What Is Repossession?

Repossession occurs when a lender or leasing company seizes your vehicle due to nonpayment. When you take out a car loan, the vehicle acts as collateral to secure the loan, meaning the lender technically owns the car until you pay off the debt. With a lease, you’re essentially renting the vehicle for a period of two to four years.

How Does Car Repossession Work?

The repossession process can vary depending on your lender or leasing company, and each state has different laws regulating repossession. Generally, repossession can be involuntary or voluntary. Involuntary repossession happens without your consent, while voluntary repossession, or voluntary surrender, occurs when you turn in the car to the lender or leasing company on your own accord.

Your Vehicle Is Seized

There’s no legal requirement for a lender to notify you before seizing your vehicle. However, they cannot “breach the peace” during the process. Repossession can come with various fees, such as storage, sale preparation, attorney fees, and more.

The Lender Sells the Vehicle

Once the lender has possession of the vehicle, they may choose to keep it or sell it privately or at a public auction. In some states, the lender is required to inform you about the auction, allowing you to bid on the vehicle.

You Pay the Deficiency Balance (When Applicable)

If the sale doesn’t cover what you owe, you’ll have a deficiency balance. If you can’t pay this amount, the lender may sue you to collect the debt. Conversely, if the sale exceeds your remaining loan balance, some states require the lender to disburse the surplus amount to you.

How Long Does Repossession Stay on Your Credit?

Repossessions remain on your credit reports for seven years from the date you stopped paying your loan. This can significantly damage your credit score, making it difficult to get approved for credit in the future. However, the impact can diminish over time if you develop good credit habits.

How to Avoid Repossession

The best way to avoid repossession is to make all your payments in full and on time. If you’re in danger of missing a payment, consider the following steps:

• Be upfront with your lender: Communicate with your lender about your financial struggles. They may be willing to work with you to find a solution.
• Request forbearance or loan modification: Depending on your lender’s options, you may be able to get a short-term forbearance or a long-term modification to your payments.
• Get caught up as quickly as possible: Prioritize getting current on your loan. Consider asking loved ones for help or seeking financial assistance.
• Sell the vehicle: If you can afford a lower monthly payment, consider selling the vehicle or returning the lease early and getting a less expensive vehicle.
• Refinance your loan: If your credit is still in good shape, you may be able to refinance the auto loan for a lower interest rate or extended repayment term.
• Consider a voluntary surrender: If repossession is imminent, voluntarily turning the car over to your lender could help you avoid some of the negative repercussions.

What to Do if Your Car Is Repossessed

If your vehicle has been repossessed, consider the following steps:

• Know your state’s laws: Ensure your lender is following the correct legal steps by understanding your state’s repossession laws.
• Retrieve your personal possessions: Ask your lender about retrieving your personal belongings from the vehicle.
• Try to reinstate the loan: You may be able to reinstate your loan by paying off your past-due payments and repossession expenses.
• Consider buying back the car: Depending on your state, you may be able to buy back the vehicle by paying off the debt and repossession-related costs.
• Reevaluate your financial situation: Take stock of your finances and consider credit counseling if needed.
• Take steps to improve your credit: Check your credit score and report, and take concrete steps to rebuild your credit.

The Bottom Line

Vehicle repossession can have a drastic impact on your credit score and finances, so it’s important to try to avoid it at all costs. If you’re at risk of falling behind on payments, consider the steps mentioned above to avoid repossession. If your vehicle has already been seized, explore the different paths you can take to reinstate your loan or lease, buy back the vehicle, or move on and improve your credit.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate your financial journey and find the best solutions for your needs.