Repossession is the act of a lender claiming property that was pledged as collateral for a loan that has been defaulted on. Although repossession can refer to any collateral, in the finance world it typically refers to an automobile. Many consumers are unaware of how quickly repossession can occur.
Many creditors will send a late notice within 10 days of missing an automobile payment. If no payment or contact is received the lender will typically send a Notice of Right to Cure, which acts as a final notice to come clean with the lender or face repossession. These steps are typical of many automobile loans, and they may be written right into the loan contract. However, if these steps are not within the loan contract, creditors have no legal requirement to wait. Unless your contract states otherwise, creditors can repossess your car if you are one day late on a payment.
If you are having trouble making your car payment, make sure that you contact your lender immediately. Many better known banks that issue loans would rather work with you to bring the loan current and keep you as a customer. Debtors that are at the highest risk of rapid repossession are those who hold high interest loans. Many of these consumers have poor credit and have agreed to a high interest loan with a long term for repayment. As a result they may owe more than double what the car is actually worth.
The only way to determine what your lender plans to do upon a missed payment is to contact them and attempt to negotiate a workout agreement. If you can get something in writing that allows you to catch up on the loan, it can postpone repossession. If you cannot afford the car, make preparations to sell the vehicle immediately. It can help you avoid the negative credit impact of repossession and the fees incurred as a result of repossession.
Repossession results in numerous additional charges, which can include towing and storage fees, repossession fees and auction expenses. These can easily add hundreds to the deficient loan balance. If you do come up with enough money to buy your car back, you will still have to pay the fees incurred as a result of repossession. Therefore, it is best to avoid repossession whenever possible.
Voluntary Repossession
Voluntary repossession is an acknowledgement that you cannot afford the vehicle, and you are returning the vehicle to cure the default. This can prevent many additional charges and may save some embarrassment associated with repossession. This is an attractive option for some, as the “Repo Man” often will seek to repossess your automobile at home, work or some other place you are known to frequent. However, voluntary repossession will almost always still appear on your credit report as a standard repossession.
Avoiding repossession is the most important step that you can take. If you are late on your home and automobile, it is actually more important in most cases to get your vehicle loan caught up first. It can be repossessed much more quickly than your home. However, your home is a close second, and you should do everything within your power to avoid foreclosure. Failure to keep all of your payments current may be a sign of greater financial distress. Accumulation of numerous debts can make repayment more difficult. If you are facing a money crunch and are trying to make ends meet, consider meeting with a credit counselor who can examine your entire financial situation. They will provide advice and can help you develop a plan to deal with repossession, help you with budgeting or even to eliminate credit card debt. The most important thing is that you preserve your assets and your credit rating while getting through difficult times.
See also: How Long do Repossessions Remain on my Credit Report?
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