Auto loan debt in the United States stands at a whopping $1.6 trillion. Over 100 million Americans have an auto loan, with the average loan size being just over $23,000.
Are you one of these people?
If yes, there’s no doubt you’re loving life in your car. Cars make our lives easier.
However, you can quickly rue the day you took out an out loan if you fall behind your repayments. Miss three consecutive payments and your lender will initiate a car repossession process.
If you’re facing this situation, you might be wondering what to do if your car is repossessed.
We have all the information you need. Just buckle up and keep reading!
Why Do Lenders Repossess Cars?
First of all, why does a lender need to repossess your car? Can’t they just take another step, like suing you in a court of law or giving you more time to catch up with your loan?
Well, car loans don’t work like that. A car loan is secured against the vehicle, meaning you and the lender have joint ownership until you fully pay off the loan. If you default on the loan, the lender has a legal right to repossess the vehicle and sell it at an auction to recover their money.
It’s important to note that car repossession is usually the last resort for most lenders. They take this step after efforts to get you to pay up end in futility. Repossession costs time and money, so everyone wants to avoid it unless necessary.
Also, car repossession doesn’t necessarily mean your debt will go away. If the car sells for less than your loan balance, you’ll still have a legal obligation to clear any balance, along with the repossession costs.
Know Why Your Car Was Repossessed
A lender will repossess your car if you fall behind on repaying the loan, but this isn’t the only cause.
If you fail to purchase adequate insurance coverage for a car that’s still on a loan, your lender can repossess it. When such a car isn’t comprehensively insured, the lender stands to lose their money should the car be totaled in an accident. Rather than risk this, they’ll repossess the car and keep it in their custody till you’re able to sort out the insurance.
Using your car for reasons beyond the ordinary can also get it repossessed.
For instance, if you indicated the car is for private use when applying for an auto loan, using it for commercial purposes can give a lender a reason to repossess it. Commercial vehicles are more likely than private cars to be involved in road crashes, meaning the lender will be exposed to greater risk.
As such, it’s essential to figure out the exact reason for the repossession before taking any further steps. Just call your lender and ask.
Establish Whether You Can Get the Car Back
Lenders don’t typically repossess a car with the intention of auctioning it immediately.
Many a time, repossession is a strategy to get you to act. When you fall back on car loan payments, you might not feel the urgency to keep servicing it. You still have the car in your possession after all.
However, when the lender makes the move and takes the car, reality will hit you. You stand to lose your prized asset. If you’re like most people, you’ll want to get it back.
This is why you shouldn’t panic when the repo happens. Call your lender and establish how you can get it back.
In most cases, you’ll need to bring the loan up to date. This means if you’ve defaulted for three months, you’ll have to pay up the total for this period, including any fines or charges.
If you’re able to do this, use this opportunity to renegotiate an alternative repayment plan that suits your current financial situation. Most lenders are willing to renegotiate loan terms with defaulting borrowers. This is far easier and cheaper than repossessing cars and auctioning them.
Know When Bankruptcy Is an Option
Let’s be real.
If your car has been repossessed because of a loan default, it’s likely that you currently aren’t in a state to raise the balance and get your car back. When this is the case, the lender will have no choice but to sell the car at an auction.
But when a car can get repossessed, bankruptcy could be your savior.
Depending on whether you qualify for bankruptcy and the type of bankruptcy you go for, you might be able to stop the repossession, as long as the car hasn’t already been auctioned.
Stand advised that bankruptcy has severe consequences. This event will stay on your report for at least seven years, and your credit score will drop drastically.
It’s also advisable to hire a repossession lawyer. This professional will assess your situation and find ways to help you get your car back.
Get Back (Any) Personal Items in the Car
If you have no way of getting your car back, at least be sure to get any personal items that were in it. This includes any aftermarket additions you had made the car.
In most states, the lender has a legal responsibility to provide you with a list of the items that were in the car. If something that was in there is missing or damaged, or your property was damaged during the repossession, you have the right to press charges.
You Know What to Do If Your Car Is Repossessed
When you have an auto loan, repossession of the vehicle is an ever-present risk. If you fall behind on your loan or fail to insure it accordingly, the repo guys might show up in your home or office.
Knowing what to do if your car is repossessed will go a long way in helping you get your car back or minimize your losses. Fortunately, this article has fleshed out what you need to do.
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