Vehicle Repossession 101

Chances are you rely on your vehicle to get you where you need to go and when you need to go, whether it’s to work, school, the grocery store, or transporting kids to activities. But if you’re late with your car payments, or in some states, if you don’t have adequate auto insurance, your vehicle could be taken away from you.

When you finance or lease a vehicle, your creditor or lessor has important rights that end once you’ve paid off your loan or lease obligation. These rights are established by the contract you signed and the law of your state. For example, if you don’t make timely payments on the vehicle, your creditor may have the right to “repossess” ­or take back your car without going to court or warning you in advance. Your creditor also may be able to sell your contract to a third party, called an “assignee”, who may have the same right to seize the car as the original creditor.

Avoid repossession

It’s easier to try to prevent vehicle repossession from taking place than to dispute it after the fact. Contact your creditor as soon as you realize you will be late with a payment. Many creditors work with consumers they believe will be able to pay soon, even if slightly late. You may be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract, get it in writing to avoid questions later.

Involuntary repossession

Your creditor may decide to keep the vehicle as compensation for your debt or resell it in a public or private sale. You may be able to buy back the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees.

Check with your state consumer protection agency. Some states have laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, plus your creditor’s repossession expenses.

Voluntary repossession

However, your creditor or lessor may refuse to accept late payments or make other changes in your contract and may demand that you return the car. If you agree to a “voluntary repossession,” you may reduce your creditor’s expenses, which you would be responsible for paying. But even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report.  Keep in mind that a creditor may not keep or sell any personal property found inside the vehicle.

If you are like most people, you probably really need your car and should do everything you can to avoid having it repossessed.  You don’t want a repossession placed on your credit report; it is considered severe delinquency and has a major impact on your credit score.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Auto Loans, Credit Report, Money & Identity

This post was written by John Ulzheimer