Posted on: Aug. 28, 2017 in Car Loans

You may have heard about repossession of a vehicle, but do you really know what it means?


When you sign a contract on an auto loan, in most states there are conditions where the lender can take back, or repossess, the car. The most common reason for repossession is being behind on payments, though some states allow lenders to repossess a car if you do not have adequate insurance on it. Once you’ve paid off the loan, the creditor has no rights to the vehicle.

Each state has its own laws around repossession, so if you’re concerned you should research the laws in your state. However, be aware that some states allow your creditor to seize your car immediately have you default – so even being late with one payment could result in repossession. Regardless of what can trigger repossession, once you’ve passed that threshold most states allow the creditor to take your car at any time. They don’t need to notify you and they may come onto your property to take the vehicle.

Once the car is repossessed, this does not end your obligation to pay off the debt. A creditor may sell the car and that money may be used to offset the amount you owe. They also may charge you expenses associated with the repossession or, in the case of a leased vehicle repossession, you may be responsible for the early contract termination fee.

If you’re concerned your car may be repossessed, the best thing you can do is talk to your creditor before it happens, as resolving disputes after the fact can be difficult. Also, you may be able to negotiate with the lender to avoid repossession. If the lender will not accept your late payments or allow for other arrangements, they may suggest you return the car. This is known as a voluntary repossession. You will likely end up paying less in fees, however, you’ll still be responsible for the remainder of the loan.

The Federal Trade Commission (FTC), a government agency that helps protect consumers and their rights, offers detailed information about repossession on its website.

Obviously, paying off your auto loan is your best option, but if you’re in danger of having your car repossessed, understanding your rights is crucial.

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