Repossession
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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