Owning a car can be quite a luxury, but it can also take a nice chunk of your paycheck each month. According to Experian, the average monthly payment is $554 for a new car and $391 for a used car. If you have other major financial obligations, like a mortgage or student loans, you may be struggling to stay on top of your car payments.
What is car repossession?
Auto loans that become delinquent run the risk of ruining your credit and having your car repossessed. Here’s what you need to know about the car repossession process and your options.
Car repossession process
By taking out an auto loan, you signed a legal agreement to make the required payments on-time each month. If you don’t hold up your end of the bargain, your lender can repossess your car and then sell it at an auction. They can take back your car whether you’re at home, at work, or just about anywhere else you might travel to.
The laws governing repossessed cars vary by state. In some states, lenders aren’t even required to give you notice of their intent to repo your car. So, you could walk outside and find an empty parking space instead of your car. Talk about a shock!
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How to get your repossessed car back
The car repossession process can be both scary and emotionally overwhelming. Here’s what you need to do to face your situation head-on.
1. Speak with your lender
Don’t hide from the problem. Contact your lender immediately and determine why your car was repossessed. There may be a different explanation than missing your payments. Cars can be repossessed for not having adequate insurance or because of an administrative error on their end.
A quick phone call can give you clarity on the situation and provide you with options to resolve the issue.
2. Evaluate your finances
If you missed payments, you’ll need to review your finances before jumping through hoops to get your car back. Look at your budget and decide whether you can realistically afford to continue carrying a car payment and other car expenses, like gas and insurance.
3. Know your rights
You may be in an emotional state after having your car repossessed, but it’s important you remember that you still have rights in this difficult time. Here are some examples of common issues you may run into during the car repossession process.
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Repo workers have limitations: They may be able to come on your property to repo your car, but they can’t cause any type of damage in the process.
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Lenders must return your property: If you had any personal belongings in your car, your lender is required to return it to you. Although they can sell the car, they can’t sell your possessions.
If you think your rights may have been violated, contact a lawyer and your lender immediately.
4. Discuss your options
You have a few paths to choose from once your car has been repossessed.
Pay off your loan. The most straightforward way to get your car back is to pay off the loan in full. While this may not be an option for most, consider asking a friend or family member for help paying off your balance. Then make a clear arrangement to pay them back over time.
Agree on a payment plan. Your lender may be willing to set up a new payment plan if you can catch up on your missed payments and prove that you can meet your monthly obligation going forward.
Let the car go. Sometimes it’s best to just walk away if your finances are already strained. Lenders send repossessed cars to auction to help cover part of the cost.
Keep in mind you may still owe your lender additional money after it is sold. For example, let’s say your lender was able to sell your car at auction for $10,000, but your loan balance is $15,000. You’ll still be on the hook for coming up with the remaining $5,000.
File bankruptcy before the car goes to auction. Although this isn’t recommended, you can file for bankruptcy which will temporarily prevent the sale of your car. This can give you time to find the money to pay off your loan.
However, proceed with caution — this option shouldn’t be used if a repossessed car is the only reason for filing bankruptcy. Bankruptcy has long-term financial implications and adversely affects your credit.
How to fix credit after a car repossession
Having your car repossessed is a traumatic experience, but you need to treat it as a learning experience and begin improving your finances.
Start by determining how you can cut expenses in all areas of your life, including auto-related expenses. Driving a fancy, expensive car isn’t worth tanking your finances. Opt for a less expensive car or an alternative method of transportation — like carpooling to work and taking public transportation.
Your credit will likely take a significant hit too. Your delinquent loan may be sent to collections that can stay on your credit report for seven years. It’s important you take steps to repair the damage. Pay your remaining bills on-time consistently and only begin taking on new lines of credit when you can safely afford them.
If you’re struggling to pay other bills, you need to reach out for help immediately. Talk with your creditors to set up alternative payment plans and figure out ways to bring boost your income through a side gig or by changing jobs.
