When you no longer want to or are unable to make your car payments, your car will eventually be repossessed. However, some people actually stop making payments to save money and use it to buy a vehicle outright after their other vehicle is repossessed. While technically this could work, it could also cause some financial problems for you.
Right to Repossess
After you stop making your car payment, by law the lender has the right to repossess your vehicle. When you sign your car loan, you agree to a clause that allows the lender to repossess the vehicle when you do not meet the terms of the agreement. Once this happens, the lender can take the car and sell it to repay the amount of money that you borrowed to purchase the car on the front end.
Deficiency Balance
While you may try to save up your money and pay for another car outright, this does not necessarily eliminate the money that you owe for the first vehicle. If the lender sells the car for less than what you owed on the loan, this creates a deficiency balance. When this happens, you still owe money to the lender. The lender then has the legal right to come after you for this deficiency balance. If you do not pay the balance, the lender may take legal action against you.
Legal Action
When you have a deficiency balance, it is essentially the same as owing money to a credit card provider or to another lender. Because of this, the lender has the right to sue you in civil court to get a judgment against you. Once a lawsuit has been filed and a judgment given, the lender can then use that judgment to collect the balance from you. One way to collect the balance is to place a lien on your property or to seize it through a levy.
Considerations
Even if you use cash to pay for another vehicle after getting your first one repossessed, this does not necessarily mean that your new vehicle is secure from a levy against you. If the lender of the repossessed car gets a judgment against you and has the right to levy your property, it could levy your new vehicle to pay for the old one. As such, your new car could be seized and sold by the local sheriff to generate enough cash to pay for the deficiency balance that you owe.
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