When you receive a loan to purchase a vehicle, you agree to make payments on time until the loan and any interest accrued has been paid off. There are laws that protect a debtor, as well as the creditor, to assure that if the contract is broken, consequences can and will occur. Repossession is one consequence the debtor may face for breaching a vehicle loan contract.
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Seizing The Vehicle
Whenever a debtor defaults on a vehicle loan, the creditor has a legal right to seize the vehicle subject to applicable state laws. The debtor has breached the contract, therefore all agreements are no longer valid. The property rights of the vehicle belong to the creditor until the debtor or owner of the vehicle has made the final payment. When payments on the vehicle are not made, the creditor does not have to go to court to legally repossess the vehicle and in some states does not have to give a warning of intent to repossess.
Reselling The Vehicle
The creditor has a legal right to resell the vehicle once it has been repossessed. The vehicle may be sold in a public or private sale at the discretion of the creditor. By law, the creditor has to tell the debtor of the plans to sell the vehicle because the debtor has a right to demand that the vehicle be sold. Most debtors who owe less than what the car is worth exercise this right, in order to pay down the debt. If the vehicle is sold at a public auction, the law requires a creditor to notify the debtor, who may attend and participate in the bidding.
Debtors are responsible for a deficiency, which is when the creditor repossesses a vehicle and sells it at a price less than what the creditor owes. The creditor may sue the debtor for the remaining debt. If the vehicle has £2,600 left on the loan, and the creditor sells the vehicle for £1,625, the debtor still owes the creditor £975. Some states have consumer protection laws that prohibit a creditor from collecting on a deficiency.
Consulting With the Creditor
If unable to make a payment or if a payment is late, the debtor may consult with the creditor, who does not have to agree to accept a late payment. This is a voluntary repossession whereby the creditor will not have to spend as much in fees and expenses by seeking the vehicle than by repossessing it. The owner of the vehicle will voluntarily return the vehicle and if an agreement is reached, the creditor must honour the agreement provided that the contract is in writing.
When a car has been repossessed, the debtor may redeem the car by paying the remaining balance in full. The creditor also is entitled to be paid any fees and expenses that were reasonably caused by the repossession. To get the car back, the debtor must take action before the creditor has sold the vehicle or signed an agreement to do so. Most creditors refuse to accept payment arrangements after repossession because they do not want to take any more chances with a debtor who defaulted on the payments. However, some creditors may take this chance.
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