How Can I Stop Car Repossession?

When a car buyer finances a vehicle, the vehicle itself is used to secure the loan. If the buyer misses payments, sometimes by being as little as a few weeks late on a single payment, the finance company may exercise its ability to repossess the vehicle. Although the repossession process seems highly mechanized to most borrowers, debtors have several options to postpone or completely stop repossession.

Work With the Lender

Although the lender has the legal right to repossess a vehicle if the loan it secures is not paid, most lenders exercise this right only as a last resort. The repossession process is very expensive for lenders, as it often involves contracting a professional repossession agency at a hefty cost. Even after the vehicle is repossessed, it must be cleaned and prepared, then sold at an auto auction. The sales price of the vehicle is rarely sufficient to cover the outstanding debt itself, leaving the lender to pay the repossession, cleaning and auction fees from its own profit. For this reason, lenders are generally eager to work with borrowers, even making special unadvertised payment arrangements for borrowers serious about bringing the loan to a "Current" status.

Sell the Car

Borrowers who can no longer afford the financed vehicle but do not want to experience repossession may be able to simply sell the car themselves. When informed that a car is for sale, many lenders will delay repossession activity for a short time to allow purchase of the car. After the vehicle is sold, the debtor can use the funds from the sale to pay off the remaining loan balance (and have the title sent to the new owner). Many banks are also willing to work with borrowers to avoid the repossession process and will set up a payment arrangement to cover any unpaid balance after the vehicle is sold.

Consider Bankruptcy

Although bankruptcy is an extreme measure and is best left as a last resort, a borrower who is unable to reach a satisfactory arrangement with the lender but who does not want to lose the car may consider asking for court protection. When a borrower files bankruptcy, courts immediately issue a moratorium on collection activities, including repossession. In certain cases under Chapter 7 of the bankruptcy code, the court may still require the car to be forfeited. Under chapter 13 code, however, the court may structure a repayment plan between the borrower and the lender, allowing the debtor to retain ownership of the vehicle.

Know the Law

When a borrower uses a vehicle to secure a loan, as is common when financing a vehicle, the lender places a lien on the vehicle's title that ensures its legal ability to repossess the car if the debt is unpaid. Although the specifics of the repossession process are spelled out in the loan agreement, many states have laws regulating when a vehicle can be repossessed and what actions a lender can take to obtain the car (most states prohibit lenders or their agents from entering secured private property to repossess a vehicle, for example). By maintaining familiarity with state and local regulations regarding repossession, a borrower can work to avert the process before the vehicle is taken.

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What Happens if an Auto Loan Matures & You Owe a Balance?

An auto loan maturity date is a date when the loan balance is paid off if a borrower makes payments according to the schedule. However, when an auto loan matures, it does not necessarily mean that it is paid off. In some situations, an auto loan may have a remaining balance on the maturity date.

Balance Due

If you miss a payment anytime during the loan period and don't pay it, the bank adds the fee to the loan balance. Some banks offer to skip a loan payment during the holiday season. Borrowers may have fees associated with this offer that will also be added to the balance. When a payment is skipped, the due date advances to the next month, and interest continues to accrue. As a result, the balance due upon maturity will include the skipped payments and interest if you took advantage of such promotions.

Loan Payoff

If you owe a balance on the maturity date, you must pay it off. The bank may require a full payment at once or may be willing to negotiate. Unless you have missed or skipped payments, the balance should be small enough. If the loan is past-due and you owe a significant balance, you may request to pay it off by making several payments equal to your monthly payment amount. As long as you owe a balance on your loan, the bank will not release the lien on the vehicle.

Collections

If you owe a loan balance at maturity and become delinquent on payments, the bank can send your account to collections. The bank will charge late fees on the missed payments. The interest will continue to accrue on the balance you owe. To avoid additional fees and finance charges, you should stay current on payments. If you are unable to make a payment, notify the bank immediately. The bank may report late payments to credit bureaus even if they occur past the loan maturity date.

Repossession

If you owe a balance on an auto loan, the bank has a right to repossess the vehicle if you become delinquent on payments. Repossession process is expensive and time-consuming. Although banks try to avoid repossession as much as possible, they will do it if the value of the collateral is high enough to cover the loan payoff and the repossession costs. The bank will notify you of an impending repossession and will give you a chance to pay the past-due amount to avoid it. If you fail to pay, the vehicle will be sold at an auction. The sale proceeds will pay the loan off. You will receive any excess amount from the sale of the vehicle.

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How to Pay Taxes Up Front on a Lease

Most lease advertisements ask for a down payment and a separate payment of taxes and fees. States calculate taxes on leased vehicles differently. Many states also issue tax rates that differ by city, town or county, so you'll have to find out your tax rate to calculate your charges. Some states tax leased vehicles on monthly payment amounts, including interest charges, some calculate the amount before interest charges and others charge tax on the total cost of the vehicle.

Instructions

1

Ask the dealer or salesperson for the total taxable cost of the leased car and which fees are taxable. Add the taxable cost and fees together.

2

Determine your area's tax rate by visiting your state's motor vehicle website or asking the dealership. If you purchase the vehicle from a state other than your own, your dealer will likely collect taxes for your state and submit the costs on your behalf.

3

Multiply your taxable cost by your state's tax rate. Ask your dealer for the total amount of tax charges, as the dealer must collect the fees for your state. Tell your salesperson that you want to pay your taxes up front.

4

Pay your down payment and taxes during the time you sign your lease contract. Depending on the total amount of your down payment, your dealer may accept a credit card or personal check.

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Is Buying a Car Better Than Leasing One?

Choosing between buying or leasing a car is one of the classic dilemmas that car shoppers are faced with. In some cases, you would be better off to buy rather than lease. In other situations, the opposite is true. When making the decision, you must look at your driving needs as well as your long term goals.

Driving Habits

When making your decision, you have to look at what you plan on doing with the vehicle. If you are the type of person who will drive many miles every year, it typically makes sense to buy. When you lease a car, you only have a certain number of miles that you can drive. If you go over that, the overage charges can be significant. If you only drive a few miles to work every day, a lease might make more sense.

Long Term Goals

Look at what you want to accomplish over the long-term when making this decision. If you would like to be able to get away from a car payment, buying is definitely better than leasing. After the four or five years of loan payments are done, you no longer have to make a payment. At that point, you could start saving for the purchase of your next car. If you do not mind a car payment and have accepted it as a way of life, the lease could be the way to go.

Hands Off

If you are the type of person who does not like to worry about maintenance or repairs, buying a car might not be the best option for you. While you should be covered by a factory warranty for major issues when you buy, your warranty will eventually run out. At that point, you will have to handle repairs and any major issues that come up. When you lease a car, you can simply take it into the dealership for anything that presents itself.

Interest Rate

Not every part of this decision is a factor that directly relates to your situation. Some outside factors should also play a role in your decision. Buying is usually better than leasing when you can get a very low interest rate. For example, if you have good credit and you can take advantage of a zero percent interest rate, it makes sense to buy. The lease payments would not be much lower than your loan payment. If interest rates in the market are much higher, lease payments will be lower. At that point, it becomes more tempting to get a lease.

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Does Negative Equity Effect a New Car Loan?

Negative equity might impact your car loan's overall interest charges. You'll pay more for your vehicle loan if you add excess money to the total loan amount. Lenders increase interest rates for lending terms over 60 months, so if you try to keep your payment lower by extending your loan term, you'll pay more in interest charges.

Interest Charges

If you've already secured the terms of a new loan and know your interest rate or the vehicle's manufacturer is offering low-rate financing, determine the difference you'll pay in interest charges when carrying over negative equity. Use an auto loan calculator to compare loan payback differences between loan options and to determine the impact the negative equity has on your monthly payment. If you don't know your interest rate, apply for a pre-approval. Find special interest rate offers online at the dealer's or manufacturer's website.

Loan-to-Value Ratio

Your credit determines your total loan approval amount, which is based on the vehicle's lending value. With poor credit, you might obtain an approval for only 60 percent of the vehicle's value, or you might obtain as much as 120 percent of the vehicle's value with good credit. Lending value is based on the vehicle's sticker price and does not take rebates or discounts into consideration. If you have a poor loan-to-value ratio, you may have to provide a down payment that covers negative equity and a portion of the new car's cost.

Rebates and Discounts

Shopping for a vehicle with rebates helps to roll over negative equity. Rebates are automatic price discounts provided by the manufacturer, viewed as a down payment, not a price deduction. Shopping for vehicles at the end of the model year or during a holiday sale might provide increased discounts. If your dealer reduces the vehicle's sticker price, you can add more negative equity to your new loan. For example, a $25,000 vehicle with $4,000 in rebates and a dealer discount of $1,000 off the sticker price results in room for $5,000 of negative equity, assuming your loan-to-value ratio is 100 percent.

Considerations

If you live in a state that recognizes a tax deduction for trade-ins, you might not carry over as much negative equity as you think. Depending on your tax rate, your trade-in might save you thousands in tax charges. For example, if you live in an area with a 10 percent tax rate, purchase a $30,000 vehicle and trade in a vehicle worth $15,000, you'll save $1,500 in tax charges. Tax savings combined with rebates might decrease a down payment requirement or create a more affordable monthly payment for a shorter loan term.

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Does Returning a Car to the Bank Ruin Your Credit?

Returning a car to your bank does ruin your credit. Returning the car without completing payments is known as "voluntary repossession" and significantly decreases your credit score. In addition, you're still required to pay the balance of your loan if the bank sells the vehicle for less than you owe. If you don't pay, your credit may be further damaged.

Repossession

Because you returned the vehicle yourself, your credit report will read "voluntary repossession." A credit report will state "involuntary repossession" when a bank must seize the vehicle itself using a towing or repossession company. Both instances affect your credit the same, so returning the car yourself doesn't make a difference to your credit rating. You will avoid paying excess fees the bank charges to locate and seize the vehicle when you return it yourself. The repossession will remain on your credit report for at least seven years.

Bank Process

Once the vehicle is in the bank's possession, it will sell the car either privately or at auction. You'll receive correspondence from the lender stating the date it intends to sell the vehicle and the amount you can pay to retrieve the car if you want it back. If you don't pay to get the car back, you'll receive another letter after the sale stating the balance due on your loan. If the bank was able to sell the vehicle for more than you owed, you'll receive the excess payment as profit.

Paying Your Lender

Make arrangements to pay your lender the excess balance on your loan to avoid further damage to your credit. Your credit report will still list the repossession and the balance due to satisfy the loan agreement. If you don't pay, the lender can sue you to collect the balance. Once the lender wins the lawsuit, it can issue a judgment to garnish your wages. Having a judgment listed on your credit report further decreases your credit score. The judgment will remain on your credit for at least seven years, even after the lender receives payment.

Fixing Your Credit

You can eventually improve your credit rating even after the repossession. Continue paying your other loan accounts on time every month, such as your credit and loan balances. While utility bill payments or other debts you pay aren't reported to the credit bureaus while your account is in good standing, non-payment is reported to the credit bureaus and further damages your credit. After several years of satisfactory payment history, you'll decrease the impact of the repossession on your credit score and may be able to pursue other lines of credit.

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Can You Insure a Vehicle When You Are Taking Over Car Payments?

You probably can't insure a car if you're taking over car payments for someone, unless you have been added to the borrower's loan contract and are recognized as a co-owner by the lien holder. If you are unsure as to whether or not you can insure the vehicle, contact your lender.

Contacting Your Lender

Call your lender to find out its insurance requirements. Most lenders require proof of insurance coverage before loan approval. If you haven't been properly added to the loan, you cannot call to obtain any loan information; the actual buyer must call herself. Some lenders may allow an insurance policy in a different person's name than the borrower if the insured person is added to the vehicle's registration. Otherwise, consider sharing an insurance policy with the original borrower instead so both names are on the policy.

Taking Over Payments

Most lenders don't allow another person to take over a car loan without submitting a credit application. Unless you are simply helping the original buyer by making her car payments, you may want to follow actual bank procedures in order to add yourself to the car's loan. Otherwise, you have no recourse with the vehicle's lien holder because you are not recognized as an owner. Consider officially taking over car payments as a recognized co-owner or sole owner; if the borrower isn't paying for her required insurance policy, the vehicle can be repossessed from you even though you're making payments.

Becoming a Co-owner or Owner

To go about taking payments over the correct way, you must purchase the vehicle from the original borrower. You may also ask to be added to the loan, although monthly payments may change based on interest rate and loan approval terms. If you are simply helping the borrower during financial distress, you may want to help with car insurance, as well. Otherwise, you can apply for a loan to purchase the vehicle. This way, you can also insure the vehicle and receive credit for your timely monthly payments.

Insurance Options

If you can add yourself to the vehicle's loan or the lender allows an additional registrant, call your insurance provider to add the vehicle to your policy. Be sure to check with the lien holder to find out the amount of coverage it requires; many lien holders require collision coverage, reduced deductibles and higher liability limits. If you aren't going to purchase the vehicle and the lien holder requires its borrower to remain on an insurance policy, find out if you can add the borrower to your policy instead.

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