Experiencing a vehicle repossession is embarrassing and losing your car to a repossession can have a negative effect on your credit score and possibly stop future auto loan approvals. If an auto lender threatens repossession, it's imperative to understand how the process works and then attempt to avoid losing your car.
What is Repossession?
A car repossession occurs after you stop making your auto loan payment. Auto lenders vary; some may repossess your car after you've missed a couple of payments, whereas other lenders may delay the process for a few months allowing you time to get your loan on track. Buying a car and signing loan documents indicates your willingness to pay back funds borrowed from your lender. Being delinquent on a car payment breaches this contract and lenders have the legal right to take back or reclaim the vehicle.
Notification
Rarely will a lender show up to repossess a vehicle without first sending notification. Lenders typically begin contacting borrowers once payments are late by telephone or letter. If a borrower ignores these letters, lenders then send a notification alerting borrowers to the possibility of repossession. Borrowers can speak with their lender and ask for assistance to avert a repossession. Depending on a borrower's situation, the lender may modify the auto loan terms to reduce the payment or grant a forbearance period, or an option to skip a payment.
Repossession Process
If a borrower is unable to get out of default, auto lenders have no other recourse than to repossess the vehicle. The auto lender contracts a repossession company or uses an in-house repo team to track down the vehicle. This company or team typically visits the borrower's home or place of business to get possession of the vehicle.
After Repossession
Auto lenders do not keep repossessed vehicles. These vehicles are generally sold at auction. But before the auction date, original borrowers can remove personal belonging from their vehicle. What's more, auto lenders will return repossessed cars if original borrowers are able to pay off the delinquent balance in full, plus any late fees or repossession fees. If not, the lender sells the car to a new buyer. If the auction sale price is less than the balance owed to the auto lender, original borrowers are responsible for the deficiency balance and will owe taxes on this amount.
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