If you’ve financed your car with an auto loan, missing payments can lead to serious consequences beyond just a negative mark on your credit report. You could face the repossession of your vehicle. Repossession is when your lender reclaims your car because you’ve fallen behind on your loan or lease payments. Alarmingly, this can happen without much warning once you’ve defaulted on your auto loan agreement. If you’re concerned about the possibility of repossession, it’s crucial to understand the process and your rights. This guide will walk you through everything you need to know about car repossession and, most importantly, how long before your car gets repoed.
Decoding Car Repossession
Car repossession is essentially the legal process where a lender or leasing company takes back your vehicle due to non-payment. When you secure a car loan, the vehicle itself acts as collateral. This means that until you fully repay the loan, the lender technically holds ownership of the car. In the case of a lease, you are essentially renting the vehicle for an agreed period, typically two to four years.
While lenders technically have the right to repossess your vehicle as soon as you miss a payment, the reality is that repossession usually occurs after a more extended period of delinquency. Often, this happens once you are 90 days past due on your loan. However, it’s vital to carefully review your specific loan or lease agreement. This document will explicitly state at what point you will be considered in default and when repossession proceedings might begin.
Once your vehicle is repossessed, the lender or leasing company will typically sell it at auction. The goal of this sale is to recover the outstanding loan balance or the remaining value of the leased vehicle.
Navigating the Car Repossession Process
The exact repossession process can differ based on your lender or leasing company and, importantly, the state in which you reside. Each state has its own set of laws and regulations governing repossession. This means there isn’t a single, uniform repossession experience across the country.
Nevertheless, understanding the general steps involved in car repossession can help you prepare and know what to expect if you find yourself in this situation.
Types of Repossession: Voluntary vs. Involuntary
Repossession is generally involuntary, meaning it’s initiated by the lender without the borrower’s consent. However, there’s also an option for voluntary repossession. If you foresee that you will be unable to continue making payments, you can choose to voluntarily surrender the car to the lender or leasing company.
Voluntary repossession, also known as voluntary surrender, can have certain advantages. It can help you avoid some of the fees associated with involuntary repossession, such as towing and storage costs. Furthermore, it might be viewed more favorably by future lenders, as it demonstrates a willingness to take responsibility and cooperate with the lender.
Vehicle Seizure: What to Expect
One of the unsettling aspects of repossession is that lenders are generally not legally obligated to provide advance notice before seizing your vehicle. Adding to this, some states permit lenders to install “kill switches” in vehicles. These devices can remotely disable the car, preventing it from starting and simplifying the repossession process for the lender. However, the legality and use of kill switches can also vary by state.
Despite these measures, lenders are bound by law not to “breach the peace” during a repossession. This means they cannot use physical force, threaten violence, or take your vehicle from a closed, secured garage without your explicit permission. Certain states also have outright prohibitions against the use of kill switches.
Beyond the emotional distress, repossession often comes with a range of fees that you will be responsible for. These can include charges for storage, vehicle sale preparation, attorney fees incurred by the lender, prepayment penalties on the loan, and early lease termination fees.
Vehicle Sale and Deficiency Balances
After the lender or leasing company repossesses your vehicle, they will typically proceed to sell it. This sale can be private or through a public auction. In some states, lenders are required to inform you of the auction’s location, giving you the opportunity to bid on and potentially repurchase your vehicle. You might also have the option to buy back your car through a private sale or reinstate your original loan by paying the overdue amount and associated repossession costs.
However, the sale price of the repossessed vehicle may not always cover the full amount you still owe on the loan, plus the costs of repossession. If the sale proceeds are insufficient, you will be left with what’s known as a deficiency balance. This is the remaining debt you owe to the lender. If you are unable to pay this deficiency balance, the lender in some states has the legal right to sue you to recover the debt.
Conversely, if the vehicle sells for more than what you owe, including repossession costs, some state laws mandate that the lender or leasing company must return the surplus amount to you.
The Lingering Impact of Repossession on Your Credit
Repossessions have a significant and long-lasting negative impact on your credit history. A repossession will remain on your credit reports for seven years from the date of your first missed payment that led to the repossession. Given that your payment history is the most influential factor in your FICO® Score, repossession, along with associated late payments and loan default, can severely damage your credit score. This negative impact holds true even if you choose voluntary surrender.
Furthermore, if the lender refers the deficiency balance to a collection agency, a separate collection account will appear on your credit reports. This further compounds the negative effect on your credit profile.
A repossession on your record can make it considerably more challenging to obtain credit in the future. Like other negative credit marks, the impact of a repossession will gradually lessen over time, especially if you actively work to rebuild your credit by establishing positive credit habits and maintaining a consistent, positive payment history going forward.
Proactive Steps to Avoid Car Repossession
The most effective way to avoid the distress and financial repercussions of repossession is to ensure you make all your car payments in full and on time. However, if you are facing financial hardship and anticipate missing a payment, here are proactive steps you can take to prevent losing your vehicle:
- Communicate Openly with Your Lender: It might feel daunting to inform your lender about your financial struggles, but proactive communication is key. Lenders are often willing to work with you because the repossession process is costly for them as well, with no guarantee of fully recovering their losses. They may be open to finding solutions to help you get back on track.
- Request Forbearance or Loan Modification: Explore options like forbearance or loan modification with your lender. Forbearance might offer temporary relief by allowing you to pause or reduce payments for a short period. Loan modification could involve permanently altering the terms of your loan, such as reducing your interest rate or extending the loan term, to lower your monthly payments.
- Catch Up on Payments Quickly: If you have already missed one or two payments, prioritize getting current as soon as possible. Consider seeking temporary financial assistance from family or friends or exploring options for financial aid programs to free up funds to catch up on your car loan.
- Consider Selling Your Vehicle: If your current car payments are no longer manageable, think about selling your vehicle or, if leased, returning it early. Downsizing to a less expensive vehicle with lower monthly payments could be a more sustainable option. Be mindful of potential costs associated with early loan payoff or lease termination.
- Refinance Your Auto Loan: If your credit is still in reasonably good standing, refinancing your auto loan might be a viable solution. Refinancing involves taking out a new loan to replace your existing one, potentially securing a lower interest rate. This can reduce your monthly payments. You could also consider extending your loan term through refinancing, further lowering monthly payments, although this will mean paying more interest over the loan’s longer duration.
- Consider Voluntary Surrender: If repossession seems unavoidable and you’ve received notification, consider voluntarily surrendering your car. This can help you avoid the added stress and costs of involuntary repossession and may mitigate some of the negative impacts on your credit.
What to Do if Your Car Is Repossessed
If, despite your best efforts, your lender has repossessed your vehicle, here are crucial steps you can take to potentially recover your car or manage the financial aftermath:
- Understand Your State’s Repossession Laws: Familiarize yourself with your state’s specific repossession laws. Most states have regulations that lenders must adhere to, such as providing post-repossession notifications and informing you about the vehicle sale plans. Knowing your state’s laws ensures the lender is following proper legal procedures. Contact your state’s attorney general’s office for information on repossession laws in your state.
- Retrieve Personal Belongings: If your vehicle was repossessed without prior notice, immediately inquire with the lender about how to retrieve your personal items from the car. Lenders are not legally allowed to keep or sell your personal property left in the vehicle.
- Explore Loan Reinstatement: Inquire about the possibility of reinstating your loan or lease. This typically involves paying all past-due payments, along with repossession expenses incurred by the lender.
- Consider Buying Back Your Car: Depending on your state and the lender’s policies, you might have the option to buy back your repossessed vehicle. Some states require lenders to notify you about public auctions, or they might allow you to repurchase it through a private sale by settling the outstanding debt and repossession-related costs.
- Reassess Your Financial Situation: Take a thorough look at your overall financial situation and identify the factors that led to the repossession. Determine if you can make adjustments to your budget or if seeking professional credit counseling would be beneficial.
- Take Steps to Rebuild Your Credit: Recognize that your credit score has likely suffered. Check your credit score and credit report to understand the extent of the damage and identify other areas needing improvement. Then, proactively take steps to rebuild your credit and establish healthy credit habits for the future.
The Bottom Line: Taking Control to Avoid Repossession
Car repossession is a serious event with significant consequences for your credit and financial well-being. It’s crucial to take every possible step to avoid it. If you anticipate falling behind on payments or have already missed some, explore the strategies outlined to prevent repossession.
If repossession has already occurred, understand your options for potentially reinstating your loan, buying back your vehicle, or moving forward financially. Throughout this challenging process, regularly monitor your credit score to track the impact of your actions and measure your progress as you work towards improving your financial standing.
