After How Many Missed Payments Do They Repo a Car?

Vehicle financing involves credit, with the purchased car serving as collateral for the loan. This arrangement means that the lender holds a security interest in the vehicle until the loan is fully repaid. When a borrower fails to uphold the terms of their loan agreement, the lender possesses the right to reclaim the vehicle. This process, known as repossession, represents the exercise of the lender’s security interest. Understanding the conditions that lead to repossession and the subsequent steps is important for anyone engaged in vehicle financing.

Understanding Loan Default and Repossession Triggers

The number of missed payments triggering repossession varies significantly, depending on loan agreement terms, lender policies, and state laws. While a lender can repossess after one missed payment in many states, many wait until a borrower is two or three payments behind.

“Default” on a car loan extends beyond merely missing a payment. A loan agreement can specify other conditions that constitute default, such as failing to maintain required insurance coverage on the vehicle. Lenders often communicate with borrowers through late notices and demand letters once payments are missed, sometimes offering an opportunity to cure the default by bringing the account current. However, these communications do not always precede repossession, as some states permit lenders to repossess a vehicle without prior notice once the loan is in default.

The Repossession Process

Once a loan is in default, repossession begins. Repossessions are carried out by third-party agents using tow trucks. These agents are bound by legal restrictions, most notably the prohibition against “breach of peace” during the repossession. This means they cannot use force, threats, violence, or break into locked buildings or garages to take the vehicle.

Repossession agents are generally permitted to take a vehicle from public property or an open driveway. If a borrower is present and unequivocally protests the repossession, the agent should cease the attempt to avoid a breach of peace. Violations of these rules by repossession agents can lead to legal consequences for the lender.

After the Vehicle is Repossessed

Following repossession, the lender sells the vehicle to recover debt, often through auction or private sale. The proceeds from the sale are applied to the loan balance, but if the sale price does not cover the full outstanding amount plus repossession and sale costs, a “deficiency balance” remains. The borrower is generally responsible for paying this remaining debt, which can include expenses like towing, storage, and auction fees.

Lenders are usually required to provide the borrower with a notice detailing when and where the vehicle will be sold, typically at least 10 days prior to the sale date. Repossession, along with any resulting deficiency balance, has a negative impact on the borrower’s credit report. This derogatory mark can remain on credit reports for up to seven years from the date of the first missed payment that led to the repossession.

Borrower Rights

Borrowers retain rights even after repossession. The “right of redemption” allows them to reclaim the vehicle by paying the entire outstanding loan balance, plus all associated repossession costs and fees. This right must be exercised before the vehicle is sold.

Another potential right is the “right of reinstatement,” which permits the borrower to regain possession of the vehicle by paying only the missed payments and repossession fees. However, the availability of this right can vary significantly based on state laws and the specific terms of the loan agreement. Some states may not offer this right, or lenders might be able to deny it under certain conditions.

Borrowers also have the right to retrieve personal belongings left inside the repossessed vehicle. Lenders and repossession agents generally cannot keep or sell these personal items, nor can they typically charge a fee for their return. It is advisable for borrowers to act promptly to arrange for the collection of their personal property.