How Many Missed Car Payments Until Repo?
Learn what happens when car payments are missed, leading to potential repossession. Understand the process, prevention, and financial impact.
Missing car payments can lead to severe financial repercussions, with vehicle repossession representing a significant consequence. The timeline for repossession varies based on loan agreements and state regulations. Understanding the payment default and repossession process is important for borrowers.
Understanding Payment Defaults and Grace Periods
A car loan default occurs when a borrower fails to meet the terms of their loan agreement. There is no universal number of missed payments that defines default; however, many lenders consider a loan in default when payments are 30 to 90 days past due. Each loan contract outlines the specific definition of default.
Many auto loans include a grace period, typically 10 to 15 days past the due date, during which a payment can be made without incurring late fees. This allows borrowers a short window to make a payment without it being reported as late to credit bureaus. If unpaid after the grace period, a late fee is charged.
State laws govern aspects of default and repossession, leading to variations in procedures and timelines across different states. Lenders often attempt to contact borrowers before initiating repossession, though prior notice of repossession is not always legally required. The loan contract is the primary source for understanding default terms.
The Repossession Process
Once a car loan is in default, the lender has the right to repossess the vehicle without a prior court order, known as self-help repossession. A repossession agent can take the vehicle from public or private property, provided they do so without breaching the peace, which prohibits actions like physical confrontation, threats, or breaking into a locked garage.
After repossession, lenders are required to provide specific notices to the borrower. While most states do not mandate notice before repossession, lenders must send a notice after repossession. This post-repossession notice includes information about the borrower’s right to redeem the vehicle by paying the full outstanding balance (including fees), and details about the lender’s intent to sell.
The repossessed vehicle is sold by the lender, typically via public auction or private sale, to recover the outstanding debt. Sale proceeds are applied to the loan balance, but if the sale price is less than the amount owed, the borrower may still be responsible for the difference. This remaining amount is known as a “deficiency balance.”
Steps to Prevent Repossession
Proactive communication with the lender is the most important initial step when facing difficulty making car payments. Engaging with the lender before falling behind can open avenues for solutions. Many lenders offer auto loan hardship programs to assist borrowers facing financial challenges.
Options include payment deferral or forbearance, allowing borrowers to skip payments, which are added to the end of the loan term. Loan modification is another possibility, where the lender may change loan terms, such as lowering monthly payments or extending the loan period. Refinancing, either with the current lender or a new one, could also reduce monthly payments if a borrower qualifies for a lower interest rate or a longer term.
Voluntary surrender is returning the vehicle to the lender to avoid involuntary repossession. While this action still negatively impacts credit, it may reduce repossession-related fees and provides more control. Non-profit credit counseling agencies can also provide guidance on managing debt and exploring options.
Financial and Credit Impact of Repossession
A car repossession damages a borrower’s credit score and remains on credit reports for approximately seven years from the first missed payment. This negative mark makes it difficult to obtain future credit, including car loans, mortgages, or personal loans, and may result in higher interest rates.
After the repossessed vehicle is sold, if sale proceeds do not cover the full outstanding loan balance, the borrower is responsible for the remaining “deficiency balance.” This balance includes the remaining loan amount, plus costs for repossession, storage, and sale. Lenders can pursue legal action to collect this deficiency balance.
Legal action to collect a deficiency balance can result in a court judgment. If a judgment is obtained, the lender may pursue wage garnishment or bank account levies to satisfy the debt, depending on state laws. A repossession and deficiency balance on a credit report indicates high credit risk, making it challenging to rebuild financial standing.