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Car repossessions happen, but there are options to keep your car and protect your credit.
Getting behind on your car payments is sometimes unavoidable, and if you don’t take certain steps, your lender might repossess your car. What happens when your car gets repossessed, though? Is there anything you can do to get your car back or prevent exorbitant repossession costs?
Review this guide to the car repossession process, how it impacts your credit, and what you can do to avoid the situation if you’re going to be in a tight spot.
What Does It Mean to Have a Car Repossessed?
Car repos happen when someone is behind on their loan payments. You can be subject to repossession if you have either a car loan or a lease, though the impacts for a loan are generally greater.
Your actual contract will list the specifics, but generally speaking, if you’re behind on your payments and default on your loan, your lender has the right to seize your vehicle and resell it in a public or private sale to pay off the debt.
How does vehicle repossession work?
While you should receive notifications that you are past due, your lender doesn’t have to give you notice that your car is on the vehicle repossession list. They can collect your car or truck without warning — there is no standard car repossession process, unfortunately.
Your lender may choose to take your vehicle from you or sell the contract to a third-party “assignee” who now has the same rights the original lender.
In some cases, they might send someone to pick up your vehicle in the middle of the night. In other cases, they might send a tow truck for your vehicle while you’re at work.
In some states, your lender can repossess your vehicle even on private property as long as they don’t threaten physical force or cause any damage.
When Can a Lender Repossess My Vehicle?
When your car is repossessed depends on several factors, including your lender and where you live.
Banks and Credit Unions
While there’s no guarantee (and you should read your contracts carefully), you might have the most time to avoid repossession with a bank or credit union. You should have a strong relationship with your bank. This means establishing several accounts, like checking, savings, and investments. Some banks offer loan discounts and other perks for multiple accounts. Stronger relationships can yield longer grace periods in some cases.
Depending on the car dealership you work with, you’ll have a modest amount of time to prevent a car repo. More established dealerships that work with well-known lenders might be able to give you 30 to 60 days to make a car payment. However, this is never a guarantee, and you’ll want to establish a solid line of communication with your auto lender.
Subprime Auto Lenders
If you find yourself in a subprime car loan, you’ll have the least amount of time to get your loan on track. These lenders tend to have stricter guidelines for late car payments and might be unwilling to give you even 30 days to make your payment. Any lender can repossess your car once you’re late, but subprime lenders are most likely to do it quickly.
That’s why it’s prudent to stay in contact with your lender, especially if you want your car back. Establish a clear line of communication and let them know your plans for getting the loan payments back on track.
Do I Still Have to Pay If My Car Gets Repossessed?
Your account is still ‘past due’ until you either make the delinquent payments or pay off the balance. Your lender has to give you a “reasonable” amount of time — generally 10 to 30 days — to get your vehicle back, though this “right to reinstate” varies by state.
Some lenders try to resell the vehicle to other customers, while other lenders will take your car to an auction. Your lender has to make an effort to sell the vehicle for fair market value. The funds from this sale will go toward your outstanding car loan balance, plus any repossession fees.
You’re still responsible for any remaining balance after they sell your car. You might be able to work out a payment plan with your lender on this balance.
How Does Repossession Impact My Credit Score?
A repossession will affect everyone’s credit scores differently, and with the rising debt in the country, more people are at risk. The result will be negative regardless of the situation. You’ll have late car payments on your credit report first, then a collection account. You can surrender your vehicle to have a ‘voluntary repossession’ note on your credit report. This at least highlights some effort to repair the situation.
Remember that remaining balance after your car is sold? If you don’t pay it off, it might show as a collections account on your credit report. This can be detrimental to your credit score.
Both repossessions and collections accounts can remain on your credit report for up to seven years. You might be able to negotiate with your lender to pay off the debt and have it removed from your credit report. Ask for this in writing if they agree to it and make sure you make your payments on time to maintain your credit.
Can I Get My Car Back After a Repossession?
If you want your car back after a repossession, you’ll have a short window to ensure the right to reinstate your loan. While this might not be an option where you live, you might only have 10 days to make your past due payments plus the repossession fees. Your lender should send you some type of notification with your options for reinstating or paying off your loan. If you don’t receive this within a few days, you should contact your lender. The longer you wait, the higher the storage fees for your vehicle.
4 Different Ways to Prevent Your Car From Being Repossessed
The best way to handle a repossession is to prevent it from happening in the first place. However, that’s easier said than done in some cases. There are a few strategies you can take to avoid one, though.
1. Work out a payment arrangement with your lender.
If you know you’re going to get behind or you’re already past due, contact your lender and see if you can negotiate a payment plan. This might allow you to make smaller car payments until you can get completely caught up. It’s important to keep up with any payment arrangement you make to avoid a surprise repossession and any additional negative information on your credit report.
2. Apply for refinancing offers before your payments are late.
While you might not be able to get approved for refinancing offers once you’re delinquent, you might be able to buy yourself some time by refinancing your car loan. Depending on your credit score, you might qualify for lower interest rates or monthly payments. It might even give you 30 days or more to come up with your new payment after the refinance goes through.
3. Find someone to buy out your loan and purchase your vehicle.
You can list your vehicle for sale on sites like Autotrader, Craigslist, or Facebook Marketplace. You’ll need to sell the vehicle for enough to cover your loan balance —and ideally profit — so you most likely won’t have this option if you’re upside down on your car loan. Check the value of your vehicle and see if selling your car can get you out of a tough financial situation.
4. Look into legal remedies or debt consolidation options.
This is a last resort option for most people, but if you’re in a serious financial bind and need your car, you might not have any other choice. Filing for bankruptcy is one solution to avoid repossession, but it can have a considerably negative long-term effect on your credit — up to 10 years, in some cases. Another solution is debt consolidation, though it will hurt your credit, too.
Subprime Car Loans, Repossessions, and Your Credit
Any car loan or lease is subject to repossession if you’re past due, but subprime car loans tend to be at higher risk for repossession than other auto loans.
There are a few ways subprime car loans, repossessions, and credit are all interconnected:
- Higher interest and payments: Subprime loans generally have higher interest rates, which lead to higher monthly payments. They also have higher fees, like documentation and late payment fees.
- Fewer late payment options: You might have fewer opportunities to reschedule car payments and delay any collection or repossession activities. This leads to additional costs for you.
- Negative credit impacts: The high rates and risks associated with subprime loans mean your credit is at greater risk of negative impacts on your score. Avoiding this is key to better rates in the future.
You want to avoid subprime loans when possible, work with your lenders if you’re going to be late, and try to resolve repossessions before they happen.
Review Your Options to Avoid the Car Repossession Process
Before you’re going to have a late payment, talk to your lender about rescheduling your car payment and decide whether you’re able to refinance or sell your vehicle.