Business & Finance

Dude, Where’s My Car? All You Need to Know About Car Repossession

According to a recent study, 7 million Americans are three months behind on their car payments. If you don’t keep up with your car payments, there’s a chance that someone will repossess your vehicle.

car repossession

Having your vehicle repossessed is a huge hassle, and it can negatively affect your credit score. What is car repossession? How do you avoid having your car repossessed? And what should you do if your vehicle has already been repossessed?

Read on to learn all you need to know about car repossession.

What is Car Repossession?

When a car is repossessed, a bank or lending company takes the vehicle away from the owner behind on their car payments. Often, repossession happens without warning.

The lender might send a driver to collect the car, or they might haul it away with a tow truck. In some instances, lenders might use a remote control device to disable your car, so you can’t drive it any further.

Before your car gets repossessed, you’ll typically receive notifications that you’re behind on payments. So while you may not get a notice of repossession, you’ll be made well aware if you’re behind on your payments.

However, this doesn’t mean a company can repossess your car out of nowhere. When you purchase a vehicle, you agree to specific terms. These particular terms outline what the course of action will be should you fall behind on your car payments. For example, the terms might specify that you agree to make monthly payments on time and maintain adequate insurance.

If you don’t meet the agreed-upon requirements, the bank has the right to take your car. The laws governing vehicle repossession vary by state. In some cases, lenders don’t even need to give you notice of their intent to repossess your vehicle. In other states, they need to provide you with some warning.

Car Repossession and Credit

Car repossession can be costly and disruptive, and the effects can linger for years to come. One of the most detrimental effects is the effect on your credit score.

A repossession will affect your credit score for as long as it stays on your credit report. Generally, it’ll remain on the report for seven years from the date of repossession. In addition to noting the repossession, your credit will likely also be dinged for:

  • Late Payments: For each month you miss a payment, there’s a negative note on your credit report.
  • Collections: If you can’t pay off a deficiency balance, your account may be sent to collections. This will also be noted on your credit report and affect your credit score.
  • Default: This occurs when a borrower fails to pay back their debt. Entering default is seen as very negative to lenders.
  • Court Judgments: If the collection is unsuccessful, it may result in a court judgment.

Determining the exact reason for a credit score is complex, and it can be challenging to pinpoint the precise cause of a credit score fluctuation. However, we do know that payment history is the single most influential factor taken into consideration when determining your credit score.

Therefore, missing out on car payments will result in a substantial hit to your credit. When your credit drops, it can affect your ability to secure loans in the future. The situation can become particularly challenging if you need to get another vehicle after losing your repossessed car. While it’s possible to get another car after repossession, it’ll be challenging.

What to Do if You’re in Danger of Repossession

If your car is in danger of being repossessed, it’s important to act quickly. Even just missing one payment could put you in danger of repossession.

If you fall behind on your car payments, the first thing you should do is contact your lender. There’s a chance your lender will give you the chance to defer your loan payments for a time period to give you some time to figure out how to keep your car.

Communicating directly with your lender is seen as a sign of good faith, so don’t avoid speaking to them. You also have the option to refinancing your car loan to make your payments more affordable.

There is also the option to surrender your car voluntarily. If you don’t think there’s a way to cover your outstanding balance, voluntary surrender will help you avoid the stress and adverse effects of repossession.

Before you decide what to do, make sure you understand your state’s laws.

What to Do if Your Car is Repossessed

If your car has already been repossessed, the first thing you should do is contact your lender. Sometimes, handling the situation is a simple fix. For example, if your car was repossessed due to insurance issues, all you need to do is update your insurance policy, and you’ll be good to go.

Sometimes, lenders repossess cars by mistake, so there’s a chance you’ve done nothing wrong. If your car was repossessed due to missed payments, you should take some time to review your finances.

While it may seem like getting your car back should be your ultimate priority, you should first review your budget to ensure you can afford your car payments. The last thing you want is to have your car repossessed twice. While cars are convenient, they’re not necessary for everyone, and you may find that you’d be better off walking or taking public transportation.

If you’re determined to keep your vehicle despite your finances, you may want to review a car loan guide.

You should also take some time to review your rights. If the lender violated the law when taking your car, you should contact a vehicle repossession lawyer.

Car Repossession: Next Steps 

Now that you understand how car repossession works, it’s time to take action. While car repossession can be a hassle, it isn’t the end of the world. The sooner you act, the sooner you can get everything resolved and move on with your life.

For more tips on handling car issues, browse our blog.

How to Start a Residential Cleaning Business

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *