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When you purchase (or lease) a car from a dealership, it may feel like you truly own that car. And, essentially, you do own your vehicle. However, until your vehicle is completely paid off, the lender has the right to repossess your vehicle. If you’re responsible with your payments, auto repossession should never be a problem. Still, financial setbacks in life can happen to anyone.
That’s why it’s important for car owners to understand the terms of auto repossession, as well as their repossession rights.
What is auto repossession?
Auto repossession is when a lender takes back a vehicle due to missed payments. Often, auto repossession happens without warning. When you purchase or lease a car, you’re expected to make the committed payments until the vehicle is paid in full. If you stop making these payments, the lender has the right to take back their vehicle, sell it, subtract the selling price from your remaining loan and come after you for the outstanding balance.
Auto repossession is not an ideal situation for many reasons:
- Auto repossession shows up on your credit report, so it can significantly lower your score and likely stay on your report for up to seven years. This negative mark can also make it challenging to find a lender who will sell you another car.
- You may have to pay a repossession fee.
- Your car may be sold at a discount compared to what it’s worth, which leaves more of the loan for you to pay off.
- You often deal with weeks of stress and worry because auto repossession happens without warning. So, every time you walk to your car, you’ll be concerned that it might not be there.
Your repossession rights
It’s important to know your auto repossession rights because if they’re violated, you can potentially get your car back and possibly even money for damages. Note that laws differ from state to state and contract to contract, so you may have to evaluate the specific terms applicable to your case.
Still, auto possession rights are very clear, and the lender has to follow them strictly. It can be helpful to contact an attorney with a background in consumer financial law as soon as you know you’re in danger of repossession. Ask for a complete summary of your rights so you know what can and can’t be done.
One important note is that the company can’t “breach the peace” during a repossession. This means the repossession company can’t:
- Trespass on a property, including entering a closed or locked garage
- Enter a home uninvited
- Damage the car during the repossession
- Threaten violence or touch anyone
- Threaten you with arrest
- Force you to pull over to the side of the road
When can they seize your vehicle?
A car dealership or bank has the right to repossess your vehicle when you’re in default. Technically, you can be in default as soon as you miss one car payment. However, many lenders won’t seize your car after just one missed payment. That’s because repossessing a car typically gets the lender only about 30 percent of the loan value.
You may be able to find more specific terms, such as how many missed payments there can be before repossession occurs, in your contract. Generally speaking, the lender doesn’t have to give notice of auto repossession, and it can happen as soon as you’re in default.
There are repossession rights that dictate how and when your vehicle can be seized. You can’t be forced to pull over while driving, nor can someone break into your property—force entry past a gate or into your garage—in an attempt to repossess. If either of these happens, there has been a “breach of peace,” and you may be able to legally retaliate.
Can they take personal property from your vehicle?
Any personal property in your vehicle isn’t a part of your loan and can’t be taken. However, repossession often occurs without warning, so it’s likely you’ll have items in the vehicle when it’s taken. The lender is not allowed to keep these items. They must contact you with instructions on how you can get your items back.
However, they’re usually only obligated to give you a 30-day window for collection before they can throw out or donate your items.
If personal property was taken from your vehicle and you’re not told what you can do about it, contact a lawyer.
What will they do with your vehicle?
After your vehicle is repossessed, the lender will likely try to sell your car. Repossessed cars are often sold at a significant discount so the lender can make some of their money back quickly. The lender will subtract the selling price from your outstanding loan, and you’ll have to pay whatever amount remains (plus repossession fees).
Some additional notes on the reselling process:
- The lender doesn’t have to resell your car and can choose to keep it.
- Most states require the lender to tell you what will happen to your vehicle and in case of a sale tell you how much it sold for.
- Sellers must sell the car in a “commercially reasonable manner” but don’t have to sell for the highest price possible.
You can get your vehicle back after repossession by reinstating the loan or redeeming the loan. To reinstate your loan, you must catch up all your missed payments, as well as pay any repossession fees. If you can do this, your car is returned and you can keep it if you continue making timely payments.
However, your credit report will still show the repossession, which will impact your credit score.
The other option is to redeem your loan. To do this, you have to pay your loan balance in full, as well as any repossession and legal fees. In this case, you then own your vehicle completely. Of course, many people aren’t able to do this.
After your vehicle is repossessed, the creditor must inform you of your repossession rights and potential next steps. They’ll send you a notice with an estimate of the value of the car, how much you still owe and the required fees to get it back. You typically have 21 days from the date of the notice to make the payment.
Do you still have to pay off your car?
If you can’t reinstate your loan, your vehicle might be sold. After the car is sold, you’ll likely have to pay the deficiency. The only time you don’t have to pay a loan deficiency is if there’s extra money after the sale of the car, but this is a rare situation.
You’ll also likely have to pay repossession fees, such as fees for towing, storage, preparation for sale and attorney fees. These costs will add up, making your auto repossession pretty pricey.
Two options to help you with auto repossession
If you think you’re at risk of an auto repossession, you have two options.
1. Work with your creditor
As soon as you know you’re missing or about to miss payments, approach your creditor. See if you can negotiate something on your loan before repossession is the only option. You might be able to sign a new contract for a longer term and higher interest rate but with more manageable monthly payments.
As we mentioned earlier, creditors don’t prefer auto repossession because they only get around 30 percent of the loan value back, so there’s a good chance they’ll work with you on a different solution.
2. Choose voluntary repossession
You can also choose voluntary repossession. This is when you contact your lender and arrange a time and place to voluntarily return the vehicle because you know you can’t afford it any longer. The process after a voluntary repossession is quite similar to a regular possession.
The creditor will try to sell the vehicle, and you’ll have to pay any outstanding balance. However, the benefit of a voluntary repossession is that you might save on some fees, such as the towing fee you would have been charged in the case of a regular repossession.
Keep in mind that a voluntary repossession will still show up on your credit report and impact your credit score. However, there will often be a note distinguishing this repossession as voluntary. This note can make it easier for you to get a car in the future because lenders will see that you were proactive in handling the default situation.
If you fall behind on car payments, don’t choose to just ignore the problem and hope for the best. Unless you catch up on your payments quickly, your vehicle will probably be repossessed. It’s important for you to understand auto repossession so you can protect your credit, know your options and know if your rights are being violated. Check out CreditRepair.com for more information about protecting your credit and your finances.
