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5 minutes read. Published November 28, 2022
The article was written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of subjects, including savings, banking homeownership, homebuying and personal finance. Editor: Rhys Subitch Edited 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 concise, well-researched and precise facts that break down complicated topics into bite-sized pieces. The Bankrate guarantee
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So, this compensation can impact how, where and in what order products are displayed within the categories of listing and categories, unless it is prohibited by law. This is the case for our mortgage or home equity products, as well as other home lending products. Other elements, like our own website rules and whether the product is available in your region or within your own personal credit score may also influence the way and place products are listed on this website. While we strive to provide the most diverse selection of products, Bankrate does not include details about each credit or financial products or services. The number of repossessions on cars has grown dramatically in the last few years, as per reports . If you are in arrears with the payments you have made and your car is in danger of being taken away There’s good news that you can take steps to prevent this dreadful outcome. Between reinstatement and loan modification you have a number of opportunities to avoid repossession. Do paying off a vehicle loan prevent repossession? The rules of repossession vary based on the state you live in. In most states where repossession is allowed, the lender is able to take the vehicle at any time you’re in default. Based on the terms of your loan agreement, this could mean missing just one payment. There are a variety of steps to take between missing a payment to the eventual repossession of your car. Based on the situation you’re in you should take the proper steps . If you’ve not received any notice that you’re unable to make your auto payment, you’ll likely know about that financial reality well before your lender will. Don’t wait for your lender to discover that you miss a payment, be proactive and call the lender to explain the situation. The lender might be willing to hear you out in order to avoid the costs of repossession. Try to come to a reasonable solution together. For example, you can provide more details about your situation, when you can make the next payment or what you can pay right now. Depending on the history you have with the lender it is possible that you will be able to negotiate a temporary reprieve or . This is particularly true in the case of this being the first time you’ve been in the habit of missing a payment. If the lender has sent only notice to you, the lender is legally able to repossess your vehicle with or without notice in a variety of states. However, your lender will likely send you a notice of its intention to repossess the vehicle before it actually occurs. If you get an official notice of repossession, the first phone call you need to be making is with your lender. A clear line of communication between you and the lender can lead to the resolution that stops repossession. Waiting until you receive a notice means that you’ll have to catch up in explaining the situation to your lender. If your lender will listen to you out, give as many details as possible regarding the time you’ll be able to make a payment. Additionally, let them know how much money you can put toward a loan today. It is beneficial for the lender to work out an arrangement that is temporary. The business needs to be paid and you will likely need your vehicle to go to work. Dependent upon the lender and your personal history, a temporary agreement isn’t out of the possible. In the event that your lender has already begun the process If it is the case that the lender has already started the process of repossession and you do not be able to access your vehicle. In this instance, the reinstatement of your loan or loan modification referred to as resolving the defaultmay be the best alternative. In certain states, you’ll have to make payments for the entire due amount. This includes all missed payments along with any late fees which have accrued. In most cases the lender will also require that you pay for repossession costs before releasing the vehicle to you. In other states, you may need to pay the entire loan to obtain your car back. This procedure is called redemption. Not every state allows for reinstatement. If your state doesn’t have laws governing reinstatement and it’s not a part of the contract, it’s best to still reach out to your lender. It might be willing to amend your loan in order to incorporate it. How auto repossession works Auto repossession is a stressful experience. However, understanding the process will aid you in navigating it, and possibly come up with solutions. 1. Borrower misses payments Your lender is entitled to take possession of the vehicle when you’re in default — and then be able to transfer the vehicle to a debt collection agency. The exact number of missed payments needed to be in default on your loan will depend on the state you live in and the terms of your loan contract. In certain cases, you will only need to miss one payment to be in default. In other cases you may need to miss two or three payments for an issue to arise. At this point, open communication with your lender is crucial. If it’s possible to work out an extension, now’s the time to ask. 2. Lender will take your vehicle once in default Your lender could or might not send you a notice of its intention to repossess the vehicle. Call your lender to ask for an interim payment plan to avoid repossession if you receive a notice. In the event of a state-wide restraining order and the state of your car, the lender could be able to repossess your car at any time — whether or not you’ve received a notification. 3. Lender sells the vehicle once the lender has possession of your car It could keep the vehicle until you catch up with your loan. However, the most likely outcome is that the lender will decide to sell the vehicle. In several states, the lender will notify you of the sale and offer you the chance to reinstate your loan. If you want to buy the vehicle back prior to the auction, you’ll need to pay the full amount owed , including any fees associated with repossession. Many repossessions are sold at auction. It is your right to be there and place an offer on your car. 4. Lender pays you for any deficiency After selling the vehicle the lender will use the proceeds to pay what you are owed. But the sale price might not cover the entire amount owed. If you owe more than what your lender receives for selling the vehicle, it’s a deficit. Unfortunately, in many states, your lender can claim any deficiency. Let’s say for instance you owe $10,000 but your lender only sells it for $7,000. In that scenario, the deficiency is $3,000, and the lender could be able to claim the difference. However, if there is surplus to the sale, the lender could be required to distribute it to you. It is not a common scenario, but if it does occur, you’ll probably get a little gain of the transaction. Another method to avoid repossession is to use the following strategies. Refusing repossession is a major concern for many people who borrow. After all, your vehicle is probably a crucial part of the way you earn a living. A few ways to avoid repossession include Reestablishing the loan: If you can make your overdue payments, the lender will reinstate the loan. In essence, you are bringing the situation back to square one. After reinstatement, you’ll have to continue making the regular payments to your car. Pay off the loan Naturally the process of paying off your whole auto loan is easier to say than do. However, if this is within reach this is a way to exit this situation. Refinancing: This can be difficult given your credit score suffers the hit when you miss payments. If you can locate the right loan with the lowest interest rate, or monthly payment, could be the right move for your finances. Declare bankruptcy. If you are behind in other charges, bankruptcy may be an alternative. However, while there are options to do so , it’s not a guarantee. Repossession may still happen if you aren’t able to discover a solution that works. The downside to these possibilities is that you’ll likely need to come up with some amount of cash to resolve the situation. The main point is that if you’re facing the uncomfortable possibility of repossession, talk to your lender promptly. With open lines of communication with your lender, the lender might be able to offer a solution that is suitable for all.
Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of subjects, including banking, savings tips homeownership, homebuying and personal financial matters. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing precise, well-studied information that breaks down complicated subjects into bite-sized pieces.
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