If you fail to make your monthly car payment, the bank, credit union, or dealership that controls your loan can take back the vehicle. Although most state laws allow creditors to repossess your property once you default on the payments, car repossession laws vary by state.
It is important to communicate with your lender as soon as you think you may miss a payment. The best way to avoid repossession is to resolve your payment issues with the lender as soon as you become aware of a problem.
We contacted various lenders and checked with government agencies, including the Consumer Financial Protection Bureau and the Federal Trade Commission, to outline the repossession process below.
What to Know Before Repossession
Who Can Repossess Your Car?
When you purchase or lease a car, your contract typically gives the lender legal rights (known as security interest) to the car in the event of missed and late payments until the lease ends or the car is paid off. In some states, not having automobile insurance coverage may also be a cause for repossession.
Your lender or creditor may be able to sell your contract to a third-party collection agency, or assignee. The laws of your state will determine whether or not the collection agency has the same repossession rights as the original lender. In general, if your state allows lenders to sell delinquent automobile contracts, the assignee will likely have the same repossession rights as the lender. This means that the restrictions and limitations, such as the “breach of peace” laws and rules related to the lender selling the vehicle, will also apply to the collection agency.
What to Do If You Can’t Make Your Car Payment
If you can’t make a car payment, can only make a partial payment, or you anticipate problems with future payments, you should contact your lender immediately. Most lenders are willing to work out payment arrangements with customers. Your lender will typically consider the reason for your late or missed payment, your payment history, and your credit score when determining how to handle the situation.
Even if your financial history is less than perfect, it is better to be transparent rather than let the situation escalate to repossession, which can negatively impact your credit.
Notice and Payment Options Before Repossession
If you miss a payment, you will likely receive a notice from your lender stating that you are in default, and you will need to make a payment by a certain date to keep the vehicle. Many states require this type of notice, and even where it is not required, most lenders prefer to give notice and give you a chance to bring your account current.
Ideally, you should contact your lender before you receive a delinquent notice. Whether or not you contact the lender early, you should respond to any notices or other communications immediately. If you contact your lender before missing a payment, it may offer several options as a solution to your late or missed payment, including:
- Deferral: The lender adds the missed payment to extend the length of the loan; our previous research details how often you can defer.
- Modification: A change to the terms of your loan to assist you in making timely payments
- Date change: Changes your monthly payment to a different due date (e.g., the 17th of the month instead of the 5th)
- Refinance: You may be able to get a new loan with a lower monthly payment or interest rate.
- Waivers: If you are upfront about payment issues, the lender may waive its usual late fees.
Depending on your state’s laws, your lender or its collection agency may send a notice before or after the repossession stating that you owe the full loan balance if you want to keep the car. If you receive this notice before your car is repossessed, you can also decide to sell your car. Keep in mind that if you do not sell your car for the same amount that you owe, you’ll still owe the full amount and may have to come up with the difference immediately to transfer the vehicle title to the new owner.
A voluntary surrender is an additional option for your vehicle if you can’t make the payments. Rather than have someone show up at your home, job, or elsewhere to take the vehicle, you can surrender it. You will still be liable for the total vehicle loan payoff amount, but you will avoid your lender’s repossession, towing, and storage fees.
If you haven’t made car payments or arranged a deal with your lender, you will likely face involuntary repossession according to your state’s specific laws. Many states require lenders or collection agencies to provide advance notice before initiating a repossession. Once you receive this notice, you will have a set period of time (typically 10 to 20 days) to bring your payments current or work out a solution with the lender before it initiates a repossession. However, keep in mind that some states do not require advance notice before sending a repossession agent.
The lender or collection agency will provide the agent with your home and work addresses and any other pertinent information. Agents cannot repossess a vehicle with someone in it, so a tow truck or driver is likely to come to your home in the middle of the night or your place of work during the day. However, the agent can repossess the vehicle at almost any time or place.
The tow service does not need your keys to take the vehicle; however, your lender may disable your remote. Once the agent finds your car, they will tow it away to a storage facility. Your lender or collection agency will add the towing and storage fees to the amount you owe.
Breach of Peace Laws
A repossession can take place on your property, but repossession may not include physical force, threats, or breaking into a garage or storage unit. If an argument or other altercation takes place, this is known legally as a breach of peace. In this event, the repossession agent will retreat and call law enforcement. If you feel that the lender/agent is in breach of peace, you can also contact law enforcement.
Obstructing a Repossession
Attempting to hide a vehicle on your property or anywhere else is illegal and will result in increased repossession fees. If you try to hide the vehicle, the agent will keep attempting to retrieve the vehicle, and fees will increase with each attempt.
Laws prohibit delinquent payors from obstructing or intentionally avoiding repossession, and you may be charged with hiding a car if you do so. You may also be served a replevin, which means you are in violation of a court order by not turning over the vehicle. At this point, the repossession agent may bring law enforcement to your home.
If you try to avoid repossession, your state’s DMV or Secretary of State will also be notified, and you will not be able to renew your driver’s license or registration until you resolve the issue. The lender or collection agency will add all repossession agent and attorney fees that it incurs as a result of the repossession to your loan total.
What to Do After Repossession
Once the lender or collection agency retains the vehicle, it may be sold or auctioned. Again, the laws vary by state, but generally, the lender must notify you of the sale of the vehicle, and any personal items that were in the vehicle must be returned to you by law. In some states, you can buy back the car after repossession. You will also need to pay repossession fees. Our related research has more information about your rights after repossession and how you can reclaim your vehicle.
Repossession Policies by Lender
Our previous research has more specific details on the repossession policies for several auto lenders, including: