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When it comes to the cost of vehicles, the expense can be crushing. According to credit bureau Experian, the average car payment was $568 during the second quarter of 2020. For those struggling with heavy car-loan costs, it’s worth knowing what happens when your car is repossessed, and what your rights are in such a case.
Consumers who become delinquent on their auto loans run the risk of 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. Here are two questions you’ll need to answer:
- What happens when your car gets repossessed?
- What actions can you take — and what are your rights — if your car was repossessed?
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, 4.9% of auto loans were seriously delinquent — 90 days late or more — by the end of 2019. That represented a 38% increase over the quarterly average of delinquent loans since 2003, according to Federal Reserve Data analyzed by the Wall Street Journal.
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 typically, 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 walk out to the driveway or parking lot 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.
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.
- Contact your lender
- Review your finances
- Create a plan
- Understand your rights
- Find out if you owe money
- Work on your credit
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.
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 ride-sharing services like Uber can be cost-effective alternatives to car ownership.
You might be able to get your car back in the following situations:
- You pay the loan in full: If you’ve fallen behind on payments, this option might sound impossible. 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 your lender the remaining balance. You can set up a payment plan with your relatives and loved ones to repay their loan.
- Your lender works with you to create a new payment plan: Not all lenders will work with borrowers, but some will. Contact your creditor 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 payment 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.
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.
Even if your car is repossessed and later sold at auction, you might not be off the hook.
If you car sold at auction for less than 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 to pay off the auto loan. If you do not make those payments, your creditor can sue you in court.
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 credit score, too.
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 charitable organizations can help you get back on your feet, from covering your car payment to helping you find local food banks.
Andrew Pentis contributed to this report.