A repossession is one of the worst things that can appear on your credit report if you are hoping to finance another vehicle. Here's why it can happen and what you can do about it.

The Bank Owns Your Car Until it's Paid Off

Even though you might think that's your car sitting in the driveway, if you are making payments on it, it's the bank — not you — that really owns it. If you live in a "title holding" state, you won't even have the title to it until it's paid off. If you live in one of nine "non-title holding" states, look at the vehicle title. You will notice a "lien holder" section where the name and address of the bank is listed as the first secured interest.

Simply put, if you don't have the title or the title lists a secured interest, until you make your final payment and receive either the title or a "release of lien" letter from the bank, you don't own the car.

What if I Can't Make My Payments on Time?


It's important to keep the lender informed if you are having financial issues. By calling them and explaining the problem, you might be able to set up special payment arrangements. That's because, depending on the way your finance contract is worded, the bank may have the right to repossess your vehicle if they receive the payment just one day after it's due. This means you'll want to inform them ahead of time about any situation that might cause your payment to be late. 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.

What is the Difference Between Voluntary and Involuntary Repossession?

In an involuntary repossession, the bank sends someone to seize your car. In an involuntary repossession, you take the car back yourself. If you take it back, you may avoid certain fees the bank will charge (such as towing expenses) if it has to come and get your car. But while a voluntary repossession might save you some money, the effect is the same. A voluntary repossession will not look any better on your credit report than an involuntary one.

What Rights Do I Have if My Car is Repossessed?

The bank must notify you within a certain number of days — the number depending on the state in which you live — when your vehicle will be sold at auction. Before this happens, it's usually possible to buy back the vehicle for the entire balance owed on the contract plus any expenses incurred by the bank for repossession and storage. In some cases (again, depending upon the lender), you also may be able to reinstate the loan by paying the lender any amount you are behind on, plus the expenses involved with the repossession.

Deficiency Judgment

If the bank sells the vehicle for more than the amount owed (plus their expenses), you are entitled to the difference. Unfortunately, this doesn't happen very often. In most cases, vehicles sell at auction for less than the contract balance.

When this happens, the lender can bill you for the difference and expect immediate payment. The lender also has a right to go to court and seek a judgment (called a deficiency judgment) against you for the remaining balance you now owe as well as for the costs involved for the judgment procedure against you.

What this Means to Your Credit

Any late payments, repossession and civil judgments remain on your credit reports for seven years. In addition, subprime lenders will typically not look at a loan application unless the repossession is over a year old. This means the option most buyers are left with, if they need a vehicle immediately, is a tote the note, buy-here-pay-here car dealer.

The Bottom Line

If you think you're going to have problems paying your car loan, call the lender immediately and explain your situation. Remember that vehicle repossession is a big black mark on your credit history and can prevent you from getting a car loan — even one from a subprime lender — for at least a year.

Here's another tip: if your credit history includes a repossession that's over a year old or other blemishes, we want you to know that Auto Credit Express has helped thousands of people in your situation find auto loans.

So if you find yourself in this situation and you're ready to reestablish your car credit, you can begin now by filling out our online car loan request form.