Missing car payments can lead to serious consequences, and one of the most worrying is repossession. Lenders have the right to take your car back if you don’t keep up with payments, sometimes without even giving you notice beforehand. It’s crucial to understand your rights and what steps you can take if you’re struggling to pay your car loan or if repossession becomes a reality.
Talking to Your Lender: Your First and Best Step
If you anticipate trouble making your car payments, the absolute first thing you should do is contact your lender immediately. Don’t wait until you’ve already missed payments and repossession is looming. Lenders are often willing to work with borrowers who communicate proactively, especially if they believe you are committed to fulfilling your loan obligations.
Many lenders have programs to assist customers facing temporary financial hardship. You might be able to negotiate a payment delay, where you get a temporary break from payments, or a revised payment schedule, which could lower your monthly payments over a longer loan term. It’s also worth asking about options like extended repayment plans, grace periods, or waiving late fees. If you’ve been affected by a natural disaster, such as a hurricane or flood, lenders may have specific disaster relief programs that can further assist you by deferring payments or postponing repossession actions.
Crucially, if you reach any agreement with your lender to modify your original loan terms, ensure you get it in writing. This written agreement will protect you and prevent misunderstandings or disputes later on.
Even if you don’t reach a modified payment agreement, your lender might ask you to voluntarily return the car, known as “voluntary repossession.” While this might seem like a negative outcome, it can sometimes result in fewer fees compared to a standard repossession. However, even with voluntary repossession, remember that you are still responsible for the “deficiency balance.” This is the difference between what you still owe on the loan and the amount the lender gets when they sell your car. Furthermore, both late payments and repossession, even voluntary, can negatively impact your credit report.
Learn more about managing debt at ftc.gov/debt.
When Can a Lender Legally Repossess Your Car?
In most jurisdictions, lenders have the legal right to repossess your car as soon as you default on your car loan or lease agreement. Your loan contract will define what constitutes a default, but the most common trigger is missing a payment deadline. Even being just a few days late can technically put you in default, although lenders may have some leniency.
Once you are in default, the lender’s repossession agent can typically take your car at any time, without prior warning. They are even legally allowed to come onto your property to seize the vehicle. However, repossession laws also stipulate that lenders cannot “breach the peace” during a repossession. What constitutes a breach of peace varies by state but generally includes actions like using physical force, threatening violence, or taking your car from a locked garage without your permission. It’s important to understand the specific repossession laws in your state to know your rights.
The Role of Electronic Disabling Devices
With some car loans, lenders may install a device in your vehicle that prevents it from starting if payments are not made on time. These are often referred to as “starter interrupters” or “kill switches.”
The legality and implications of using these devices can depend on your loan contract and state laws. In some cases, using a kill switch might be considered the same as a repossession from a legal standpoint, while in other jurisdictions, it could be viewed as a breach of peace, especially if used aggressively or without proper warning. The way your state regulates these devices can significantly affect your rights. If you have concerns about a kill switch installed in your car, contacting your state attorney general for clarification on your state’s regulations is advisable.
What Happens After Your Car is Repossessed?
After repossession, the lender has a few options. They can keep the car to offset your debt, though this is less common. More typically, they will sell the repossessed vehicle, usually through auction, to recover some of the money you owe. State laws often require lenders to notify you about what will happen to your car.
For example, if the car is to be sold at a public auction, your state’s laws might mandate that the lender inform you of the date, time, and location of the auction. This notification allows you the option to attend and bid on your vehicle yourself if you wish to repurchase it. If the lender opts for a private sale, you may still have the right to be informed of the sale date.
Regardless of the sale method, you generally have the right to “redeem” your car. This means you can buy it back by:
- Paying the full outstanding balance of the loan. This usually includes all past due payments, the remaining loan principal, and all costs associated with the repossession, such as towing, storage, auctioneer fees, and attorney fees.
- Bidding on and winning your car back at the repossession sale.
Some states also have “reinstatement” laws, which offer another chance to get your car back. Reinstatement allows you to resume your original loan agreement by paying only the past-due payments, late fees, and the lender’s repossession expenses, rather than the entire loan balance.
Retrieving Personal Property from a Repossessed Vehicle
Lenders are not entitled to keep or sell your personal belongings that were inside the repossessed vehicle. There is usually a legally mandated waiting period after repossession, dictated by state law, before they can dispose of any personal property. Many states require lenders to inform you about any personal items found in the car and provide instructions on how you can retrieve them. Make sure to contact your lender promptly after repossession to inquire about getting your personal items back.
Understanding Deficiency and Surplus
After the lender sells your repossessed car, the sale price is applied to your outstanding debt. However, the sale price is often less than what you originally owed. The difference between your remaining loan balance (plus repossession expenses) and the car’s sale price is called a “deficiency.”
For example, if you owed $15,000 on your car loan and the lender sells it for $8,000, the deficiency is $7,000, plus any additional fees outlined in your loan contract, such as repossession costs or early termination fees. In most states, lenders have the right to sue you to obtain a deficiency judgment to collect this remaining balance, provided they followed all legal procedures for the repossession and sale.
In a less common scenario, if the lender sells your car for more than you owe (including all their expenses), the excess amount is called a “surplus.” In such cases, the lender may be legally obligated to return this surplus to you.
Protecting Yourself and Where to Report Problems
Understanding your rights and responsibilities regarding car repossession is essential. If you’re facing difficulty with car payments, always prioritize communication with your lender. Knowing your state’s specific repossession laws is also crucial.
To learn more about your rights and specific repossession requirements in your state, or to report lenders who you believe are not complying with the law, contact your state attorney general or your local consumer protection agency. These resources can provide valuable guidance and assistance in navigating car repossession issues and ensuring your rights are protected.
