Are you facing financial hardship due to the ongoing economic impacts of COVID-19 and worried about making your car payments? Job losses and reduced income are realities for many, and concerns about car repossession are understandably high. You’re not alone in this situation. Here’s what you should know about car repossession during these times and what steps you can take to protect yourself.
Understand Your Rights and State Laws Regarding Repossession
It’s critical to understand that while some lenders offered forbearance during the peak of the pandemic, the general rules around car repossession haven’t fundamentally changed. Lenders can still repossess your vehicle if you default on your loan agreement. However, the specifics of repossession processes vary significantly by state.
Each state has its own set of regulations governing how and when a lender can repossess a vehicle. These laws dictate things like:
- Notice Requirements: In many states, lenders are required to provide you with a notice before repossessing your car. This notice should outline the reasons for the potential repossession and give you a window to catch up on payments.
- “Right to Cure”: Some states have “right to cure” laws that allow you a specific timeframe to pay the overdue amount, plus any repossession expenses, to reclaim your vehicle and reinstate your loan.
- Post-Repossession Procedures: State laws also govern what happens after repossession, including how the car is sold (e.g., public auction vs. private sale) and how any surplus or deficiency from the sale is handled.
To fully understand your rights, it’s essential to check with your State Attorney General or your local consumer protection agency. They can provide specific information about repossession laws in your state.
Communicate Proactively with Your Lender
The most important step you can take is to contact your lender as soon as you anticipate difficulty in making payments. Don’t wait until you’ve already missed a payment or are facing imminent repossession.
Many lenders, including banks, credit unions, and auto finance companies, are willing to work with borrowers experiencing temporary financial challenges. Options they might offer include:
- Payment Deferral: This allows you to postpone payments for a certain period, typically adding them to the end of your loan term.
- Payment Renegotiation: Lenders might be open to temporarily adjusting your payment schedule, potentially lowering your monthly payments for a set time.
If your lender agrees to any changes, ensure you get the agreement in writing. This written confirmation is crucial to avoid misunderstandings or disputes later on.
Explore Vehicle Loan Refinancing
If your financial difficulties seem longer-term, refinancing your auto loan could be a viable option. Refinancing involves taking out a new loan to replace your existing one, ideally with more favorable terms.
Consider refinancing if:
- Lower Interest Rates: If interest rates have dropped since you took out your original loan or if your credit score has improved, you might qualify for a lower interest rate, reducing your monthly payments.
- Extended Loan Term: Refinancing to a longer loan term can also lower your monthly payments, making them more manageable, although you’ll pay more interest over the life of the loan.
When considering refinancing, be sure to work with a credible lender or company to avoid scams and ensure you’re getting a fair deal. Also, evaluate if selling or trading in your current vehicle for a less expensive one is a better solution before missing payments.
Don’t Ignore the Problem: Take Action
Ignoring your car loan problems will only worsen the situation. Even if you anticipate missing a payment, avoid avoiding communication with your lender. Proactive communication is key to exploring your options and potentially preventing repossession.
Missed payments can lead to:
- Late Fees: Lenders will typically charge fees for late payments, increasing your overall debt.
- Credit Damage: Delinquent payments negatively impact your credit score, making it harder and more expensive to borrow money in the future.
- Repossession: Ultimately, continued missed payments can result in your car being repossessed, sometimes without prior warning depending on your state’s laws.
Understanding Repossession Consequences and Deficiency
If your car is repossessed, it’s important to know what to expect next. Check your state’s laws regarding your rights to:
- Buy Back Your Car: Some states provide options to “redeem” your vehicle by paying the full outstanding loan balance, plus repossession costs.
- Retrieve Personal Property: You have the right to get back any personal belongings left in the car.
Furthermore, repossession doesn’t always eliminate your debt. You could still owe a “deficiency,” which is the difference between the car’s sale price at auction and the remaining loan balance, plus repossession expenses. In most states, lenders can sue you to recover this deficiency. Consulting with an attorney can help you understand if you have grounds to contest a deficiency judgment.
Key Takeaway: Explore Your Options Early
Facing potential car repossession can be stressful, but remember you likely have more options than you realize. The most crucial step is to communicate with your lender as early as possible. The sooner you address the issue, the greater your chances of finding a solution and avoiding repossession. Don’t hesitate to reach out to your lender today to discuss your situation and explore available assistance.
For further information, refer to the FTC’s article on Vehicle Repossession and this blog from the CFPB for more in-depth guidance.
