Car Repossessed - What to Do?
One of the effects of our current bad economy is that many people now can't afford the cars the cars they bought a few months ago, or a couple of years ago. After a customer misses a few car payments, banks and finance companies put the loan into repossession status.
How does a repo work?
Repossession means the bank or loan company is exercising its right to recover the car, often unannounced, Some customer voluntarily return their cars but it is still considered a repossession.
Repossessed (repo) cars are sold by the bank or loan company in an attempt to recover some or all of the amount of the customer's loan balance. Most cars are sent to professional car auctions companies and sold to dealers and individuals at wholesale prices (see our related article, Repo Car Auctions for Cheap Cars).
If the auction sale price is not sufficient to cover the amount of the customer's loan, the customer is sued for the remaining balance — usually by turning the case over to a professional collection agency. In some case, serious legal action is taken against the customer.
A repossession also negatively affects the customer's credit rating. It stays on the reports of all three U.S. credit agencies (Equifax, Transunion, and Experian) for 7 years and significantly lowers the customer's credit score. Credit scores are used by lenders, insurance providers, and even employers in the approval process for loan and credit applications, car insurance policies, and jobs.
Getting a new car loan after a repossession is very difficult, if not impossible.
What can be done?
If you know you're going to have a difficult time making car payments, you should contact your bank or lender to work out a solution — before the repo process begins. Some lenders will help you defer some payments or reduce payment amount. Remember, they don't want your car back, which makes them willing to help you out.
If you have already missed payments, it still might not be too late to contact your lender and try to work out a solution and avoid repossession.
Depending on laws in your state, and the specifics of your loan contract, you default on your loan when you are consistently late or have missed a certain number of payments. When you default, it gives the lender certain legal rights that involve recovering their property (your car) and the money that is owed to them. The lender can delay the repo process if they want, even though they have the legal right not to delay. Some lenders can be compassionate, others are not.
After the repo process has begun, the ONLY way to stop the process and recover your car is to pay off the full amount of your loan balance – no more monthly payments – and pay the fees and charges associated with picking up and storing your car.
Some people who are facing a repo think they can hide their car and delay or avoid the "repo man." However, this is not a very smart thing to do. First, when the car is found (and it WILL be found), you'll pay higher repo fees. Second, in many states, hiding a repo car is the same as stealing — it is a criminal felony — and you'll end up with a large fine, maybe jail, and a long-lasting criminal record.
Summary
Do anything — repeat, anything — to avoid having your car repossessed. Find a way to keep it and keep making payments. You might be able to sell it but if you are "upside down" you might have to come up with extra cash to fully pay off the loan. If you are not significantly upside down, you might be able to trade for a cheaper car, and lower payments. See the following article for additional advice and information, Can't Afford Your Car?