Tips For Dealing With Auto Repossession

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


, - May 27, 2016

Negotiating with a lender to prevent auto repossession is not pleasant. However if you manage the negotiation correctly, you'll be able to control your debt and still retain your car making it worth all of the effort. A car loan is the single largest purchase for many people who do not own their home and the loss of that vehicle can have a dramatic effect on the person, causing debt to spiral out of control.

What is the Car Repossession Process?

The car repossession process is fairly straightforward. First you may receive a letter saying your loan payment is past due. This doesn’t always happen. If it’s specified in your loan contract, you’ll get the letter. A few days after the letter is sent, you’ll get a phone call from the loan company saying the payment is late and asking what you plan to do to avoid repossession. Again, this depends on the loan contract. After a “grace period” (again, check the contract) expires, the loan company hires a repossession company and they take the vehicle, attempting to avoid confrontation. You will then get a letter telling you how much you owe for the loan payment and repo fees

Be Proactive

If you find yourself struggling to make your car loan payments or know that something will change your financial situation in the near future, then it is important to contact your lender and proactively seek a solution. Trying to ignore the problems will have serious consequences in the long run. Lenders are more likely to negotiate if you are up front about your situation and contact them as early as possible. Otherwise they may suspect that you are trying to defraud them. Repossessing a car is a last resort for lenders and often loses them money so they are normally willing to negotiate.

Be Realistic

Determine what you can afford to pay each month, then call the lender to set up a plan you can adhere to. There is no point agreeing to a new payment amount or schedule with your lender if you are still going to struggle to make the payments. Analyze all of your expenses for the month and see where you can make savings.

Loan Modification

Changing the interest rate or the term of the loan can have a significant impact on your monthly payment. Increasing the term may incur a fee from your lender and the total interest payments will be slightly higher but it's a small price to pay to keep the car. Extensions to the loan period are one of the most frequent loan modifications made by finance companies if they believe you will have the means to make a payment later. Other modifications can include changing the payment date on either a one-off or permanent basis and deferring a payment.

Resell the Vehicle

If you're faced with an impending repossession, and can't make your monthly payments, you may be better off reselling the vehicle on your own than waiting for the financing company to take it back. When the lender has control of your vehicle, they may not put the effort that you would into getting top price for that vehicle. If you can sell your vehicle or get someone to take over your payments, you may be able to avoid some of the liability of a repossession situation.

Default of Payment

Check the original contract that you signed to find out what constitutes as a default. Once you have defaulted, then the lender is within its rights to seize your car at any time. If you have negotiated a loan modification, then the original terms of the contract may no longer apply. Make sure you find this out when you call to negotiate and request a new copy of the loan terms to be sent to you.

Voluntary Repossession

If you are unsuccessful in re-negotiating the terms of your loan, you can agree to a voluntary repossession of the vehicle. This helps to keep the creditor expenses that you will be liable for at a lower level. Offering a voluntary repossession will not free you from obligatory payments on loan deficiencies. A deficiency occurs when the amount received for the repossessed vehicle at a sale is lower than the outstanding loan amount. You are responsible for this amount whether the repossession is voluntary or not and it will still affect your credit report.

Luckily, you have as much right as the next person to buy at a repossessed car auction, even if it is your own car up for grabs. When it is sold at auction, it must not only cover the payments missed but also the amount of the entire loan. If the vehicle fails to reach the loan level, you are required to pay the bank the difference. The best solution is to offer to pay the bank its terms on repossession – usually three payments – pick up the vehicle and drive home.

Declare Bankruptcy

Bankruptcy is one tool that the consumer has when they find themselves overwhelmed by debt. The purpose of bankruptcy is to allow an individual or household to renegotiate with creditors when they can't make the payments in their loan agreement. Consider all of the ramifications of bankruptcy before taking this big step.

Repossession can be a devastating experience. Avoiding it is a smart way to minimize a personal financial liability and do damage control for the future of your credit and financial ratings.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


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