When it comes to the cost of vehicles, the expense can be crushing. In its State of the Automotive Finance Market report, Experian found that the average new car payment is $509. If you have other major expenses — such as student loan debt — it’s far too easy to fall behind on your car payments.
Becoming delinquent on your auto loan can have serious consequences, including car repossession and ruined credit. If your car has been repossessed, you need to take action right away to get your finances in order and get back on the road.
What you should know about car repossession
The average person has to borrow a significant amount of money to buy a car, but not everyone is able to keep up with payments.
In fact, the number of seriously delinquent loans — those that are 90 days late or more — rose to 3.7 million in 2016, a nearly 30 percent increase from the number of delinquent loans in 2014, according to a 2017 Manheim report.
If you become delinquent on your car loan, you risk losing your vehicle entirely. When you purchased your vehicle and applied for a loan, you signed a legally binding contract stating you’d make on-time payments. Fall behind, and the creditor can take the car back and sell it at auction to recoup the cost of the vehicle.
Each state has its own laws about car repossession, but in general, the creditor can come to your home, workplace, or other location to take your car. They do not have to notify you; you might not find out that your car was repossessed until you come out one morning to find your car missing.
If that happens, the creditor can also send your loan to collections, a move that can severely damage your credit. If your car is repossessed, it will show up on your credit report for seven years.
How to get your car back after repo — and what to do if you can’t
Finding out that your car was taken away by a repo worker can be scary and emotional. And if you need your car to get to work, it can also impact your income. If your car has already been repossessed, here’s what you need to do to move forward and improve your credit.
1. Contact your lender
First, call your car loan lender right away. In most cases, car repossession happens because of missed payments. But it can happen for other reasons, such as not carrying adequate insurance. If that’s the case, adjusting your insurance policy is all you need to do. Find out why your car was taken so you can rectify the situation.
It’s also possible that your lender made a mistake. Perhaps they repossessed the wrong car, or your account was accidentally marked as delinquent when you’re current on payments. If that’s the case for you, a phone call can help fix things quickly.
2. Review your finances
Getting your car back might sound like the obvious solution after your car was repossessed, but think about your situation and finances before pursuing that route. You fell behind on your payments for a reason; it could be that you simply cannot afford the car you purchased.
Review your budget and make sure you can afford your car expenses, including gas and insurance. If your income is stretched too thin and your situation isn’t going to change, letting the car go can be a difficult but necessary decision.
A car is a useful convenience, but it isn’t essential for everyone. Carpooling with coworkers or using rideshare services like Uber can be cost-effective alternatives to car ownership.
3. Create a plan
You might be able to get your car back in the following situations:
- You pay the loan in full: It might sound silly, but the simplest way to get your vehicle back is to pay the loan off in full. Consider asking friends or family for a loan so you can pay off your remaining balance. You can set up a payment plan with your relatives and loved ones to repay the new loan.
- Your lender works with you to create a new payment plan: Your lender might be willing to work with you. Contact them and explain your situation, including what you can afford to pay now and going forward. If you can make the payments you missed and agree to a plan for the future, your lender might return the vehicle to you.
If you opt to let the car go, you can notify your creditor that you will not be able to buy back the car or make your account current. The lender will send your car to auction to pay off as much of the loan as possible.
4. Understand your rights
If your car is repossessed, you still have rights that protect you.
For example, any property you kept in the car is still yours. If the creditor repossesses your car, they can sell it, but they can’t sell your personal possessions. The law requires creditors to return your property to you.
Although the law allows repo workers to come onto your property or even into your garage, they aren’t allowed to cause damage to your property while doing so. For example, if you locked your car in the garage, workers can’t break in to get it.
If they violated the law when taking your car, contact both a lawyer and your creditor.
5. Find out if you owe money
Even if your car is repossessed and later sold at auction, you might not be off the hook.
If your car sold at auction for less than what you owed on the loan, you must still pay the remaining balance to your lender. For example, if the creditor sold your car for $8,000 but your loan balance is at $10,000, you need to pay the remaining $2,000 to the lender.
The creditor will notify you of how much you owe and you will be responsible for making payments. If you do not make those payments, your creditor can sue you in court.
6. Work on your credit
After dealing with losing your car, it’s important to take measures to protect and improve your credit going forward. A car repossession can put a serious dent in your credit report. Religiously pay your remaining bills on time to boost your credit.
As your credit improves due to timely payments, you can add different lines of credit, such as credit cards or personal loans — so long as you can safely afford them. The additional mix of credit lines can increase your score.
Facing the ugly truth
Having your car repossessed is a horrible experience that can leave you feeling ashamed and hopeless. Though it’s a tough situation with serious consequences, facing the repossession head on and coming up with a plan can help you recover and rebuild.
If you’re struggling to make ends meet, consider asking for help. These six organizations can help you get back on your feet, from covering your car payment to helping you find local food banks.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
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4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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