The FTC answers some questions that car buyers with credit problems might have regarding repossessed vehicles
What we know
Vehicle repossession is never a good thing. In fact, having your car repossessed is one of the worst things that can happen to you as far as lenders are concerned.
At Auto Credit Express we know this is true because for the past two decades we’ve been helping car buyers with questionable credit find those new car dealers that can give them their best chances for approved car loans.
It has always been a concern of ours that people with less than perfect credit should be aware of what typically will happen if their car is repossessed.
So why do we feel this way?
According to Experian, consumers financing their vehicles with higher-risk auto loans are nearly twice as likely to have their cars repossessed.
So following up on an article written just over a week ago, today we’ll pass along some additional information from the Federal Trade Commission (keeping in mind that we don’t presume to give anyone any specific legal advice) on what consumers are likely to experience during the repossession process. Here, then, is the rest of the story:
Selling the repossessed vehicle
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.
In any of these circumstances, you may be entitled to “redeem” — or buy back — the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale.
Some states have consumer protection laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a “commercially reasonable manner.” Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. “Commercially reasonable” may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.
Paying the Deficiency
Any difference between what you owe on your contract (plus certain expenses) and what your creditor gets for reselling the vehicle is called a “deficiency.” For example, if you owe $10,000 on the car and your creditor sells it for $7,500, the deficiency is $2,500 plus any other fees you owe under the contract. Those might include fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common.
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
For More Information
To learn more about your rights and specific repossession requirements in your state, contact your state Attorney General (www.naag.org) or local consumer protection agency (www.consumeraction.gov).
As we see it
It’s far easier to deal with payment issues before repossession occurs rather than after it happens. If it looks like you might encounter problems making your car payments, contact the lender immediately. If your creditor agrees to a loan modification, be sure you get those terms in writing. That way there will be no confusion on either your part of that of the lender.
Also keep in mind that Auto Credit Express matches applicants that have experienced car credit issues with dealers that can offer them their best opportunities for car loan approvals.
So if you’re ready to establish your auto credit, you can begin now by filling out our online car loans application.
Get your free credit score now! Get a copy of your most recent credit score.
Are you paying too much on auto insurance? Compare rates in your area and save.