How Does Car Repossession Work?

For most people, having a car is essential. So if your car gets repossessed, lots of emotions come out. You might be lost, confused, scared—maybe even angry. It’s a situation that just plain sucks.

If you’re facing a car repossession, you’ve probably got a lot of questions. Almost no one signs a car loan with the intention of skipping payments, but life happens. And right now, all you want is to set things straight and get your car back.

Let’s walk through what a car repossession is, how it works, and what your options are to deal with it—or maybe even avoid the repo in the first place.

What Is a Car Repossession?

A car repossession happens when a loan on a car is delinquent. In other words, if you don’t pay your car payments on time (what the bank folks call “keeping your loan current”), the bank can take your car back. To do that, the bank contracts with a local repossession company, which sends a guy out with a tow truck to make your car magically disappear—by transporting it to a repo lot.

Here’s another thing: The bank can come and get your car at any time once your loan becomes delinquent. That’s right—day or night, at home, work or school. And because of the information you filled out on the loan agreement, the bank knows where you live and work. Some people try to hide their car, like parking it blocks away from their house, that kind of thing. But the 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 you live in. They can take your car from your garage if the garage is open. They can get a duplicate key for your car and drive it away. They can even hot-wire the darn thing!

How many car payments can you miss before the car’s repossessed? That’s completely up to the lender and the state. Usually, a repo happens when you’re over 90 days late on the loan. But even if you’ve only missed one payment, you might not be out of trouble. The bank could still order a car repossession. Certain states require lenders to give delinquent borrowers some notice before their car is repossessed. If you’re an active-duty member of the military, the lender has to get a court order before starting a repossession.

Why Are Cars Repossessed?

It’s pretty simple: Cars are repossessed because people default on their car loans by not making payments.

Like we said earlier, when you finance a car, it’s technically not yours. So when you don’t pay, the lender can take it back.

In some states, you could get slapped with a repo just for not having the right car insurance. It’s all spelled out in the loan agreement—you know, the one you probably didn’t read all the way through.

Sure, the main culprit of car repos is people being late on their payments. But there’s something deeper going on here. In 2022, approximately 2 million cars were repossessed—that’s up from 1.7 million in 2019!¹ What’s behind the uptick in repossessions?

Well, according to some auto loan experts, after the pandemic cooled off and things went back to normal, people went crazy buying cars almost as much as they went crazy buying houses. With excess cash from government handouts and delays in rent payments brought on by COVID, folks bought more car than they could afford—and car dealers and banks were more than happy to give it to them.

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When the government gravy train ended and lenders reinstated rent and other payments, people realized they couldn’t afford those monthly $700 new-car payments.² It’s no wonder why there’s a spike in delinquent car loans—especially when you add in the price increases in both new and used cars because of supply chain issues, widespread company layoffs done in anticipation of a recession, the skyrocketing costs of everything else thanks to inflation (including gas).

Car loan defaults are a classic example of people making stupid decisions with their money and living beyond their means. Everyone wants the latest and greatest gizmo, and they want it right now—and they’re perfectly willing to go into a heap of debt to get it. That’s why debt is never a good thing and you should avoid it like the plague.

What to Do if Your Car Is Repossessed

If you find yourself at the wrong end of a car repossession, you may not know what to do. And that’s understandable. Here are a few helpful tips to consider in the moment.

1. Recognize what happened.

Look, we understand things happen in life to upset your financial world—like losing your job, getting sick, or taking care of a spouse or parent. But no matter what happened to cause you to be three months behind on your car payment, you’re still responsible for that loan, and the bank has every right to take your car back.

Take a deep breath, accept responsibility for the mess, and move on to the next step to clean it up. You can do this!

2. 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 the repo man 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 ruining their own car or property, other people’s cars or property, or the repo man’s tow truck. They made things way worse by damaging their reputation and possibly facing jail time. You’ve got enough to handle without your repo tantrum becoming the next viral sensation on TikTok with that “Oh No” song as the soundtrack.

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

3. Go get your stuff back.

This is where it pays to be civil and kind. Even though the lender or repo company has the right to take your car, it doesn’t have the right to keep your personal property in the car. It can’t charge you for recovering your stuff either. The repo man will let you know where the car’s being held, and you should be able to get your stuff out of the car. And if the repo man’s feeling particularly nice, he’ll let you take your stuff out before he even takes the car.

4. Be prepared for financial pain.

So, you thought the actual repossession sucked? Well, we’re going to level with you . . . the next part of the process isn’t any fun either. But you can get through it!

Depending on the state you live in, here’s what you can do to get your car back if your car is repossessed:

• Reinstate your loan by paying the past-due amount you owe plus any late and/or repossession fees.

• Pay off the loan in full (plus any of the previously mentioned fees).

If you can’t make the loan current or pay it off, your lender will sell your car at auction and come after you for the deficit balance.

What’s a deficit balance? It’s the difference between how much you owe on the car and how much they sell it for. 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.

However, most lenders realize they probably won’t get the full amount from you anyway (you’re broke and got your car repo’d, remember?). More than likely, they’ll settle with you for around 25 cents on the dollar of what you owe them. So if you owe a $9,000 deficit balance, the bank will settle for $2,250. That means you have time (about six months to a year) to come up with that money to square your debt.

But that doesn’t mean you get away clean. You’ll still have a repossessed car and a settled bad debt on your credit record. And for those lenders who bow down to the almighty FICO score (which, let’s face it, is most of them), those two dings will set off a bunch of red flags in the future.

That’s the least damaging scenario. If your bank is being a jerk, they’ll actually sue you for the deficit balance.

How to Avoid Car Repossession

If you’re behind on your car payments and repossession looks like a possibility, 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, it may work with you to prevent a default (banks want money, after all). It 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 happens when you know you can’t make the payments and simply give up the car and let the bank know so they can come and take it. Sounds like it might be a pretty easy fix, right?

Wrong! Whatever you do, never voluntarily give up your car to repossession. If you do, you’ll lose any control you had of the situation and will be at the complete mercy of the lender. And you can bet that lender will probably take your car, sell it, and then sue you for the deficit balance, along with the repo fees. Not good.

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 as you can for it (which, given the prices of used cars these days, might surprise you). If the sale covers the remaining balance of the loan, you’re home free. But if it doesn’t, you can ask another lender to borrow the difference between the amount you sold it for and the amount you owe. 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 default on your credit record). And as soon as you’re clear of that car loan, you can attack that small amount of debt with gazelle intensity and get it wiped out.

No More Car Payments

Everyone make mistakes—it’s why pencils have erasers. But when you mess up, you get to choose how you’ll deal with that mistake. The best course of action? Don’t mope in the mess. Learn from it.

So, what can we learn from an experience like repossession (or an almost-repossession)? That debt is dumb. It causes us to buy more than we need. And it can ruin your life in an instant. A flashy car isn’t worth years and years of debt. Pretty soon, that car will own you instead of the other way around.

Bottom line: If going into debt is the only way you can afford that car, then you don’t need to buy it! If you want to really win with money, live within your means, save up, and buy a car you can afford with cash. No payments! No more bowing down to big, bad FICO!

Doesn’t the thought of no more payments sound good? It’s possible to live a life without them, and Financial Peace University (FPU) can give you the tools and the know-how to get to that place. For almost 30 years, FPU has helped millions of people live like no one else and achieve real, lasting change in their lives.

It all starts by taking the first step, so find an FPU class in your area and sign up today!