The car repossession process is about as fun as a root canal. You need to prepare for this tough situation by learning what to expect and which steps to take after an auto repossession. Better yet, you can read up on what to do before your vehicle is repossessed or how you can keep your car even if it is.
The Car Repossession Process
When you have an auto loan, the lender is the owner of the vehicle until you’ve paid it off. They have a claim on the car as a result, which gives them the right to repossess it – i.e. take it back – should you violate the terms of the contract. This is most commonly the result of when a borrower stops paying.
In most states, lenders don’t need any special permissions, or don’t even need to notify you, about an upcoming repossession if you are in default. What constitutes default can vary, but it’s written into your contract. After default, lenders can hire a recovery service that can seize the vehicle. The lender then contacts you to discuss what happens next (more on that later).
A repossession can stay on your credit reports for up to seven years, and it negatively affects your credit score. Plus, any late payments, the default, and the repo all appear on your credit reports. For these reasons, you’re going to want to avoid repossession at all costs.
Steps to Take before a Car Repossession
The best thing you can do to avoid a car repossession is to talk to your lender before things head south. If you realize that you’re going to struggle to make your monthly payment, get on the phone with your lender.
If you explain your situation, and convince them that you plan on getting back on track in short order, they may be able to do something for you.
A common solution is for them to defer your loan and let you skip a payment or two, which they add to the end of the loan term. Other possibilities include forbearance, a delay in your payment, or refinancing. Make sure that you get any change(s) made to your original contract in writing.
Additionally, you may be able to sell or trade in your vehicle and move on to something more affordable. Or, if the situation is dire, you can consider filing for bankruptcy.
Regardless of the route you take, it’s in your best interest to be up front with your lender. If you try to come to them after missing a payment(s), they likely won’t be as understanding or willing to work with you.
Besides, depending on the terms of your contract, the car repossession process might be well under way after you miss a payment. If you know it’s coming, you can take some steps to prepare.
You can take all personal belongings out of the vehicle, take some pictures you can use as proof of its condition, and write down its mileage. Don’t bother trying to hide the car from the recovery service – you’re only delaying the inevitable and putting yourself in a bad light with the lender.
Steps to Take after a Car Repossession
If your vehicle was repossessed, it’s in your best interest to get on the phone with your lender right away to see if there’s something you can do. If you wait, the lender is going to send you a letter informing you of your choices.
They may even present some ways you can get your car back after repossession:
- Redeem the car – A redemption requires you to pay off the entire remaining loan balance and any related fees all at once. Redeeming a vehicle is allowed in most states, but not all of them. This is a very rare situation, since it’s uncommon for borrowers to have such a large amount of money ready to go at once.
- Reinstate the loan – A reinstatement is where lenders allow you to continue the loan as agreed if you’re able to make up any back payments and the related fees in one lump sum. To be able to reinstate your auto loan, it has to be legal in your state and/or written in your contract.
If neither of those are pursued in time, the lender will take the car to auction. The lender is legally bound to tell you the date, time, and location of the auction where it’s going to be sold. In fact, you can go to the auction and bid on it yourself if you so choose.
After that, the lender sends you a letter informing you of what the vehicle sold for, and if you still owe them money. Any difference between what you still owe on the loan plus any related repo fees and what the car sells for is called a deficiency balance, and that’s what you owe your lender.
For example, if you owe $6,000 on your loan and the vehicle only sold for $5,000, you still owe your lender $1,000 plus any fees related to the repossession. If you don’t pay in the agreed upon manner, legal action can be taken to collect it.
Getting an Auto Loan after Repossession
If you’ve been through a repossession, it doesn’t always mean you can’t get another auto loan. Subprime lenders offer financing to borrowers dealing with unique credit situations, such as a repo. Their rules usually indicate that they’ll consider you after a year has passed.
Auto Credit Express can help you find a car loan after repossession. We work with one of the nation’s largest networks of special finance dealerships, and they’re signed up with subprime lenders.
Fill out our free and secure auto loan request form, and we’ll work to match you with a dealer near you. Take a quick moment to get the process started today!