Consumer Car Buying Advice Blog

More repossessions than ever are occurring in the current economy and all consumers including bad credit car loan customers need to understand what repossession is.

We get questions

At Auto Credit Express, one of the topics consumers ask us about most concerns vehicle repossession. Since a repossession can have a big impact on your credit score, we will first begin by explaining what would cause a lender to take a vehicle away from a customer.

When your car isn’t really your car

Even though your car is sitting in the driveway, if you are making payments on it, it’s the bank that really owns it. In title holding states, the vehicle title is sent to the lienholder, not the customer, so if you live in one of these states you won’t even see your title until the vehicle is paid off. But if you happen to live in a non title holding state and you look at the vehicle title, you will notice a “lienholder” section where the name and address of the bank are listed. In both situations, until you make your final payment and receive a “release of lien” letter from the bank (in non title holding states), or until you receive your title in the mail (in title holding states), the car really doesn’t belong to you.

Timely payments

It’s important to keep the bank informed if you are having financial problems. By calling them and explaining the problem, you might be able to set up special payment arrangements. Depending on the way your finance contract is worded, the bank may have the right to repossess your car if they receive the payment one day late, so you will want to explain your situation honestly. The bank also has the right to take the car without a court order, so if you do fall behind, don’t expect a letter in the mail beforehand.

If both you and the lender do agree on a change to the original contract, be sure to get the new terms in writing.

Other options

Even if you and the lender cannot come to an agreement, you still may be able to avoid a repossession. Here is what you can do:

Refinance – it may be possible for you to refinance the balance of the loan with another lender.

Sell the car and pay off the loan balance – if you owe less on the vehicle than it is worth (check the NADA book or Kelley Blue Book), it might be possible to sell the car and use the cash to pay off the loan – but be sure to check your finance contract to see if there are any prepayment penalties for paying off the vehicle early.

Types of repossession

There are two types of vehicle repossession: an involuntary repossession and a voluntary repossession. In an involuntary repossession, the bank sends someone to seize your car. In an involuntary repossession, you return the car to the bank, yourself. If you return the vehicle in a voluntary repossession, you may avoid certain fees the bank will charge you if it has to come and get your car. You should know, however, that the overall result will be the same and a voluntary repossession does not look any better on your credit report than an involuntary one.

Once a repossession occurs

Depending on the state in which you live, the bank must notify you within a certain number of days when the vehicle will be sold at auction. During this interim time, it may also be possible to buy back the vehicle for the balance owed plus any expenses incurred by the bank. You also may be able to reinstate the loan by paying the amount you are behind plus expenses.

Deficiency judgment

If the bank sells the vehicle for more than the amount owed, plus expenses, you are entitled to the difference (this usually doesn’t happen, otherwise you probably would’ve sold it yourself before the repossession).

If the vehicle sells at auction for less than the contract balance, the lender has the right to immediately collect the balance from you and the lender can also go to court and seek a judgment against you for the balance of the loan (which can include a garnishment of your wages and your bank account).

It’s important to remember that in most cases it would be very difficult for the lender to place a lien on any other vehicle that you’re currently financing and we’ve never heard of a lender placing a lien on a home.

The Bottom Line

If you’re having problems paying your loan, call the bank and explain your situation. Remember that a repossession is a black mark on your credit history and can prevent you from getting a car loan – even a bad credit car loan – for at least a year.

If your credit history does include a repossession, go to our web site at www.autocreditexpress.com. We have helped thousands of people in your situation reestablish their credit. While you’re on our web site, you can also find out if you financially qualify for a loan and even budget a car loan for your specific circumstances.

Tags: bad credit, bad credit car loan, car loan, car repossession, deficiency judgment, garnishment, involuntary repossession, repossession, vehicle repossession, voluntary repossession

This entry was posted and is filed under Auto Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.