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:
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.
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.
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.