How Far Behind Before They Repo a Car?

Automobile repossession occurs when a lender reclaims a vehicle because loan payments are not made as agreed. This process is a concern for individuals facing financial challenges. Understanding the circumstances that lead to repossession and available options for consumers is important.

What Repossession Means

Repossession is the legal right of a lender to reclaim collateral, which in the case of an auto loan, is the vehicle itself, when a borrower defaults on the loan agreement. The loan contract explicitly outlines the terms and conditions, including what constitutes a default. In many states, repossession can occur without a prior court order, a process often referred to as “self-help” repossession. This means the lender can take action to recover the vehicle directly once a default has occurred.

When Repossession Can Occur

Repossession is primarily triggered by a “default” on the loan agreement. While the most common form of default is non-payment, other breaches of contract, such as failing to maintain required insurance coverage, can also lead to repossession.

There is no universal standard for how many missed payments will lead to repossession, as it varies significantly by contract terms and state laws. Some loan agreements allow lenders to repossess a vehicle after just one missed payment or even one day past the due date. However, many lenders typically exercise discretion and may wait until a borrower is 30 to 90 days past due, or has missed two to three consecutive payments, before initiating repossession.

State laws also play a role in governing repossession procedures, including any potential requirements for notice before or after the vehicle is taken. While many states permit “self-help” repossession without a court order once a default occurs, some jurisdictions may require a “right-to-cure” notice. This notice provides the borrower with a specific period to bring the loan current and avoid repossession. A lender’s decision to repossess can also be influenced by factors such as the borrower’s payment history and the vehicle’s market value.

The Repossession Process

Once a lender decides to repossess a vehicle, the process is typically carried out by licensed repossession agents. These agents locate the vehicle and arrange for its towing. The repossession must be conducted without “breaching the peace,” which means agents cannot use force, threaten individuals, or break into a closed garage to take the vehicle. However, vehicles located in driveways, yards, or public areas can generally be repossessed without direct confrontation.

Any personal belongings left inside the vehicle are usually taken along with it during the repossession. Lenders are generally required to return these personal items to the borrower, as they only have a legal interest in the vehicle itself, not its contents. Borrowers should promptly contact the repossession company to arrange for the retrieval of their belongings. Following the repossession, the lender may be required to send specific notices, such as an intent to sell the vehicle or information regarding the borrower’s right to redeem the loan.

After Repossession

After a vehicle is repossessed, the lender will typically sell it, usually through a public auction or a private sale. This sale must be conducted in a “commercially reasonable manner.” The proceeds from the sale are applied to the outstanding loan balance, as well as any costs associated with the repossession and sale.

If the sale price of the vehicle is less than the total amount owed on the loan, including all fees and expenses, the borrower may be responsible for the remaining amount, known as a “deficiency balance.” The lender can pursue collection of this deficiency from the borrower. Conversely, in rare instances where the sale price exceeds the total debt, a “surplus” may occur, and the borrower would be entitled to receive this excess amount. A repossession will also significantly impact the borrower’s credit score and can remain on a credit report for up to seven years from the date of the first missed payment, making it difficult to obtain new credit.

Addressing Payment Challenges

Individuals who anticipate or are experiencing difficulty making car payments should proactively communicate with their lender. Contacting the lender immediately upon realizing a potential payment issue is important, as lenders are often more willing to work with borrowers who reach out early.

Lenders may offer various options to help borrowers manage payment challenges. These can include payment deferral or forbearance, which allows for a temporary postponement or reduction of payments. Another possibility is a loan modification, where the lender agrees to change the original terms of the loan, perhaps by extending the loan term to lower the monthly payment amount.

As a last resort, borrowers can consider a voluntary surrender of the vehicle. This involves returning the car to the lender by choice rather than waiting for an involuntary repossession. While a voluntary surrender is still considered a repossession and may result in a deficiency balance, it can help avoid some associated fees and the surprise of an unexpected seizure.