Can you pay off your car loan in order to avoid repossession? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by offering interactive tools and financial calculators, publishing original and objective content, by enabling users to conduct studies and compare information for free and help you make sound financial decisions. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site are from companies that compensate us. This compensation could affect how and when products appear on the site, such as, for example, the order in which they may be displayed within the categories listed in the event that they are not permitted by law. This applies to our mortgage, home equity and other products for home loans. However, this compensation will have no impact on the content we publish or the reviews you see on this site. We do not contain the universe of companies or financial deals that could be accessible to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 min read . Published November 28th, 2022.
Sarah Sharkey Written Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of subjects, such as savings, banking homeownership, homebuying, and personal finance. Written by Rhys Subitch Editored By Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances through providing detailed, well-studied information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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If you are in arrears with your obligations and your car is in danger of being taken away There's good news that you can take steps to stop this unfortunate conclusion. Between reinstatement and loan modification There are a variety of options to avoid repossession. Can paying off a car loan prevent repossession? The rules of repossession vary depending on the state in which you reside. In many states there is a possibility that the lender can repossess the vehicle at any time you are 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 between the time you miss a payment and the ultimate repossession of your vehicle. Based on your current situation you should take the proper steps . If you've never received any notification that you are unable to make your car payment, you'll likely know about the financial situation well before your lender is aware. Instead of waiting for the lender to find out when you fail to pay make sure you call the lender to explain your situation. The lender might be willing to listen to you in order in order to avoid the costs of repossession. You should try to reach a reasonable solution together. For example, you can give more details regarding your situation, including when you will be able to make your next installment or what you are able to pay today. Depending on your history with the lender it is possible that you will be able to negotiate an interim reprieve or . This is particularly true in the case of this being the first time you've had to make a missed payment. When the lender has sent only notice to you, the lender is legally able to repossess your car with or without notice in a variety of states. However, your lender will likely mail you a notice of its intention to take possession of the vehicle prior to when it actually happens. If you get notice of repossession the first phone call you need to contact your lender. Also, a line of communication between you and your lender may result in the resolution that stops repossession. In the meantime, waiting until you get notice of repossession means that you'll be caught up when explaining the issue in front of your lender. If the lender is willing to hear you out, give as much information as you can about when you can pay. You should also indicate how much you have available to put toward a loan now. In the end, it's beneficial for the lender to negotiate a temporary arrangement. In the end, the company is looking to be paid, and you'll probably need your vehicle to go to work. Dependent on the lender and your history an agreement that is temporary is within the realm of possibility. When the lender has started the process, if you are the lender has already started the repossession process and you do not have access to your vehicle. At this point, reinstatement to your loan (also referred to as curing the defaultis a alternative. In some states, you'll have to pay the entire past-due amount. This includes any missed payments plus any late fees that accrued. Typically you will find that the lender may also require you to cover repossession fees prior to releasing the vehicle to you. In some states, you could have to pay off the entire loan to get your car back -- that process is called redemption. Not every state allows for reinstatement. If your state doesn't have reinstatement laws and it's not included in the contract, it's best to nonetheless contact your lender. It may be willing to modify the terms of your loan to include it. How auto repossession works Auto repossession is a stressful experience. But understanding the process can help you work through it, and possibly come up with an answer. 1. When a borrower is late on payments, the lender can repossess the car when you're in default, and to send it to a debt collection company. The number of missed payments required to be in default on your loan depends on your state as well as your loan contract. In certain cases, you will only need only miss one installment to fall into default. In other situations you may need to make three or more payments in order for an issue to occur. At this stage, open dialogue between you and your lender is crucial. If you are able to work out an extension, now is the perfect time to make an inquiry. 2. Lender repossess your car once in default, your lender may or not send you a notice of its intention to repossess the car. Call your lender to request an interim payment plan to avoid repossession if you get a notice. Based on the state you live in the lender could be able to take possession of your vehicle at any time -- whether or not you've received a notice. 3. Lender sells the vehicle once the lender has possession of your vehicle, it could hold onto the vehicle until you pay up with your loan. But the more likely outcome is that the lender will eventually sell the car. In certain states, the lender must inform you of the sale and offer you the opportunity to reinstate your loan. If you decide to purchase the car back before the sale, you'll need to pay for the entire amount owed and any costs associated with repossession. Many repossessions are sold through auction. You are entitled to attend the auction and put in a bid on your vehicle. 4. Lender sends your bill for any deficiency . When you sell the car the lender must use those funds to pay what you have to pay. But the sale price might not be enough to cover your entire debt. If you owe more than what your lender gets for selling the vehicle, it's an indeficiency. And unfortunately, in most states you can be sued by your lender may be able to sue you for any defects. For example, let's say that you owe $10,000, however, your lender will only offer it for $7,000. In that case the amount owed is $3,000 and the lender could be able to claim the difference. If there's surplus to the sale then the lender might be required to pass it to you. It is not a common scenario but should it occur, you'll at least have a small benefit by selling the property. Other ways to avoid repossession Avoiding repossession is a top priority for most people who borrow. After all, your vehicle is probably a crucial part of the way you earn money. Some ways to avoid repossession are: Reinstate the loan If you make your overdue payments then the lender will reinstate your loan. Essentially, that means you're bringing your situation back to the beginning. Once reinstated, you'll need to continue making your usual car payments. Make sure you pay off the loan Naturally the process of paying off your entire auto loan is a lot easier said than done. If this is in your reach, it is one solution to avoid this. Refinancing can be difficult as your credit score takes a hit from missing payments. If you can locate the right loan with the lowest interest rate, or the monthly installment, it could be the right move to manage your finances. Declare bankruptcy. If you're behind in other charges The bankruptcy process could be an option. While there are options to do so however, it's not a sure thing. Possession could still occur if you aren't able to discover a solution that works. The downside to this option is that you'll probably have to raise some amount of cash to settle the issue. In the end, if you're faced with the uncomfortable possibility of repossession, talk to your lender promptly. With open lines of communication and open lines of communication, the lender may offer a deal that works for everyone.
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Writing by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips homeownership, homebuying and personal finance. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are enthusiastic about helping readers gain confidence to control their finances through providing clear, well-researched information that break down complex topics into digestible chunks.
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