How does the auto repossession process work?

Written by rose kivi
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How does the auto repossession process work?
Lenders hire repo companies to repossess vehicles. (an old car image by Andrzej Siewruk from Fotolia.com)

A financed vehicle loan that is in default (late on a payment) can lead to an auto repossession. The loan contract dictates when the loan is considered to be in default. Some loan companies provide for a grace period in the contract and some do not. Once the loan is in default, the lender can have the financed vehicle repossessed. Even if the borrower has defaulted only on the last payment due on the loan, the lender can still repossess.

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Late Payments Lead to Repossession

A financed vehicle loan that is in default (late on a payment) can lead to an auto repossession. The loan contract dictates when the loan is considered to be in default. Some loan companies provide for a grace period in the contract and some do not. Once the loan is in default, the lender can have the financed vehicle repossessed. Even if the borrower has defaulted only on the last payment due on the loan, the lender can still repossess.

Before Repossession

When an auto loan payment is in arrears, the lender usually sends a late payment notice to remind the borrower of the due payment. If the borrower still does not make the payment, the lender may send the borrower a notice of intent to repossess the financed vehicle. Depending on the contract and state law, the lender might not send either a late notice or a repossession notice. Usually lenders do, though, as a courtesy to the borrower.

Repossession

If the borrower does not bring the loan out of default, the lender hires a repo company to repossess the vehicle. Some loan companies have their own employees repossess vehicles. The repo person usually watches for the vehicle at the borrower's known work and home addresses to look for an opportunity to take the vehicle. The repo person tries to quickly take the vehicle when no one is looking to avoid confrontation. The repo person notifies the police department that he has taken the vehicle in case the borrower mistakenly thinks the vehicle was stolen.

After Repossession

Once the vehicle has been repossessed, the borrower is given the opportunity to pick up any personal items left in the vehicle. The borrower will be sent a bill, itemising the amount due on the loan and repossession fees. The borrower can pay the full balance of all the money owed to get the vehicle back. If the borrower does not pay to get the vehicle back, the lender sells the vehicle at an auction. The money obtained through the sale at the auction gets deducted from the money owed by the borrower. The borrower is responsible for paying the remaining balance. If the borrower does not pay the remaining balance, the lender can take further collection actions, which include obtaining a judgment in court and garnishing wages.

Helpful Advice

  • An automobile repossession results is a negative report on the borrower's credit file and can make it hard to obtain future loans. It always best to avoid a repossession by talking to the lender if payments cannot be made on time. Often lenders will work with borrowers to make payment arrangements.

  • A borrower can voluntarily give back the vehicle. This is called a voluntary repossession. A voluntary repo still leaves the borrower responsible for the money owed on the remainder of the loan, and it still negatively affects the credit report. The only positive with a voluntary repo is that it saves the additional expenses associated with the involuntary repossession process.

  • A repo person cannot threaten a person with false threats of criminal action or physical violence to gain access to the vehicle.

  • A repo person cannot physically break into a building or garage to gain access to the vehicle.

  • By law, the borrower must be given access to any personal belongings contained in a repossessed vehicle. The time frame that the belongings must be held for the borrower varies by state.

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