How Many Payments Can You Miss Before Your Car Is Repossessed?

When a vehicle is purchased with a loan, the car itself serves as collateral. This means the lender has a secured interest in the vehicle until the loan is fully repaid. Should a borrower fail to meet payment terms, the lender retains rights, including the ability to repossess the vehicle.

Understanding Loan Default and Repossession

There is no fixed number of missed payments that universally triggers car repossession; the precise threshold is defined by the individual loan agreement. A loan enters default when a borrower fails to make a payment according to the contract’s terms. While some agreements consider a loan in default after just one missed payment, lenders commonly wait until a payment is 30 to 90 days past due before formally declaring default.

Many auto loan agreements include a grace period, often 10 to 15 days, allowing borrowers to make a payment without incurring late fees. A grace period does not prevent the loan from technically being in default; it simply delays late charges and credit reporting. Late fees are typically applied after this period expires.

The decision to repossess a vehicle after default rests with the lender’s discretion and is influenced by state laws. Some states require lenders to issue a “Notice of Intent to Repossess” before taking the vehicle, while others permit repossession without prior warning. Reviewing your car loan agreement is important, as it details what constitutes default and the lender’s rights.

The Repossession Process

Once a lender decides to proceed with repossession, they typically hire third-party agents to retrieve the vehicle. These agents commonly tow the car from public areas or private property. Repossession can occur without prior notification to the borrower, depending on state laws and the loan agreement.

Repossession agents are prohibited from “breach of peace.” This means agents cannot use physical force, threats, or actions that could provoke a disturbance, such as breaking into a locked garage without permission. If an agent violates this rule, the repossession may be deemed unlawful. Should a borrower verbally object to the repossession, the agent must typically cease efforts to avoid a breach of peace.

Any personal belongings found inside the repossessed vehicle are the property of the borrower, not the lender. Repossession companies are required to return these items. Borrowers should contact the repossession company promptly to arrange retrieval of their personal property, as some facilities may have time limits for claiming items.

After Your Car is Repossessed

After a vehicle is repossessed, the lender is generally required to send a “Notice of Sale” to the borrower. This notice details the lender’s intent to sell the vehicle, typically at a public auction or private sale, and must be sent at least 10 days before the sale date. The notice also informs the borrower of their “right of redemption,” which allows them to reclaim the vehicle.

To exercise this right, the borrower must pay the full outstanding loan balance, along with any accrued interest, late fees, and costs associated with the repossession and storage. This payment must be made before the vehicle is sold. If the vehicle sells for more than the outstanding debt and associated fees, the borrower is entitled to receive the surplus funds, though this is less common.

More frequently, the sale price does not cover the entire outstanding loan balance plus repossession costs. In such cases, the borrower may still owe a “deficiency balance” to the lender. This remaining debt can be substantial, as it includes the difference between the sale price and the total amount owed, plus administrative fees. A repossession, and any resulting deficiency balance, will be reported to credit bureaus and can harm a borrower’s credit score, often remaining on credit reports for up to seven years.

Steps to Take Before Repossession

If you anticipate difficulty making car payments, proactive communication with your lender is advisable. Lenders often prefer to work with borrowers to avoid repossession, as it can be a costly process for them. Contacting your lender early demonstrates a willingness to resolve the situation and may open potential solutions.

Lenders may offer several options to help borrowers avoid repossession. These can include a payment deferral or forbearance, which allows for a temporary postponement of payments, though interest may continue to accrue. A loan modification is another option, where the lender agrees to change the original loan terms, potentially lowering the monthly payment, adjusting the interest rate, or extending the loan term.

Refinancing the car loan with the current lender or a different financial institution could also be an option, potentially securing a lower interest rate or a more manageable monthly payment. As a last resort, a voluntary surrender involves returning the vehicle to the lender yourself. While this still negatively impacts your credit and may result in a deficiency balance, it can help avoid some fees associated with an involuntary repossession and demonstrates cooperation.