Repossession is the process of getting your vehicle taken away by your lender. Typically, this is because of loan default due to non-payment or other breach of contract. When your car gets repo'd, it is towed away by a recovery company, and this can happen at any time, from anywhere.
A repo man can't take your car out of a locked garage or damage your property to get at your vehicle, but whether you're at home, work, or the grocery store, if the recovery company finds your car, they can have it. Here's what we know about repos.
How the Repossession Process Works?
The repossession process has several steps. In order for the process to begin, you usually have to have missed one or more payments or defaulted on your loan in some way. Here's a list of the typical steps in the repo process.
Step 1: Loan Default
The most common reason for loan default and repossession is missing payments. So, after you've missed just one payment, a lender can start the process of repossession. However, some lenders will wait a little longer, and some only have a set timeframe to work with. This is because repo laws vary depending on the state.
Other reasons for loan default could include failure to comply with insurance requirements, making unauthorized changes to the vehicle, such as custom modifications, or otherwise breaking your loan contract.
Step 2: The Lender Acts
When your lender takes action to repossess your car, you're typically notified by mail of their intent to repossess your vehicle. Though in most states, a lender isn't required to notify you. The repossession process can begin as soon as one day after your missed payment or other default, but many lenders wait 30 to 90 days after your missed payment to repo your car.
Step 3: Vehicle is Taken
When your car is towed by a recovery company, it can be taken from anywhere, any time, and if you're not in contact with your lender, losing your vehicle may come as a surprise. If you know a repo is inevitable, it's a best practice to talk to your lender and to clean out your car of personal items in preparation for the repo.
When they tow your car, it's typically taken to the recovery company storage facility to await transfer to the lender for sale at auction.
Step 4: The Lender Sells the Vehicle
When a vehicle is repo'd, it's usually sold at auction for a fraction of what you owe. If this happens, you're stuck with what's known as a deficiency balance.
Step 5: The Lender Sends a Bill for Any Deficiency
This is the amount left over between what you owe and what the car sold for at auction. You are responsible for this amount, and a lender can take legal action to get it.
Can You Stop/Avoid Repossession?
You can stop a repossession once it's started, but it's easier just to avoid it altogether. To avoid a repo, the best course of action is to talk to your lender at the first sign of trouble. If you think you're going to miss a payment, your lender may be able to help before you get to the repo stage.
The most common options they can offer are to move your payment date, to defer a payment or two, or, if you haven't missed any yet, you may be able to refinance with your lender to a more affordable loan. These options aren't always available, but you won't know what your lender can do if you don't ask.
If the repossession process has already started, but you still have your car, you can typically just catch up on your payments by bringing your loan current to stop the process. This is called reinstating your loan.
If your car has been taken, you may be able to get it back by paying your loan off in full. This is known as redeeming your loan. This option may not be possible if you're already in financial trouble, but depending on how close you are to the end of your loan, this may be your most affordable option.
What Happens After a Repossession?
After a repossession, your credit score will take a hit. Typically, a repo can drop your score anywhere from 100 points or more. The higher your credit score is when your vehicle is repo'd the farther your score will fall. Plus, if your vehicle was repossessed due to a missed payment, that loan default is also present on your credit report, harming your score even more.
After you lose a car to a repo, it can be hard to get back on your feet, and lenders may shy away from giving you a loan. Fortunately, time heals, and if you keep up with your finances after your repo, you should be able to repair your score enough to borrow again in about a year or two. The repossession will still hang out on your credit report for seven years, but it impacts you less the further you get from it.
Your Rights During Repossession
During the repossession process, you have rights. For instance, the recovery company can't keep your personal belongings that were in the vehicle when it was towed. You have the right to recover your property. If anything that was in the car is lost or stolen during the repossession process, you have the right to a counterclaim for damages.
Your vehicle also can't be taken from a locked garage, and the repo man can't damage your property in order to get to the vehicle. This is called a breach of peace, and it's illegal.
Finally, even though a lender doesn't have to notify you of the repossession, they do have to provide you with the information about the sale. You have the right to go to the auction and bid on the vehicle to try to get it back.
Keep in mind that even if you can win the bid and pay less for the car than you originally owed, the lender will still charge you the deficiency balance, and you have to pay it.
The Bottom Line
If you think you may default on your auto loan for any reason, your first step should be to contact your lender. They may have more options to help you than you know. Even if you're already in the repossession process, there are things that you can do to help yourself get out with the least amount of damage possible.
It all starts with knowing your rights. Be sure to research the repossession laws where you live, so you know what to expect.
If you can't get out of the repossession process and end up losing your car, you still have options for getting a loan after a repo. You will most likely need to visit a subprime lender, since a repo will drop your credit score. A subprime lender is well-versed in dealing with unique credit situations and may have the financing you need after a repo.
When you don't know where to start with a subprime lender, we can help. Our network of special financing partners knows where to go to get post-repo borrowers the auto loans they need.
