Can you repay your car loan in order to avoid repossession? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by offering interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare information for free - so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies who pay us. This compensation can affect the way and when products are featured on the site, such as for instance, the order in which they appear within the listing categories in the event that they are not permitted by law. This applies to our mortgage home equity, mortgage and other home lending products. However, this compensation will affect the content we publish or the reviews you read on this site. We do not contain the vast array of companies or financial offers that may be accessible to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 minutes read. Published November 28, 2022
The article was written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including savings, banking homeownership, homebuying, and personal finances. Written by Rhys Subitch and edited By Auto loans Editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances by providing detailed, well-studied facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products and, services, or through you clicking specific links on our website. Therefore, this compensation may impact how, where and in what order products are displayed within the categories of listing, except where prohibited by law. We also offer mortgage or home equity products, as well as other home lending products. Other factors, like our own website rules and whether a product is offered in your area or at your own personal credit score could also affect how and where products appear on this site. While we strive to provide an array of offers, Bankrate does not include specific information on every financial or credit products or services. Repossessions of cars have increased dramatically since 2020, according to reports . If you fall behind on your payments and your vehicle could be in danger of repossession There's good news that you have the option of taking steps to prevent this dreadful outcome. In between reinstatement as well as loan modification There are a variety of options to stay clear of repossession. Do paying off a vehicle loan prevent repossession? The rules of repossession vary according to the state you live in. In the majority of states, the lender is able to take the vehicle when you're in default. Based on the terms of your loan agreement, that could be a result of missing one or two payments. There are many steps from missing a payment up to the ultimate repossession of your car. Based on the situation you're in you're able to take appropriate actions . If you've not received any notification that you're unable to make your auto payment, you'll probably know about the financial situation well before your lender is aware. Instead of waiting for the lender to know that you fail to pay take the initiative and contact the lender to discuss your situation. The lender might be willing hear you out in order to avoid the costs of repossession. Try to come to an acceptable solution. For example, you could provide more details about your situation, when you can make the next payment or what you are able to pay today. Depending on the history you have with the lender, you might be able to work out an interim reprieve or . This is especially true if this is the first time you've had to make a missed payment. In the event that your lender has sent only notice, a lender may legally take possession of your vehicle with or without notice in a variety of states. But your lender will likely mail you a notification of its plans to take possession of the vehicle prior to when it actually occurs. If you receive an official notice of repossession, the first phone call you need to contact your lender. A clear channel of communication between you and the lender can lead to the resolution that stops repossession. If you wait until you receive notice of repossession means that you'll be caught up in explaining the issue with your lender. If the lender is willing to listen to your concerns, provide as much information as you can regarding the time you'll be able to pay. Additionally, let them know how much money you have available to put toward a loan now. In the end, it's beneficial for the lender to work out a temporary arrangement. In the end, the company wants to get paid, and you'll likely require your car to get to work. Dependent upon the lender and your history it is not out of the possible. When the lender has already begun the process If you are the lender has already started the repossession process it is possible that you will not have access to your vehicle. At this point, reinstatement of your loan (also referred to as curing the default -- could be the best option. In certain states, you'll be required to pay the entire past-due amount. This includes all missed payments along with any late fees which have accrued. In most cases, the lender will also ask you to cover repossession fees before releasing the vehicle to you. In other states, you may be required to repay the total loan in order to receive your vehicle back -- that process is known as redemption. Not every state allows for reinstatement. If your state doesn't have reinstatement laws and it's not a part of the contract, it's best to nevertheless contact your lender. They may be willing to alter your loan so that it includes it. How auto repossession works Auto repossession can be a painful experience. However, understanding the process will assist you to work through it and potentially find a solution. 1. Borrower misses payments Your lender can repossess the vehicle when you're in default -- and then send it to a debt collection company. The number of missed payments needed to default on your loan depends on your state and the terms of your loan contract. In certain situations it is only necessary to miss one payment in order to fall into default. In other situations you may need to miss two or three payments in order for an issue to occur. At this stage, open dialogue to your lender is critically important. If it's possible to negotiate an extension, now's the time to ask. 2. Lender repossess your car once in default the lender may or not send you a notice of its intention to take possession of the car. Call your lender to request an arrangement for a short-term payment to avoid repossession in the event that you get an email. In the event of a state-wide restraining order, the lender might be able take possession of your vehicle at any time , whether or not you've received a notification. 3. Lender sells the vehicle Once the lender has taken possession of your vehicle, it could hold onto the vehicle until you pay up with your loan. The most likely scenario would be the lender will eventually sell the car. In many states the lender will notify you about the sale and provide you the chance to re-establish your loan. If you want to buy the car back before the sale, you'll have to pay the full amount due and any repossession expenses. But many repossessed cars are sold through auction. It is your right to be there and place an offer on your car. 4. Lender pays you for any deficiency . When you sell the car, the lender has to use the funds to pay the debt you owe. However, the price you pay for the car could not be enough to pay the entire amount owed. If you owe more than your lender gets for selling the car, that's a deficiency. Unfortunately, in many states the lender can sue you for any deficiencies. For instance, suppose that you owe $10,000, but your lender only sells it for $7,000. In this scenario the deficit is $3000, and the lender may have the right to sue you for the difference. If there's surplus to the sale, the lender may be required to pass it to you. It's not common, but if it does occur, you'll at the very least get a tiny gain of the transaction. Other ways to avoid repossession Refusing repossession is a important concern for the majority of borrowers. After all, your vehicle is likely a key piece of your ability to earn money. There are a few options to avoid repossession are reinstating the loan If you make your overdue payments, the lender will reinstate the loan. In essence, you're bringing your situation back to square one. After reinstatement, you'll have to keep making your regular car payment. Take care to pay off the loan Naturally, paying off an entire auto loan is much easier said than done. However, if this is within reach, it is one way to exit this situation. Refinancing is difficult as your credit score suffers an injury from missed payments. However, if you are able to find a new loan with a lower interest rate or regular payments, it might be the right choice for your finances. Declare bankruptcy. If you are behind on other bills, bankruptcy may be an alternative. While there are ways to , it's not a guarantee. Possession could still occur if you aren't able to find a workable solution. The disadvantage of this option is that you'll likely have to raise some amount of cash to solve the problem. The main point is that if you're faced with the possibility of repossession, which is uncomfortable discuss the situation with your lender as soon as possible. If you are able to communicate with them in a clear manner, the lender may offer a deal that is beneficial to everyone.
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Writing by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of subjects, including banking, savings tips, homebuying, homeownership and personal finances. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances with concise, well-studied and well-researched content that breaks down complicated topics into manageable bites.
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