When is a Repossession Not a Repossession? NEVER

​What happens when your car is repossessed?  Most people don’t really know. Many people think that the bank just takes the car, sells it, and then cancels the loan. Nope. And don’t count on the lender explaining the consequences of a repossession to you.

Don't want to read the whole blog?  Here are some QUICK FACTS:

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1. YES, a lender can repossess your car if you are one day late on your car payment. Most don’t, but they are legally entitled to.
2. NO, a lender doesn’t have to give you notice before they repo your car. That would be silly. If they did give notices, most people would just hide the car.
3. YES, a lender can repossess the car if you don’t maintain insurance on the car, even if you are making your car payments.
4. NO, the tow truck driver is not required to knock on your door and ask if you want to get your property out of your car.
5. YES, you should deal with the problem as quickly as possible. It won't go away.
6. YES, a repossession goes on your credit report – AND on the credit report of any co-signors.

​Here’s how it works.  
A lender (or other lien holder) can repossess your car for a number of valid reasons, such as late car payment, lack of insurance, use of the vehicle in a crime, intentional misuse of the car (such as drag racing).  The car goes to a tow yard and you have to act quickly to get your personal property back. They will charge you money for the storage if you don't act quickly.  And, be sure to get your purchase documents out of the glove box while you're at it.

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​The lender is required to give you 15 days’ written notice of its intent (NOI) to sell the vehicle.  By law this NOI is required to state very specific things, and it will either give you the option to “reinstate” or “redeem” your loan.  ​
​The NOI will also include a form to request a 10-day extension on the sale. Do this! Do this right away!

• Reinstate the loan means that you will have to pay all the money you are behind on the loan, or fix any other problem causing the repossession, plus repo fees, and then you can get your car back and keep making payments on the loan.
• Redeem means that you have to pay off the loan in full, plus repo fees, and then you can get your car back and own it free and clear. ​​​

Deficiency Balance
Ok, back to what I wanted to write about in the first place. What happens if you can’t pay to get the car back? The lender will sell the car at an auction sale and they won’t ask for top dollar. Once sold, the lender will notify you that you still owe money on the loan. No, the lender doesn’t just cancel the loan and walk away. They want the “deficiency” balance from you, and they will sue you for it.  The sale only lowers the amount remaining on the loan; it usually does not wipe it out.

For example, say you owe $20,000 on the loan. The lender wants $1,800 to reinstate the loan and get your car back. You don’t have the money so you  ignore the problem.  The lender sells the car at auction for $12,000, leaving a balance of $8,000 on the loan. This is the “deficiency” balance, and you owe it. You don’t have the car, but you still owe the money left on the loan.  If you don’t pay it, the lender has the right to sue you to get it.  Then you’ll owe the $8,000 plus attorney’s fees and costs to file suit against you.  

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Don’t you wish you had paid the $1,800?

Voluntary Return of the Vehicle to the Lender Is Still a Repossession!
Sometimes a person just can’t make the car payment anymore and calls the lender to ask for help. The lender might say, ok, just deliver the car to us and you think you are free and clear. What the lender won’t tell you is that this is still considered a repossession! It’s voluntary, but it is a repossession. You will go through exactly the same process as if they forcefully took your car in the wee hours of the morning, including the likelihood of owing a deficiency balance and having a repossession on your credit report.

If a lender orally tells you that you can make your car payment late, your car might still be repossessed.  It will be your word against theirs. If it isn't in writing, then you have no proof of this agreement.
​And, no, they won't put it in writing. 
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Credit Report Hit
At least two things will happen on your credit report negatively affecting your credit score. First, your car loan will show as delinquent. Second, the repossession will be added to your credit report.  You will then have a very hard time getting a car loan anytime soon.  And when you do get a car loan, you will pay a much higher interest rate.  This is also true for any co-signors on the loan.  

A repossession is the gift that keeps on giving.  You may be out the personal property that was in your car when it was taken. You will have to pay more money to get the car back. If you don’t get the car back, you will likely owe a deficiency balance and can be sued for it. The repossession and loan delinquency will show on your credit report and your credit score will plummet. ​Being sued for a large debt may force you into bankruptcy, further damaging your credit. You will be charged a higher interest on your next loan.  None of this is good.

Be good. Take care of your credit. Know your rights. A car is often the second highest investment you will make, after buying a home. Don't treat your obligation under a car loan lightly. And don't fall for a lenders "helpfulness" when you ask them for help.