When a lender seizes your vehicle for nonpayment, you might be offered an opportunity to purchase it back. If you don't, the lender resells the car and bills you for the amount due on the loan. Even though you dont own the vehicle any longer, you must still pay any balance due on the loan, as you agreed to do when you signed your original contract.
Repossession Process
After you miss one or more payments, your lender may seize your vehicle by hiring a repossession company to collect the car. After the car is back in the lender's possession, it will send you a letter stating the amount you can pay to retrieve your car, which is usually the total amount past due or the entire cost of the car. You'll also receive notice of the date the lender intends to sell the vehicle. If you don't receive a letter from your lender, call to find out the balance due to retrieve the car and the date the lender plans to sell the car so you may plan accordingly.
Resale and Balance Difference
Borrowers facing repossession often find themselves in a negative equity situation, so selling the car privately for private-sale value isn't usually an option without an out-of-pocket payment. Many lenders resell repossessed vehicles at auction, which yields wholesale value, the lowest value for a car. After the sale, the lender will send you a letter asking for the amount due on your loan, which is the total of the loan payoff amount, repossession fees and reconditioning fees (charged for cleaning the car for resale) minus the vehicle's selling price.
Responsibility and Payment
The contract you signed at the beginning of your loan states that youll pay your loan balance even if you default on the loan. Read your contract if you're unsure of your responsibility. After the lender sells the vehicle, it reports the balance owed to the credit bureaus in addition to the repossession. The repossession notation remains for seven years from the month you originally defaulted on the loan. If you pay the balance due, the repossession remains on your credit, although your account will read "paid" to other lenders. As time goes by, the impact of the repossession on your credit rating and lending risk decreases.
Nonpayment
Your lender can sue you for nonpayment. If your lender sues you and wins its case, it can issue a judgment, which also appears on your credit and further damages your credit rating. After issuing a judgment, the lender may garnish your wages. Wage garnishment for loan nonpayment isn't allowed in several states, so check with a lawyer to find out whether the lender can take a portion of your wages. If you still don't pay your loan balance, the repossession remains on your credit as an unpaid and delinquent balance. Borrowing a loan while the repossession exists on your credit might prove difficult.
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