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5 minutes read. Published November 28, 2022
Sarah Sharkey Written Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a wide range of topics, including savings, banking, homebuying, homeownership and personal finances. Edited by Rhys Subitch Editored by Auto loans Editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to control their finances by providing detailed, well-studied facts that break down complex subjects into digestible pieces. The Bankrate promises
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We are compensated in exchange for the placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products are displayed within the categories of listing, except where prohibited by law for our mortgage or home equity products, as well as other products for home loans. Other factors, such as our own rules for our website and whether the product is offered in your area or at your self-selected credit score range could also affect the manner in which products appear on this site. While we strive to provide an array of offers, Bankrate does not include details about every 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’re in debt on your obligations and your car is at risk of repossession The good news is that you can take action to avoid this unfortunate outcome. From reinstatement to loan modification, there are multiple opportunities to prevent repossession. Do paying off a vehicle loan prevent repossession? The rules of repossession vary according to the state that you reside in. In many states there is a possibility that the lender is able to take the vehicle as soon as you’re in default. Based on your loan agreement, this could mean missing just one payment. There are many steps between missing a payment to the final repossession of your car. Based on the situation you’re in you should take the appropriate actions . If you haven’t received any notice that you can’t make your car payment, you’ll probably know about this financial fact before your lender does. Instead of waiting for the lender to know that you fail to pay take the initiative and contact the lender to explain the situation. The lender might be willing listen to you in order to save the cost of repossession. You should try to reach a reasonable solution together. For example, you can offer more information about your situation, including when you will be able to make your next payment or what you’re able to pay now. Depending on your history with the lender and your credit score, you may be able to negotiate an interim reprieve or . This is especially true if this is the first time you have had to make a missed payment. If the lender has only sent notice to you, the lender may legally take possession of your car without or with notice in many states. But your lender will likely mail you a notification of its plans to repossess your vehicle before it actually occurs. If you get notice of repossession your first contact you must contact your lender. Again, an open line of communication between you and the lender can lead to the resolution that stops repossession. If you wait until you receive an email means you’ll have to catch up when you explain the issue in front of your lender. If your lender is willing to hear you out, give the most detailed information you can regarding when you’ll be able to pay. Also volunteer how much you can put towards a payment today. Ultimately, it can be advantageous for the lender to come up with a temporary arrangement. In the end, the company needs to be paid and you’ll likely require your car to get to work. Dependent on the lender and your history an agreement that is temporary isn’t out of the realm of possibility. If the lender has already begun the process. If the lender has already begun the repossession process and you do not have access to your vehicle. In this instance, the reinstatement of your loan (also referred to as resolving the default- could be the best possible outcome. In certain states, you’ll need to pay the full past due amount. This includes all missed payments and any late fees that have accrued. Typically the lender will also ask you to cover repossession fees prior to releasing the car to you. In some states, you might be required to repay 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 reinstatement laws and it’s not a part of your contract, you should nonetheless contact your lender. It might be willing to modify your loan to include it. How auto repossession works Auto repossession is an unpleasant experience. But understanding the process can assist you to work through it, and possibly discover solutions. 1. If a borrower fails to pay, your lender is entitled to repossess the car as soon as you are in default and then send it to a debt collection company. The exact amount of missed payments that are required to default on your loan will depend on the state you live in and your loan contract. In some cases you only have make one missed payment in order to fall into default. In other instances you may need to miss two or three payments for an issue to arise. At this point, open communication between you and your lender is vitally important. If you are able to negotiate a reprieve, now is the right time to inquire. 2. Lender repossess your car once in default, your lender may or not send you a notice of its intent to repossess the vehicle. Call your lender to ask for an arrangement for a short-term payment to avoid repossession if you receive a notice. Based on the state you live in, the lender may be able to repossess your car at any time — regardless of whether you’ve received notice. 3. Lender sells the vehicle Once the lender has possession of the vehicle the lender may hold the vehicle until you pay up on your loan. However, the most likely outcome would be the lender will eventually sell the car. In many states the lender must inform you about the sale and provide you the chance to re-establish your loan. If you want to buy the vehicle before the auction, you’ll need to pay for the entire amount owed , including any costs associated with repossession. Many repossessions are sold at auction. You have a right to attend and make an offer for your car. 4. Lender pays you for any outstanding balance. After you sell the car, the lender will use the proceeds to cover what you are owed. But the sale price might not be enough to cover your entire debt. If you owe more than your lender receives for selling the vehicle, it’s an indeficiency. In most states the lender may sue you for any deficiencies. Let’s say for instance you owe $10,000 however, your lender is able to sell it at $7,000. In that scenario, the deficiency is $3,000, and the lender could be able to pursue you for the difference. If there’s a surplus from the sale then the lender could be required to pass the money to you. This is rare, but if it does occur, you’ll at the very least get a tiny gain from the sale. Other ways to avoid repossession Avoiding repossession is a important concern for the majority of borrowers. After all, your vehicle is probably a crucial part of your ability to earn money. Some ways to avoid repossession are: Reinstate the loan: If you can get current on your past-due payments, the lender will reinstate your loan. This means that you’re bringing your situation back to where it was. Once reinstated, you’ll need to make your usual car payments. Pay off the loan Then the process of paying off your entire auto loan is easier to say than do. If this is within reach there is a way to exit this situation. Refinancing: This can be difficult as your credit score takes the hit when you miss payments. However, if you are able to find the right loan with the lowest interest rate, or the monthly installment, it could be the right move to manage your finances. Declare bankruptcy. If you are behind on other debts, bankruptcy may be an option. While there are ways to but it’s not an assurance. Possession could still occur in the event that you fail to find a workable solution. The downside to this option is that you’ll likely need to come up with an amount of money to resolve the situation. The main point is that if you find yourself staring down the uneasy prospect of repossession contact your lender promptly. With open lines of communication, the lender may offer a deal that is suitable for all.
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The article was written by a contributing writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a wide range of subjects, including savings, banking homeownership, homebuying, and personal finance. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are enthusiastic about helping readers gain confidence to manage their finances by providing concise, well-studied and well-researched content that breaks down complicated topics into manageable bites.
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