Your lender has the right to hire a recovery company to repossess your vehicle if something goes awry with your auto loan, such as a default. After it’s been recovered, it’s usually prepared for an auction, and the proceeds from the car’s sale is put toward your auto loan balance. Whether you’re facing a repo, or your vehicle has already been recovered, there are many things you should know so you can navigate the process as painlessly as possible.
1. When Can My Car Be Repossessed?
In some cases, your car can be repossessed as soon as you miss one payment – it all depends on the language in your auto loan contract. In many states, your vehicle can be recovered when your full coverage car insurance lapses, too. The recovery company can take your vehicle while you’re working, shopping, or simply at home. If your car is out in the open, it can be towed away by the repo man.
Your lender isn’t required to give you any notice that your vehicle is going to be repossessed, depending on the state you live in. But you may have received a notice about late or missed payments and an impending repossession.
However, in most states, they must send you notices after they recover the car. If your vehicle has already been taken, the notice needs to include information about when and where your car is going to be sold at auction, since you have the right to bid on it.
Some states have created rules on what creditors and can and can’t do during the COVID-19 pandemic. Your state may not allow a lender to repossess your vehicle during the pandemic, so check with National Consumer Law Center (NCLC) to see how your state is handling car repossessions currently.
2. Can I Hide My Vehicle?
It may be tempting to try to hide your vehicle from the recovery company, but it’s just delaying the inevitable. One way or another, the lender can find a way to recover the car if you break the loan contract or default on the loan. One of the only places a recovery company can’t recover your vehicle is when it’s in a locked garage or unit, since this is considered breaching the peace and is breaking and entering. However, anywhere else is fair game.
Experienced recovery companies know to look in specific areas where a borrower may hide their car, such as nearby parking lots or local grocery stories. They usually get your address, and often, where you work. Using the vehicle identification number (VIN) unique to your car, make, model, color, and year, they can verify that it’s yours and tow it away. Some vehicles come equipped with GPS tracking systems, and they could find your car that way – so hiding it isn’t likely to work.
If you do manage to successfully hide your vehicle from the recovery company and they fail to repo it, the lender can stop paying the recovery company and take you to court. If they win, they can get a court order and get it that way. If they still can’t recover the car, they could take you to court and get an order to garnish your wages for the loan balance.
3. Surrendering vs. Waiting for the Repo Man
If you know that you’re about to face a repossession, you have the option to voluntarily surrender it instead of waiting for the recovery company to come.
While giving up your vehicle doesn’t seem like the best option, it can actually save you money and hassle. Since the repo company can take your car while you’re out and about, you can choose to drop off the vehicle at the dealership when it’s most convenient for you. You can also take the time to remove any personal belongings.
Surrendering your car to the lender can save you money because if the lender has to hire a recovery company, you’re responsible for footing that bill – not the lender. The cost of a recovery company can be anywhere around $75 to $300.
4. Paying the Deficiency Balance
Once a vehicle is repossessed, it’s usually prepared to be sold at auction. If it sells, the proceeds from the auction are put toward your remaining loan balance. However, auction proceeds may not be enough to cover the entire balance – whatever’s left is called the deficiency balance.
You’re responsible for paying that deficiency balance. Even though the car is sold, you’re still responsible for the loan. Some lenders allow their borrowers to set up payment plans or arrangements to pay for the balance, but you may be required to pay for the whole balance with one lump sum. What you can arrange depends on your loan contract, your financial situation, and what your lender can do for you.
For some, the deficiency balance is too large to pay for, and in some cases, they opt for bankruptcy. Filing for bankruptcy is a big decision that can have years of repercussions on your credit reports, so we recommend that you talk to a bankruptcy or legal expert before making a decision to file for bankruptcy for repossession deficiency balance.
5. Your Credit After a Repo
After a repossession, your credit score is typically harmed quite a bit. For some, it could mean a drop of around 100 points or more in your credit score. Not to mention, if you defaulted on your auto loan and it leads to a repossession, any missed or late payments, as well as the repossession itself, can also harm your credit.
The good news is that time heals your credit reports and score. A repo can remain on your credit reports for up to seven years. With each passing year, though, the impact of it lessens.
Taking on new credit and making all of your payments on time is a great way to begin the bounce back after a repo. Keeping your credit card balances below 30%, staying on top of all your bills is a great way to improve your credit, too.
6. Avoiding a Repossession in the Future
The best ways to avoid a repossession is to make all of your payments on time and make sure your car insurance doesn’t lapse.
If you fall into a tough financial situation, tell your lender! Odds are, they don’t want to go through the repossession process, either. Some auto lenders offer deferment plans for borrowers that are struggling with unemployment, or unexpected emergencies like medical bills or temporary disability.
The moment you think you may miss a payment, contact your lender and keep them in the loop. The quicker you act, the more options you may have to avoid a repossession.
7. Getting Another Car After Repossession
Most traditional car lenders may not be willing to approve a borrower with a repossession on their credit reports. Subprime lenders, also known as bad credit lenders, may not assist borrowers with a repo that happened less than a year ago. However, some in-house financing dealerships don’t do credit checks, so a recent repo wouldn’t get in the way of auto financing if you pursue those dealers.
Subprime car lenders are signed up with special finance dealerships, and they’re equipped to assist borrowers in difficult credit situations, such as a past repossession. Here at Auto Credit Express, we match borrowers to dealers near them with bad credit lending options. To start the process of getting back on the road, fill out our free auto loan request form. We’ll look for a dealership in your local area!
