Understanding the Process of Auto Repossession

In its quarterly State of the Automotive Finance Market report, Experian Automotive says that vehicle repossession rates increased 43 percent in the fourth quarter of 2013, compared to the same period in 2012. Over a million vehicles are seized by lenders every year. Banks, credit unions, and subsidiaries of the manufacturers have experienced lower repossession rates. However, finance companies have increased the number of loans they are processing, leading to more frequent instances of repossession.
Sometimes life circumstances make it difficult or nearly impossible to keep up with auto loan payments. It’s important to keep in mind that auto lenders really don’t want to take back vehicles. It may be beneficial if you address financial restraint directly and let your lender know if you are going to have trouble making payments. There may be options for you to defer payments for a couple months or your lender may work out an agreement so you can keep your vehicle.
Car repossession laws vary from state to state. Lenders may have the right to repossess a vehicle as soon as the borrower misses a payment, fails to maintain adequate insurance, or defaults in another way expressed by the contract. Lenders usually do not have to warn you that they are planning to repossess your vehicle.
A repossession company is permitted to come to your property. However, they cannot breach the peace, damage your property or vehicle, use violence, break into a locked garage or fenced area, or repossess your vehicle based on faulty information.
Most states require the lender to tell you what it plans to do with the vehicle and any rights you have. This information usually comes in the form of a letter, called a Repossession Notice, promptly after the repossession occurs. You should be sure to find out where you car was taken and make plans to go collect any personal property left in the vehicle. Depending on the state, you may also be entitled to notice of a public auction and your right to attend and participate.
After a repossession, the lender will offer you the option to redeem your vehicle by either paying the past due payments and repossession fees or paying off the entire balance of the loan.
If you are unable to make the required payment to redeem your vehicle, the lender will sell or auction it. Although they are required to get the best price possible, in most cases, the sale amount will be less than your outstanding loan and repossession fees. This situation often results in a “deficient balance” that you will be responsible to pay to your lender. The lender can generally sue the borrower for the deficient balance as long as no consumer rights have been violated in the repossession process.
Most lenders will report auto repossessions to the credit bureaus, whether the repossession was voluntary or involuntary.
Click here for more information on repossession laws.