allows mileage up to a certain limit. Going over this limit gives the lender cause to take the car back.
- Illegal use: Using the vehicle for illegal activity like drug trafficking can prompt repossession.
The Repossession Process
If you default on your auto loan, the lender can legally hire a repossession company to take back the car . Here is what typically happens:
- The lender sends a default notice giving you a last chance to make the late payments before they proceed with repossession.
- If you fail to become current on the payments, the lender hires a repossession company to take the vehicle.
- The repossession company locates your car using license plate lookups and spotting. Many have access to DMV records.
- Once located, a tow truck driver will hook up and tow away the car on behalf of the repossession company. This can happen without warning.
- The repossession company takes inventory of the car and delivers it to a holding lot. The lender then sells it to recoup their losses on the defaulted loan.
Your Rights in a Repossession
Certain consumer protection laws apply to give car owners rights in a repossession situation :
- In some states, the lender must send a “right to cure” notice giving you time to become current on payments before repossessing.
- Federal law requires lenders to send a “notice of repossession” with details on redeeming the vehicle or discharging the debt.
- In some cases, state laws may require the lender to sell the vehicle at public auction so you can potentially buy it back.
- Any money recovered above what you owed goes back to you. So there is an incentive for the lender to maximize the sale amount.
- If the sale does not recover enough to pay off your loan, you are still responsible for the remaining deficiency balance owed.
How to Get Your Car Back After Repossession
Immediately after your car gets repossessed, you have a short window of time to try and get it back by becoming current on payments. This process is called “redemption” or “reinstatement” .
- Contact the lender right away to find out the exact payoff amount needed to redeem the vehicle. This includes back payments owed, repossession fees, and storage fees.
- You typically have 10-15 days to come up with the money to get your car back. This countdown starts when the lender sends a “notice of repossession”.
- If you can pay the redemption amount within the window, you can get your car back and continue payments as normal.
Coming up with enough money is difficult for most. But it may be possible by borrowing from friends/family, taking out a loan, or selling assets. If you can’t redeem, the car gets sold at auction.
Alternatives to Repossession
No one wants the hassle and stress of having their car repossessed. If you’re struggling to make payments, consider these alternatives:
Refinance the Auto Loan
See if you qualify to refinance your auto loan with lower interest rates or lower monthly payments . This may help you avoid defaulting.
Voluntary Vehicle Surrender
You may be able to voluntarily surrender the car to the lender if unable to make payments . This can save money compared to forced repossession.
Sell the Car Yourself
Consider selling the car yourself and paying off the loan with the proceeds . This allows you to maximize the sale amount rather than the lender selling at auction.
Tips to Avoid Car Repossession
Here are some tips to help avoid the situation of car repossession:
- Carefully consider what you can afford when buying or leasing a car. Don’t take on more debt than your budget allows.
- Build an emergency fund with 3-6 months of expenses so you have a buffer if financial hardship hits.
- If money gets tight, immediately contact your lender to discuss options. Acting quickly gives more alternatives.
- Be proactive in communicating with the lender anytime you anticipate having trouble making payments on time.
- Maintain auto insurance at all times as required by your loan contract. A lapse in coverage can prompt repossession.
No one wants to go through the stress of having their vehicle repossessed. But if it does happen, understand the laws protecting your rights as a consumer. And take proactive steps like refinancing or voluntary surrender if possible. Reach out for help to avoid repossession so you can keep your transportation.