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Car Repossession: How It Works and How to Deal With It

If you’re facing a car repossession, you’re probably feeling confused, afraid, angry or all of the above. It’s a situation that just plain sucks, especially if you depend on your car to go to work, pick up your kids, or get groceries.

A car repossession is rough, but you can get through it. We’re going to walk you through how car repossession works and how to deal with it—as well as how to avoid having your car repossessed in the first place.

 

Key Takeaways

  • A car repossession is when you default on a car loan so the lender takes your car and sells it at auction.
  • Most car repossessions happen after 90 days of no payments.
  • If you want to get your car back after a repossession, you can either reinstate the loan or pay off the loan in full.
  • It’s better to sell your car or negotiate with your lender than do a voluntary repossession.

What Is Car Repossession?
How Car Repossession Works
What to Do if Your Car Is Repossessed
Can You Hide Your Car to Keep It From Being Repossessed?
How Car Repossession Affects Your Credit
How to Avoid Car Repossession

What Is Car Repossession?

A car repossession is when you default on a car loan (meaning you don’t pay your payments on time) so the lender takes your car and sells it at auction.

Generally, your car can be repossessed after 90 days of no payments, but the exact timeline is up to the lender and local law. In some states, your car could get repossessed just for not having the right car insurance! And depending on where you live, your lender may not even have to give you any warning before they come get your car. Yikes.

As unfair as it seems, your lender does have the right to take your car. Because with car loans, it’s the bank who owns the car—not you.

We understand things happen, like losing your job, getting sick, or taking care of a spouse or parent. But you’re still responsible for the loan. And since car loans are secured loans (meaning they’re backed by an asset), the car acts as collateral if you don’t pay. That’s the sad truth about car payments.

How Car Repossession Works

Even though your lender is the one taking back the car, they usually get someone else to do their dirty work. Banks have contracts with local repossession companies who send their guys out to hitch your car to a tow truck and transport it to a repo lot.

Here’s the thing: They can come get your car at any time once your loan becomes delinquent. And because you signed a car loan agreement, the bank knows exactly where you live and work. Many repo companies follow people and wait until they park their car to take it (creepy, right?).

It doesn’t matter if it’s day or night, if you’re at home, work or school, it’s all fair game. The repo man gets paid to deliver, and he will do just that—no matter how inconvenient it is for you. Seems extreme, but it’s what you signed up for when you signed that car loan (it was just buried in the fine print).

Now, depending on the state, a lender or repo company can’t do anything to “breach the peace” while repossessing a car. That includes threatening you, using force against you, damaging your property, coming into your home, or taking a vehicle from a closed garage. But taking your car if you haven’t paid? Totally legal.

What to Do if Your Car Is Repossessed

First off, take a deep breath.

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We know watching someone take your car away feels like letting someone rob you in your own driveway. But you need to keep your cool and not make matters worse.

Here’s what to do—and not do—if your car is repossessed.

1. Don’t fight the repo man.

If the repo man shows up to take your car, do not fight or argue with him. Don’t try to unhook your car from the tow truck yourself or get in the way to stop him from doing his job.

Trust us . . . it never ever ends well. YouTube is filled with videos of people trying a bunch of stupid things to keep their car from being repossessed. But they just end up damaging their car (and their reputation) as well as facing possible jail time.

However, if you have proof your loan is current that day or if the repo man will accept a payment right then and there, you can politely ask him if you can keep your car. But you’ll probably still be on the hook for repossession fees.

Otherwise, you have no choice but to move on to the next step.

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2. Get your personal items back.

So, the repo man just drove off with your Tacoma in tow. Now what?

Even though the lender or repo company has the right to take your car, they don’t have the right to keep any of your personal property that was in the car. And they can’t charge you for recovering your stuff either.

This is where it pays to be civil and kind. If the repo man’s feeling particularly nice, he’ll let you take your stuff out before he hauls the car away. Otherwise, the repo man or the lender will let you know how to get your things back.

3. Reinstate or pay off the loan.

What happens after a car repossession depends on the state you live in. If you want your car back, you’ve usually got a couple options:

  • Reinstate the loan. This means paying the past-due amount you owe on the car, plus any late and/or repossession fees.
  • Pay off the loan in full. This also includes any late and/or repossession fees.

You usually only have about 10–15 days to either catch up on your payments or pay off the entire car loan. Otherwise, your lender will move on to sell your car at auction.

4. Pay the deficiency balance (if applicable).

If the car sells at auction for less than what you owe on the loan (this is pretty common for newer car loans), your lender will come after you for the difference. This is called a deficiency balance.

Say you owe $19,000 on the car and the bank sells it for $10,000 at a repo auction. That means you’re still on the hook for $9,000—plus any repossession fees.

However, most lenders realize they probably won’t get the full amount from you anyway (after all, they just repo-ed your car). More than likely, they’ll settle with you for around 25 cents on the dollar of what you owe them. So, if you owed $9,000, the bank would probably settle for around $2,250. But when that money is due depends on the lender and the state.

That’s actually the least damaging scenario. If your bank is being a real jerk, they’ll just sue you for the deficiency balance. Scary, we know. That’s why you want to do everything you can to avoid a repossession and keep your car from going to auction (more on that in a bit).

Can You Hide Your Car to Keep It From Being Repossessed?

Some people try to keep their car from being repossessed by parking it blocks away from their house or covering it with a tarp in their backyard. Others try transferring the car to someone else. But car repossession “loopholes” like that will only delay the inevitable and get you in more legal trouble.

Plus, repo men are like Liam Neeson. They will look for your car . . . they will find your car . . . and they will take your car. And like Liam Neeson, the repo men have a “very particular set of skills” for getting your car—though the limit of those skills depends on the state.

They don’t even need your keys. They can just get a duplicate key for your car or hot-wire the darn thing if they need to! Some lenders have location devices on your car for just this reason. And as crazy as it sounds, there are even electronic disabling devices lenders use to keep your car from starting!

Bottom line: If the lender wants your car, they will get it. It’s not a good idea to try to outsmart them.

How Car Repossession Affects Your Credit

Even if you’re able to reinstate the loan and avoid losing your car, you’ll still have a repo on your record. And unfortunately, a car repossession can stay on your credit report for up to seven years. It can also cause your car insurance premiums to go up for any other vehicles you have.

In the credit world, a repo is a red flag because it shows you’ve missed payments—which means it can keep you from getting approved for a future car loan. But if you’ve had your car repossessed, the last thing you need to do is finance another car. A cheap, used car you can pay for in cash will do just fine.

And while you don’t need a credit score to survive (in fact, you can thrive without one), you don’t want to trash your credit either (especially if you plan on getting a mortgage). The best way to fix your credit after a car repossession is to avoid other debt, stay current on your bills, and work to pay off the debt you have.

How to Avoid a Car Repossession

If you’re falling behind on your car payments and you can see a repossession up ahead, there are things you can do to avoid it—or at least soften the blow.

Talk to Your Lender

The most important thing you can do is be completely honest with your lender. As soon as you know you might have trouble making your payments, get out in front of the problem and let your lender know. Don’t wait until your loan is in default.

Depending on how reasonable the bank you’re dealing with is, they may work with you to prevent a default (banks want money, after all). They could lower or pause your monthly payment for a short time while you get your finances in order. But lenders aren’t required to help you out, so go in with realistic expectations.

Don’t Do a Voluntary Repossession

A voluntary repossession is when you willingly surrender your car to the lender, instead of waiting for them to come repo it. This may sound like the right thing to do if you know you can’t make your car payment—but whatever you do, don’t voluntarily surrender your car! You’re not saving yourself any financial pain.

You’ll lose any control you had of the situation, and you’ll be at the complete mercy of the lender. And you can bet that lender will take your car, sell it for super cheap at auction, and then sue you for the deficiency balance, along with the repo fees. Not good.

Sell the Car

If you can’t catch up on your payments and repossession seems like a done deal, it’s better to sell the car yourself and get as much money as you can for it (you might be surprised by how much, given the prices of used cars these days).

If the sale covers the remaining balance of the loan, you’re home free! But if it doesn’t, you’re better off taking out a small loan for the difference. That way, the troublesome car loan is paid off and you have only a little bit of debt to deal with.

Paying off that smaller loan will be a heck of a lot better than paying the deficit balance in a lawsuit (not to mention all the fees and having a repo on your credit record).

Drive the Car You Can Afford

If you’re serious about steering clear of a repo, it’s time to trade your expensive car payment in for a car you can actually afford—most likely a cheap, used car you pay for up front and in full. After all, you can’t get repo-ed if you don’t have a car loan!

Yes, paying cash for a car is possible. It may take a little longer than you want, but it’s worth it. And when you drive off in a paid-for ride, you can do it knowing you’ll never have to worry about the repo man taking your car from you. It’s yours!

The Best Way to Avoid a Repo:  A Budget

Whether you’re trying to avoid a car repossession or save up for a replacement car, the best way to take control of your financial situation is with a budget.

A budget puts you in control of your finances.

It shows you exactly where your money is going—so you can see if you’re falling behind on that car payment and make changes to your spending to get back on top of things. Even better, budgeting can help you pay off your car loan early (take that, repo man!).

The best way to budget? With the EveryDollar budgeting app! It makes it super easy to plan for monthly expenses (like that car payment) and keep track of your spending throughout the month. Go ahead and start budgeting for free right now.

And hey, we know facing a repossession is tough financially and emotionally. But whatever happens, a repo doesn’t define you. Do what you can to deal with the situation now, and then work on getting it cleaned up. You’ve got this!

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Ramsey Solutions

About the author

Ramsey

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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