A car loan is a legally binding agreement. If you don’t live up to the terms of that agreement, you could lose the car. Understanding some simple guidelines can help you to avoid repossession.
Who Owns the Car?
When you take out a loan to buy a car, you might think you have borrowed money for “your” car. Actually, you have borrowed a car. It is not yours until you pay for it in full. Thinking of it this way makes it clear that though you may possess the vehicle, you don’t own it. The lender does.
How Does Repossession Work?
Although the details of repossession may change depending on the lender, the process looks like this in most instances
- The borrower defaults on payments.
- The lender will issue a repossession notice.
- If no payments are made after a predetermined time, the loan is labeled “in default.”
- The lender takes possession of the vehicle.
The time it takes for this to happen may vary, but if you don’t pay, it will happen. The old days of dodging the repo man are long gone. GPS location and remote starter interruption make repossession quick and inevitable.
How Many Car Payments Can You Miss Before Repossession?
The maximum number of payments not made before repossession depends on your lender’s policies, but in most scenarios, two or three missed car loan payments in a row will lead to repossession.
👉 Tip: Lenders have the right to take the car back immediately after your first missed payment, although many allow a grace period of 60 to 90 days.
You may be able to stop repossession if you act quickly. If you have missed a payment or you know you will miss a payment, don’t wait. Take the initiative and try to resolve the situation.
Call Your Lender and Ask For a Payment Deferral
This allows you to skip a month and defer the missed payment until the end of the loan period. Not only will this provide you with some flexibility, but it also allows you to stay in good standing with your lender and avoid damage to your credit score.
Make Additional Arrangements
If you can’t get a payment deferral, ask what steps you can take to get your loan back in good standing. Don’t try to hide or avoid the lender. Show willingness to make a catch-up payment on your next payday, ask for 60 days to pay instead of tacking the amount onto the end of your loan, or explain any special circumstances, such as medical emergencies.
👉 Tip: It is not in the lender’s best interest to take the car. They make more money from the interest on the loan than they would from selling the car. Your efforts to make payment arrangements can work in your favor.
Refinance Your Car Loan
If you cannot afford your payments, refinancing your car loan may help you reduce your interest and monthly payments. Refinancing with a longer loan term will reduce your monthly payments, but it will increase your interest expenses in the long run.
If you plan to refinance, try to do it before you miss a payment. Once you have missed payments, it will be very difficult to get a refinancing loan at a competitive rate. You may not be able to get one at all.
If You Really Can’t Pay
If you have no way to pay your car loan, don’t just wait for it to be repossessed. Assess your situation and take action.
Are You Underwater on Your Loan?
If you owe more on your loan than your car is worth, you are underwater or upside down on your loan. The technical term for this is “negative equity”.
Check the balance on your loan, and check the Kelley Blue Book for an estimate of what your car is worth.
If you are above water on your loan, your best bet will probably be to sell the car, pay the loan, and shop for a more affordable vehicle.
If you are underwater on your loan, you have fewer options. One is to voluntarily surrender the vehicle. This will hammer your credit, but it’s less stressful than repossession, and you have less chance of losing personal effects left in the vehicle.
What Can I Do After Repossession?
If none of these tactics work and your lender takes possession of your vehicle, there are some best practices to avoid aggravating a bad situation.
If you haven’t had the opportunity to do so, ask where your vehicle is to recover your personal belongings.
Repossession indicates that you may not be in the best financial condition for immediate recovery. Get back on track by budgeting and determining your financial situation.
What Are My Rights and Responsibilities Regarding Repossession?
It is important to recognize that you have rights, even during repossession.
You can retrieve your personal belongings from the car. If the repossessor takes your motor vehicle, you have the right to recover all your personal effects inside it.
The lender cannot use threats or physical force. If your lender violates the law, he could be penalized. If harm is done to you or your property, they may need to compensate you.
You cannot hide the car. Although your lender may not be able to break into a locked garage or private property, it’s not the best thing to do. Creditors can charge you for additional costs related to the repossession of your vehicle or sue you if you refuse to release it.
👉 Tip: Many financed cars have a GPS device installed, so there is no way to conceal it.
What Are The Lender’s Rights Regarding Repossession?
It is also vital that you know the lender’s rights. For example, They have the right to:
- Repossession Without a Court Order
Most repossessions are “self-help,” meaning that the creditor takes the item without obtaining a court order.
- Repossession Without Advance Notice
Technically, once a loan or credit account is in default, the lender can take steps to repossess a vehicle without notice. Generally, cars are repossessed once payments are 90 days into default, although technically, lenders can do so with only one missed payment.
- Right to repossess vehicles on your property
Surprisingly, the repossession laws permit the lender to repossess a car parked on your property with the garage door open.
The best way to handle the threat of repossession is to avoid it. Don’t buy more cars than you can afford. Don’t let a dealer talk you into expensive upgrades. Make a down payment that will help you avoid going underwater on your loan. If you are going to miss a payment, contact your lender and make a deal!
