It’s probably one of the worst feelings in the world. You miss a car payment and then each day you ask yourself how late can you be on a car payment before repossession.
Each day the repo man doesn’t show up feels like a brief reprieve, but you lay awake wondering if he’ll show the next day. That’s no way to live. The good news is you can keep the repo man away, but you need to act quickly.
When Does Repossession Begin?
Technically, in many states, a lender can begin the repossession process if you are just one day late with your payment. Although they are not required to, many lenders will go through a process of collecting a past due payment before calling the repo man. But each lender is different, as are the repossession laws in each state.
Each state has its own definition of when default occurs. When default does occur, most states allow for the lender to take possession of your car at any time and come on to your property without notice, as long as the repossession is “peaceful.”
It also depends on your relationship with the lender. If you have a solid history of on-time payments with the lender, you might be given the opportunity to catch up within a reasonable period of time. If, however, you have a record of late car payments, the lender may view you as a high risk for default and choose to act more quickly.
There Are No Winners With Repossession
What you do have going for you is that most lenders would prefer not to repossess cars because it rarely pays off for them. They have to pay the cost of towing and having the car rekeyed so it can be sold at auction. Lenders lose an average of $7,000 on every car they repossess.
They also would prefer to keep you in your car so you can continue to earn a living and make future payments. Still, you shouldn’t count on the kind hearts of lenders. What you need to do is take action immediately to ensure it never gets to the point of repossession. Here are some steps to take when you miss a payment (or better yet, when you know you are going to miss a payment).
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Know Your Options
Before contacting your lender, you should know your options in terms of what you can afford and how you will be able to make the payments. You are hoping the lender will work with you to get caught up, but the lender will want to know what you are capable of.
If you can afford the payment (maybe you just forgot to make it), call the lender and make immediate arrangements. Be prepared to pay a late fee. If you can’t afford to make the payment, but it is just one time, you can ask for a loan deferment, which pushes the amount owed to the end of the loan term. You may just owe the interest on the missed payment.
If you determine you can no longer afford the payments, be prepared to discuss with your lender a longer-term solution such as refinancing or trading your car in for a less expensive car.
Call Your Lender
Don’t postpone calling your lender. Lenders tend to be more responsive and accommodating when borrowers are more communicative. Explain your circumstances and ask if there are any solutions. If it is a onetime occurrence, explain how you plan to resolve it so it doesn’t happen in the future.
Lenders need to feel confident you will be able to repay the loan. By being open and honest with your lender, you have a better chance of controlling the damage.
What if You’re Too Late?
If you have waited too long to take care of a late car payment and the repo man shows up, you still have an opportunity to save your car. When your car is repossessed, it is taken to an impound lot. It is typically kept there to allow you another opportunity to bring your loan current. You can get your car back if you can bring your payments current and pay the repossession fee.
After a specified amount of time, the lender will sell the car at auction. If the car sells for less than the balance of your loan – also accounting for the repossession and auction fees – you will still be liable for the shortfall.
If the car is sold, you will have a repossession on your credit report, which will decimate your credit score and make it very difficult or very expensive to obtain an auto loan or any other type of financing in the future. It will remain on your credit report for seven years.
Your best bet for stopping the repossession nightmare is to contact your lender at the very first sign of trouble. Whatever plan you can work out with your lender is likely to be better than repossession.