Many people behind their car payments avoid repossession by talking to their lender when they realize they’re in trouble and trying to catch up. Repossessions cost lenders money, and they want their borrowers to make the payments. Learn more about preventing vehicle repossession.
Creditors can repossess a vehicle after the borrower defaults on the loan, usually 30 days past due. Refinancing your loan or asking for a loan modification can prevent repossession.
Talk to Your Lender
Repossession costs a lender money, and they would rather you keep paying your loan than lose your vehicle to repossession. Many lenders offer hardship programs and other loan modification options for borrowers who can’t make their car payments. Contact your lender when you miss a payment to discuss these options.
Lenders can begin to take steps to repossess your car as soon as you default on repayment, but they will typically attempt to collect payment or offer you a deferment before taking action. Repossession can devastate your credit score, so working out an alternate payment plan before it’s too late is essential.
If you miss a payment, document every communication with your lender and request that they send all correspondence through certified mail. Suppose you can’t come up with a solution, and your lender does repossess your vehicle. In that case, you will be responsible for all fees associated with the auction and will likely still owe a deficiency balance.
Refinance Your Car Loan
Reviewing your budget before refinancing an auto loan is a good idea. You should also look at your credit scores to see whether they have improved since you took out the original car loan, which could help you qualify for a lower interest rate and save money in the long run.
Refinancing an auto loan will require you to provide certain information to the new lender, including your vehicle identification number, pay stubs, and job details, plus proof of insurance. Some lenders may offer pre-qualification with a soft credit check, which won’t impact your score.
You should know how much you owe on a loan and the value of your car, which can be found on websites like Kelley Blue Book, Edmunds, and NADAguides. You’ll also need to find out if your current lender has a prepayment penalty, which can reduce the amount you save by refinancing early. If you do, you’ll need to ensure the extra amount you owe on the new loan is enough to cover the prepayment penalties and other fees.
Get a Loan Modification
Lenders can work with people who are having financial hardship, so try to get in touch with your lender about loan modification. Do it yourself rather than using a modification company to handle your loan application. This way, you can promptly respond to any inquiries from your servicer and are in the best position to answer questions about your situation.
Lending laws vary by state, but generally, lenders can enter your property to repossess a car as long as they don’t “breach the peace.” This means repo agents cannot use physical or threatening force and may not break into private spaces like a garage to take your vehicle. They also must advertise a public auction date so that you can purchase your car back at market value.
In some states, you can reinstate your auto loan and get your car back after repossessing it by getting current on past-due payments and paying your lender’s repossession fees. You can also avoid repossession by filing for bankruptcy.
Sell Your Car
If your lender can’t agree to modify your loan, consider selling your car. While this will leave you without transportation and will reduce your credit score, it is better than losing your vehicle.
Repossession companies cannot keep any personal items found inside a repossessed vehicle and must give the consumer a list of what was taken, where it’s stored, and how to retrieve it. Additionally, repossession companies can’t use force or make threats to get people to give up their vehicles, and they must let consumers know if they plan to sell the car before they do.
If a lender does decide to sell your car, it must advertise the sale and try to get as much for it as possible. It also must give you advance notice of the auction date so that you can attend and bid. A lender can’t sue you for a deficiency balance if the sale proceeds don’t cover what you still owe on your loan.