You love your vehicle, but life happens and missed payments happen right along with it. While one missed payment may not result in repossession, it certainly puts you on the path. Repossession differs between lenders, but the process and timeline often look very similar.
When you miss a car payment or even know you may miss one, it’s best to act fast. By quickly contacting your lender, you appear more reliable and willing to remedy the situation. How much time do you have until a missed payment turns into a repossession? Unfortunately, not much.
Each lender has his or her own timeline for repossession and recovery of an unpaid vehicle loan. While the average is between 60 to 90 days since your last on-time payment, your lender can repossess your car as soon as you default on the loan. Therefore, if you haven’t made loan payments in several months, your loan is likely in default and in the process of repossession. Let’s look at missing car payments, from repossession to financial impact, and what to do if you find yourself in this situation.
How do car payments work?
Car payments are the result of a legally binding contract between you and the lender. In this contract, you agree to make monthly payments, including a set interest rate, to the lender. This continues until you pay for the vehicle and the interest incurred. The terms of a loan schedule vary from 36, 60, 72, or 84 months.
In reality, the lender is “lending” the vehicle to you until you repay the full loan amount, in which case you then own the vehicle outright.
How does repossession work?
Though the specifics of repossession may change depending on the property and lender, the process of a repo looks like this in most cases:
- The borrower falls behind on payments.
- The lender, in most cases, sends out a warning of repossession to the borrower.
- If the loan isn’t returned to good standing within a predetermined time, the loan is labelled “in default.”
- The lender then has the right to repossess, usually through seizure and towing or electronically disabling the vehicle.
What is repossession?
How many car payments can you miss before repossession?
The maximum number of missed payments before repossession depends on the leniency of your lender. However, they have the right to repossess immediately after your first missed payment, though many allow a 60- to 90-day grace period.
You may be able to prevent repossession if you play your cards right. For example:
- Call your lender and see if they offer loan deferment. This allows you to skip a month and tack that missed payment onto the end of the loan period. Not only will this give you some breathing room, but this also keeps you in good financial standing with your lender and credit report.
- Refinance your car loan. If you can’t afford your payments, refinancing could allow you to lower your interest and your monthly payments.
What do I do after repossession?
If none of the above works out and your lender repossesses your vehicle, there are some best practices to avoid making a bad situation worse. Here’s the order of events:
- Call your lender. Speak with your lender regarding the repossession to determine what steps you can take to reclaim your car.
- Remove your property. If you didn’t have the chance when the repo occurred, ask where your vehicle is so you can retrieve your personal property.
- Make a financial plan. Repossession indicates you may not be in the best financial condition to get it back right away. To get back on track, make a budget and see where your financials stand.
What happens to my credit after repossession?
Your credit score is a financial record that shows payment history, outstanding debt, and debt-to-income ratio. It’s also a way for creditors to identify you as a credit-worthy applicant for financial decisions like loans, credit cards, vehicles, and homes.
Car repossession is, unfortunately, an unsavory factor to have on anyone’s credit. Your credit report will show this as a derogatory mark, and it usually remains there for up to seven years. This includes the late and missed payments that occurred before the car repossession. For each late or missed payment, your credit score decreases and your credit report notes this negative change.
What can I do to recover from a repossession?
As unsettling as it feels, dealing with the problem head-on is the best way to recuperate from a repossession. Best practices might include:
- Finding new ways to make extra income (like selling unnecessary items),
- Creating and sticking to a strict household budget,
- Consolidating your debt into a lower set payment,
- Asking your lenders for leniency and a better payment plan, or
- As a last resort, asking family for help.
Reducing repossession risk
The best way to avoid any type of car repossession is to acknowledge the risk. Ideally, this prevents you from ever ending up in the position. Take a thoughtful approach to spending and know your limits before getting in over your head. This means:
- Having a set budget and sticking to it
- Paying cash instead of using credit if you have an issue overspending
- Buying used instead of new when you’re able
- Focusing on paying down debt and eliminating it altogether
- Shopping around to find the best deals before making a big purchase
How does repossession differ between leases and auto loans?
You also have the option of leasing your car instead of buying it. Whereas buying requires you to repay the entire loan, leasing works differently.
Leasing allows you to have a vehicle for a set amount of time, usually 24- to 60-month terms. During this time you pay a set rate, often lower than a traditional car payment, until the term ends. At this point, you return the vehicle or renew the lease. If for some reason you can’t afford to make lease payments, you can return the vehicle and only pay early termination fees. This does not result in any credit penalties or derogatory marks on your financial history.
What happens if I can’t make a payment due to unforeseen circumstances?
Many lending institutions offer additional assistance to borrowers in need who haven’t made the required repayments. These usually occur after natural disasters.
During the recent Coronavirus outbreak, many lenders provided credit cards to anyone who requested one. If you reach out to your lender following an unforeseen circumstance or natural disaster, it’s possible they can implement a deferment schedule that will accommodate your setback.
What are my rights regarding repossession?
It’s important to acknowledge your rights still apply, even during a repossession. However, your lender also possesses rights to reclaiming the vehicle or property. For instance, they have the right to:
Both the borrower and lender have rights regarding repossession.
- Recover your personal belongings from the vehicle
- Lender cannot use threats or physical force
- Lender cannot break into your private property or locked facility to retrieve the vehicle
- Repossess without a court order
- Repossess without a prior warning
- Come onto your property to repossess vehicle
While your lender cannot break into a locked garage or storage unit, this isn’t your best course of action. Creditors can charge you for any additional costs of repossessing your vehicle or pursue legal action if you refuse to release the car.
How many months do you have to be behind on a car payment before repossession?
The lender can legally repossess your vehicle as soon as you default on your auto loan. This can be from a few days to a few months depending on the debt collectors.
Do you get notified before repossession?
Some states require notice before repossession, but not all states have this requirement. Check with your state to know your rights and what notification, if any, is required before repossession.
What happens if your car is repossessed twice?
Lenders may reinstate your auto loan, but they aren’t under any obligation to. Since each repossession shows up on your credit report and damages your credit score, you may have a difficult time receiving a loan until you repair your credit.
How long can you go without making a car payment?
Most lenders grant deferment multiple times during the loan. However, missing car loan payments entirely can result in repossession after the first missed payment.
- If your car is repossessed contact your lender as soon as possible.
- Understand the repossession process and how it affects your credit report.
- Take your loan term and loan contract into consideration prior.
- Voluntary repossession cab prevent the anxiety of a car repo and avoid additional repossession fees.
View Article Sources
- How Long Does a Repo Stay on Your Credit? — SuperMoney
- Some Credit Cards Allow Repossession – Even During Bankruptcy — SuperMoney
- Classic Car Loans — SuperMoney
- Can You Buy a Car With a Debit Card? — SuperMoney
- Vehicle Repossession — Federal Trade Commission