When Do Lenders Repossess Your Car?
Get a clear understanding of auto loan default consequences, including when lenders can repossess your car and what happens next.
Car repossession is a legal action a lender takes to reclaim a vehicle when a borrower fails to meet the terms of their auto loan agreement. This process allows the lender to recover the outstanding debt on a secured loan, where the car itself serves as collateral.
Conditions for Repossession
Repossession typically occurs when a borrower defaults on their auto loan, meaning they have breached the terms outlined in the loan agreement. The most common trigger for default is missed payments. While a single missed payment can put a loan into default, lenders typically wait until a borrower is 30 to 90 days past due before initiating repossession.
Beyond missed payments, other contractual breaches can also lead to repossession. These might include failing to maintain the required vehicle insurance coverage. Unauthorized transfer of the vehicle’s ownership, moving the vehicle out of state without notifying the lender, or making significant unauthorized modifications to the car can also violate loan terms.
The Repossession Process
Once a loan is in default, the lender can proceed with repossessing the vehicle. In many states, lenders are not legally required to provide prior notice before repossessing a car. However, some state laws may mandate a notice after the repossession has occurred, detailing how the borrower can reclaim the vehicle or what will happen next.
Repossession agents, working on behalf of the lender, can typically take the car from public or private property, such as a driveway, street, or parking lot, at any time. They are generally prohibited from breaching the peace during the repossession, meaning they cannot use physical force, threats, or break into a locked garage or gate to retrieve the vehicle. If a vehicle is repossessed with personal belongings inside, the repossession company cannot keep or sell these items.
The repossession agency is usually required to provide an inventory of these belongings and inform the borrower how to retrieve them. It is advisable for borrowers to contact the lender or repossession company promptly to arrange for the collection of their personal property, as some states may have time limits for doing so.
Post-Repossession Actions
After a vehicle has been repossessed, the lender typically has the right to sell it to recover the outstanding loan balance. This sale must be conducted in a commercially reasonable manner, meaning the method, time, place, and terms of the sale should align with accepted commercial practices to obtain a fair price for the vehicle. Lenders must generally notify the borrower of the sale, including the date, time, and location if it’s a public auction, or the earliest date of a private sale.
Borrowers generally have a right to redeem the vehicle before it is sold. Redemption involves paying the entire outstanding loan balance, along with any accrued interest, repossession costs, storage fees, and other charges. This option can be expensive, as it requires paying the full amount owed, not just the past-due payments.
In some states, borrowers may also have the right to reinstate the loan. Reinstatement allows the borrower to get the vehicle back by paying only the past-due payments, late fees, and repossession expenses, bringing the loan current. This right is not universally available and depends on state laws or specific clauses within the loan agreement.
If the sale proceeds do not cover the full loan balance and associated fees, the borrower may still be liable for the remaining amount, known as a deficiency balance. Conversely, if the sale yields more than the amount owed, the borrower is entitled to receive the surplus.