What happens when your car is repossessed? Those with bad credit histories are at a higher risk of eventually having their car repossessed. Experian, a favorite credit reporting company, states that borrowers who are using sub-prime loans to finance their vehicle purchase are doubly at risk of experiencing a repossession. But not all car repossession are a result of missing a car payment or two.
We are providing some of the FTC information to help you gain a better understanding of auto repossession and how the car repossession process can affect you. We will explain what borrowers can expect if their vehicle is repossessed. Please note that this is not intended to be taken as legal advice but should assist you in negotiating with the lender.
Offloading a Repossessed Car
The car repossession process after having a car repossessed is time-consuming and frustrating. The company you owe money to can choose to keep the vehicle as repayment for your debt or they can sell it off either publicly or privately. This will be decided by many factors the car lender looks at like your payment history and the money you still owe compared to the equity you built up. They usually do not give you any notice you are facing repossession or warning that they are going to take the car. They do this to prevent you from putting the car where they cannot find it.
If you have missed two or more payments and are facing repossession, the auto loan lender may ask you to come in person to get caught up with the payments. You will need to be prepared to pay all the missed payments with cash at that time, and it would be an excellent opportunity to check into your states car repossession laws, so you know your repossession rights. If you do not show up for the meeting, you can bet that the finance company will come for your car.
State Laws and Repossessed Cars
The creditor or repossession company may be obligated to tell you about what will be done with the vehicle after they take it depending on which state this occurs in. If they intend to go through car repossession sales like a public auction to sell it, laws in that state might force them to let you know of the place, and time it will be held. This gives you a fair opportunity to bid on and potentially re-obtain your car. However, if the creditor opts to sell the vehicle through a private sale or auction, the law may require them to tell you when it will be sold. You will not be able to take part in this deal.
Regardless of the situation, you might also have the right to buy back the repossessed vehicle simply by paying the total loan balance plus repossession costs. In any case, you will have to pay all repossession costs. To avoid these charges you may consider a voluntary repossession where you bring the car to them and turn it over voluntarily.
There are many benefits to voluntary repossession like not being surprised when your car is gone or trying to get back the continence that was in the car when they took it. Then you can negotiate what you will need to do to get the car back like paying any late payments as well as the remaining balance of the loan. Costs associated with the car repossession can take the form of lawyer fees, sale preparations, storage expenses, and tow.
Alternatively, you may be able to buy the car back by participating in the repossession sale. If you corporate with the lending company and abide by their rules, they may let you have your car back if you catch up on the amount of money owed plus the penalty fees, and you do not have a history of many missed payments. However this right falls on them, and they are much less willing to cooperate with you if you are not prepared to abide by their requests.
State Laws Differ
In some states, there are customer protection laws in place that let you renew your car loan. Under these laws, after car repossession, you can get your car back by reimbursing your creditor for your late payments, deficiency balance and the costs related to repossessing the car. However, it is important to note that all future payments have to be on schedule, and you must also abide by the stipulations in the loan. Failure to do so could result in a second repossession.
By law, creditors must go about all repossessed car sales in a “commercially reasonable fashion.” They are not required to get a high price or even a decent one, but if their selling price is under the fair market value, it might not be considered commercially reasonable. The definition of this is often based on the standards in your particular state. If the creditor does not sell your vehicle according to these criteria, you may be able to file a claim against them for compensation and possibly receive protection from a deficiency judgment.
A “deficiency” is the balance of what you still owe on your loan, including any added vehicle repossession expenses, and how much money collected by the creditor for the sale of the repossessed vehicle. Say that you owe an additional $12,000 for your automobile, and the lender manages to sell it for $9,000. This means that the deficiency is still at $3,000, along with other fees not mentioned. To repossess a car is an expensive process. The additional charges may consist of the creditor’s repossession costs as well as early loan repayment fees and early contract termination fees.
In most of the country, car repossession laws state that creditors are legally able to file a lawsuit against you for a deficiency
judgment to obtain the full remainder of your debt. However, the creditor must have strictly adhered to the standard rules regarding resale and repossession to sue you. Furthermore, the creditor will owe you money if it is discovered that there’s money left over after the sale, and once it has been applied to your loan debt and any outstanding fees. Unfortunately, this is a rare occurrence.
In certain cases, you might have a sound defense from a deficiency judgment. A good example is if the creditor violated standard practices. Selling the car in a commercially unreasonable fashion or failed to file a civil suit against you within the time frame allowed by the statute of limitations. A lawyer can let you know if your case is solid enough to challenge a judgment of deficiency.
The Federal Trade Commission (FTC) has an answer to many commonly asked questions regarding car repossession. Knowing where you stand can go a long way toward helping you with decisions about your repossessed car and your bad credit car loan.