Falling behind on your car payments can be a stressful situation. If you’re worried about repossession due to late payments, understanding your rights is crucial. This guide will explain when your lender can repossess your vehicle and what you can do to protect yourself.
Understanding Car Repossession for Late Payments
Lenders have the right to repossess your car if you violate the terms of your loan agreement. While the specifics can vary depending on your contract and state laws, late payments are a common trigger for repossession.
Communicate with Your Lender Immediately: The moment you realize you might miss a car payment, reach out to your lender. Many are willing to work with you, especially if you have a history of on-time payments. They might offer options like a modified payment schedule or a temporary forbearance.
Get Any Agreement in Writing: If your lender agrees to change your payment arrangements, ensure you get this agreement in writing. Verbal agreements are difficult to prove. Without written confirmation, your original loan contract remains in effect, and late payments can still lead to repossession.
Defaulting on Your Loan: Missing a payment is a significant issue, but defaulting on your loan can occur in other ways too. For example, allowing your car insurance to lapse is often considered a default. Any form of default gives your lender the legal right to repossess your vehicle.
No Advance Warning Required: In many cases, lenders are not legally obligated to provide advance notice before repossessing your car. They (or a repossession agent acting on their behalf) can seize the vehicle from your property as long as they don’t breach the peace. “Breach of the peace” generally means they can’t use physical force or threats during the repossession.
What Happens After Repossession?
Knowing what to expect after repossession is just as important as understanding how to prevent it.
Remove Personal Belongings Promptly: If you believe repossession is imminent, remove all personal items from your car immediately. While legally, the lender is only entitled to the vehicle itself, retrieving personal items after repossession can be challenging.
Paying to Reinstate Your Loan: After repossession, your lender will likely demand that you pay not only the overdue payments but also the costs associated with the repossession itself. They may also require you to pay off the entire remaining loan balance to get your car back. It’s wise to consult with an attorney to fully understand your legal options at this stage.
Vehicle Sale and Notification: If you cannot afford to reinstate your loan and reclaim your car, the lender will sell it. They are required to notify you about the sale, especially if it’s a public auction, informing you of the date, time, and location. You have the right to attend and even bring potential buyers. If the sale is private, they must notify you of the date after which the car will be sold.
Deficiency or Surplus After Sale: After the car is sold, the proceeds will be applied to your outstanding loan balance and repossession costs. If the sale price doesn’t cover the full amount you owe, the remaining balance is called a “deficiency balance,” and you are still legally responsible for paying it. Conversely, if the sale generates more money than you owe, the lender is obligated to refund the surplus to you.
Prevention is Key: Dealing with repossession is a complicated and stressful process. It’s always better to be proactive. If you anticipate difficulty making payments, contact your lender immediately to explore your options and avoid repossession altogether.
