The possibility of car repossession haunts many Americans who—for whatever reason–fall behind on their car payments. If you in fear of one day finding your parking spot empty, understanding the process of car repossession can help. The following information is everything you need to know about car repossession and how to avoid it.
How Many Payments Before Car Repo?
Each state has its own repossession laws, which may affect how many payments you can miss before car repo takes place. You can find your state’s repossession laws here.
While repossession laws vary from state to state, there are some common rules that apply to most situations.
Repossession When You Default On Your Loan
In most states, car repossession can take place if you default on your auto loan.
The Federal Trade Commission’s consumer guide to vehicle repossessions states that if you default on your loan, the laws of most states allow creditors to repossess your car. They can generally do so by coming onto your private property, at any time, without notice.
Default vs. Delinquency
Default: Defaulting on an auto loan means that you’ve failed to repay the loan, and the creditor is entitled (in most cases) to repossess the vehicle. Default occurs when you fail to meet the terms of your loan contract, and each loan contract is different. However, default typically happens if you miss three or more payments in a row. Missing a payment constitutes delinquency.
Delinquency: It’s important to know the difference between delinquency and default if you’re concerned about vehicle repossession. Delinquency means that you are behind on your loan payments, while default is a state declared by your creditor once you’ve been in delinquency for a period of time (for most auto loans, three months).
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Can Your Car Be Repossessed If You Miss One Payment?
If you’ve missed a payment on your auto loan, it’s not the time to panic—it is, however, time to act quickly. Car repossession can happen after one missed payment, but it’s not as common as repossessions that take place after two or three missed payments.
Missing just one payment on your auto loan can have a significant impact on your credit score, so if you’re 30 days behind on a payment, you’ll want to contact your lender right away.
If you’ve missed your auto payment because of an oversight—you forgot to pay, or your card didn’t go through—the solution is simple: call your lender, send a check, or log onto your online account right away to make the delinquent payment, as well as your upcoming payment. It may also be a good idea to enroll in autopay.
If you missed the payment because of financial difficulty, the solution isn’t so simple. Read on to find out what you can do if you can’t make your car payments.
What to Do if You Can’t Make Your Car Payments
Since you typically have about three months before you default on your loan, you have some time to create a strategy to get back on track with your payments. Most lenders would prefer to work with you to avoid default, rather than go through a repossession process. If you’re struggling to make a payment on your auto loan, you can take the following steps:
- Research your loan – If you don’t know every in and out of your car loan already, now is the time to dive into the fine print. Make sure you know every detail of your loan, including the interest rate, term, and fees. Especially important in this case are clauses about late or missed payments, as well as the default clause.
- Create a budget – After you know what you’re looking at in terms of making up the balance on your loan, create a thorough budget of your expenses. See if you can cut any unnecessary expenses to create more allowance for auto payments.
- Decide whether it’s a one-time or ongoing issue – Creating a budget will help you understand why you’re unable to make your auto payment and assess whether it’s a one-time thing or an ongoing issue.
If it’s a one-time problem (you had unexpected expenses this month, but next month will be fine), all you need to do is find enough money to make your missed payment.
If you’re unable to pay what you owe, or you know that this is going to be a continued problem, you have the following options.
For a one-time missed payment, loan deferment may be your best option. With loan deferment, your missed payment is moved to the end of the loan term. Some lenders will even waive missed payment fees or late fees if you defer.
Loan deferment can also be a good first step if you know that your auto loan payments are outside of your budget and will continue to be an issue in the future. Deferring will delay the threat of repossession due to this month’s missed payment. You can then move on to more permanent solutions to the problem.
To see if you can take advantage of this option, communicate with your lender by phone.
For longer-term issues with repayment, you may be able to refinance your auto loan. This entails trading your current loan for a different loan with new terms. By refinancing your loan with your current lender or with a different lender who offers refinancing options, you may be able to extend your loan term in order to pay less each month.
Trade In Your Car
Another long-term solution to missing your auto payments is trading in your car for a more affordable car.
Communication is Key
Whether you’ve missed one payment or multiple payments, you’ll get the best solutions and results by calling your lender.
Lenders are often more lenient with borrowers who take the initiative to reach out when there’s an issue making a payment, and they’re often willing to help you resolve the problem. Your lender may be able to recommend solutions like refinancing or deferment.
Additionally, contacting your lender directly can help you better understand if and when you’re at risk of repossession.
Your creditor or lender may still refuse to accept late payments and/or demand that you return the car. If by communicating with your lender you come to the agreement that you’ll return the car (voluntary repossession), you can avoid some of the fees associated with a vehicle repossession.
What Happens in a Car Repossession?
- The Repo Man
Lenders typically hire third-party repossession agents, or “repo men,” to locate the vehicle owner and take possession of the car. Once they locate the car, a repo agent will usually wait until it’s unattended and use a tow truck to take it away.
- 30 Days to Pay
Your car is then taken to an impound lot, where the typical holding time is 30 days. This gives you as the owner time to bring your loan payments up to date and pay the repossession fee, therefore regaining possession of your vehicle.
- Auction and Deficiency
If you don’t take the above steps within the allotted time, the lender is within their rights to sell your car at auction. They will then deduct the income they made from selling the car from the amount owed on your account and in fees. Even after your car is sold at auction, you’ll likely still owe money. This is what’s known as the “deficiency.”
Repossession by Electronic Disabling Device
When you received auto financing, you may have agreed to the installation of an electronic disabling device in your vehicle. More and more creditors are using this technique to ensure that they’re able to regain possession of vehicles that are in default.
If your car has one of these devices installed, it will prevent your car from starting if you do not make your payments on time. Depending on your contract with the lender and the laws of your state, using this device may be considered the same as a legally-valid repossession, or it could be considered a breach of the peace.
Commonly Asked Questions About Car Repossession
Can you call the police on a repo man?
It’s important to know your rights in a car repossession situation so that you can involve law enforcement when necessary. However, if you’ve missed three or more payments on your auto loan, or you’re otherwise in default, the repo man is typically allowed by law to come onto your property and repossess the car. It’s unwise—and may be illegal—to involve law enforcement unless your rights have been violated.
Is there a grace period for car payments?
Most lenders give their borrowers a period of 10 days during which payments are still considered “on time”. After those 10 days and up to 30 days, a payment is considered late, and you may be charged a late fee. After 30 days, your payment is considered a missed payment, and your loan may be in default. It’s important to read your loan documents to see what, if any, grace period your auto loan has.
Can you ask to skip a car payment?
Yes. Asking to skip a car payment is what’s known as a deferment. By deferring a payment, you move the missed payment to the end of your loan term.
How long can you be late on a car payment?
A payment that is between 10 and 30 days late is considered a “late payment” for most lenders. After 30 days, your payment is considered a “missed payment”, and your loan may go into default. After this point, you may be at risk of repossession, depending on your lender, but repossession becomes more of a risk after two or three consecutive missed payments.
Can a car be repossessed without notice?
In most states, your car can be repossessed without notice.
Can a repo company come on private property?
Although the laws vary from state to state, most states allow repo men to legally enter your private property to repossess a vehicle if your loan is in default.
How can you lower your car payment?
You can often lower your car payment by refinancing your loan. Refinancing may mean signing new loan terms with your current lender or transferring your loan to a new lender, but either way, you’ll trade a lower monthly payment for an extended term (longer period of time paying off the loan). Remember that this means you’ll pay more in interest overall. Refinancing for a longer term might also mean the car depreciates faster than your loan amount which could leave you underwater on your vehicle (owing more than its worth)
Can you get a car back after it’s been repossessed?
Yes, you can get your car back after it’s been repossessed, but typically only for a period of 30 days. During that time, your car will sit in the impound lot, giving you enough time to make the loan “whole” (pay any missed payments in addition to repossession fees). After that 30 days, your car can legally be sold at auction to help the lender earn their money back.
Know Your Rights in a Repossession
The best defense you have against car repossession is avoiding repossession in the first place. However, if you’ve already missed three or more payments or your loan is in default, you may not have time to resolve the issue in time.
If your car is at risk of being repossessed, you still have rights. According to the laws of most states, the creditor may come onto your private property, without notice, to repossess the vehicle. However, they may not commit what’s known as a “breach of the peace” (using physical force, threats of force, or even removing your car from the garage without permission) or violate your other rights. Visit the FTC website to learn more.