Is car repossession bad? Yes, it is because it affects a buyer in a couple of ways. The obvious effect is an inconvenience because you know how public transport can get cumbersome. Lacking a car is bad in this day and age, because, how will you get to school or work on time?
In addition to losing your treasured personal means of transport, repossession also leaves a huge dent on your credit score. A poor credit rating makes it harder to obtain affordable loans and mortgages. Since prevention is always better than cure, this post will enable you to avoid this misfortune by enlightening you on how car repossession works.
1. Three Mistakes that lead to auto repossession
1. Assuming that there’s a grace period for car monthly payments
The payment date printed in your auto loan application note is fixed. Just because your creditor allowed you to make payments, a day after the deadline doesn’t indicate the presence of a grace period. Sometimes credit lenders allow this because your employer might delay your check by a couple of days.
A bank or credit union will repossess your car if they notice a pattern of late payments. Why? Because this pattern is a credible indicator of default. So, rather than wait for the worst, your creditor takes the car to avoid your outstanding balance from turning into a bad debt.
2. When the vehicle gets impounded for too long
Car dealerships usually install GPS tracking systems on loan cars for safety and repossession purposes. One reason why cars get impounded is due to an active mechanic’s lien. It’s a court document that allows an unpaid mechanic to hold on to a customer’s car until he or she clears her outstanding bill.
When your bank notices that your car has spent more than a week at a car impound lot or mechanic’s shop, you’ll receive a phone call to explain why this is happening. If you owe a lot of money, the bank repossesses the car until you sort out your liens. Why? Because the mechanic might steal some vital engine components and make the car fetch a bad resale price.
3. Lacking the right insurance cover
As long as you’re receiving credit financing, your lender expects you to get a comprehensive auto insurance cover. Lenders do this to ensure you retain the car in excellent condition so that in case you default, the car will have a decent resale price. Alternatively, you can sign up for dealership-sourced insurance although it’s quite expensive.
If you apply for a third-party cover instead of a comprehensive plan, the lender will repossess the car because you breached the conditions attached to your credit financing. You can also lose the car if you’ve stayed more than 30 days with an expired cover.
2. Three Steps credit lenders take when repossessing a car.
1. Contact the customer in advance
It’s important to remember that car dealerships and credit lenders hate doing repossessions. The main aim of providing credit financing is to generate profits from the interest car buyers pay in their installments. Plus, they also want to establish a good relationship that will increase their number of recurrent customers.
Your credit lender will contact you to find out about your plans to clear your pending late car payments and accumulated fines. They do this about a month before the next payment so that you have ample time to pool enough money together.
2. Hire the services of a debt recollection agency
What happens when a credit lender gets no response from a customer for more than a week of unanswered phone calls? The institution hires the services of a debt recollection agency. Unlike debt collectors, recollection agencies don’t bother to communicate with loan defaulters in advance.
The debt recollection agency will use your dealership’s GPS tracking system to monitor your daily routes. Why? Because they can only repossess your car when it’s parked in an open space. Once you lock it inside your home garage, the recollection agency will need a court order to repossess the car using force.
3. The dealership sells the car
After the seller obtains the car, you’ll see it later at an auction. The car dealership cannot sell it as a used car because your bank isn’t yet done with you. Truth is, car auctions have really bad prices. In most cases, there’s a deficit between the car’s outstanding balance and resale price.
If your outstanding balance was $18,0000 but the car sold for $12,000, then you have a deficit of $6,000. The bank or credit lender will also charge debt recollection fees and any costs directly associated with repossession such as towing and storage.
3. What should I do when my car gets repossessed?
1. Try to raise the outstanding balance as soon as possible
If you obtained your auto loan from a good credit lender, then you might have a fighting chance of regaining your motor vehicle. Some banks will hold on to the car and give you a deadline of when you should clear your debts. This is ideal for buyers who bought brand new cars that are less than two years old. Why? Because the car is still in excellent condition and can fetch a good trade-in value.
If you’re planning to redeem your car, make sure you call the dealership immediately your car gets towed away by the debt recollection agency. Any delays in communication will mean that you’re no longer interested in that car.
2. Apply for Chapter 13 Bankruptcy
In some cases, the dealer can return the repossessed car if a buyer shows up with a significant amount of the balance. However, this isn’t guaranteed and usually involves a lot of negotiations. However, if you still have a stable source of income that can allow you to make lower car monthly payments, then you should file for Chapter 13 bankruptcy.
What is Chapter 13 bankruptcy? It allows a credit defaulter to hold onto important assets as long as they prove to have the financial ability to make monthly payments consistently. Doing this enables you to regain your car and get really low car monthly installments over a new repayment period.
3. Confirm whether the lender received all monthly payments
Some car dealerships do repossessions when a customer has skipped two consecutive payments. This is common in car dealership financing since they involve buyers with subprime and poor credit scores. Due to the high risk of default, these credit lenders swiftly implement repossession to avoid bad debts.
If you recently switched banks, you need to confirm whether your standing orders are active. Why is doing this necessary? Because the reason why your dealership is complaining about skipped payments could be that, your application for standing orders didn’t get through the right channels.
4. Reinstate the loan
One common reason why people fall behind in car payments is a loss of income. If you lost your car due to a couple of skipped payments but now have a better stable job, you’ll need a lump sum payment to regain your car. First, approach your bank or car dealership to explain your new financial situation. If your creditor feels convinced, you’ll get your car back and resume the previous repayment plan.
5. Pay the deficiency on time
Earlier on, you learned that a deficiency can arise when the resale value of the repossessed car is below your outstanding auto loan balance. If you’re not interested in reinstating your credit financing, the dealer will sell the car. However, selling the car doesn’t free you from your car financing contract. Why? Because the car was just a collateral for the loan. Your creditor still expects interest payments and accrued fines.
What happens when you can’t pay the deficit on time? Your creditor can obtain a court order to garnish 25% of your monthly gross income.
4. My car was wrongfully repossessed. What do I do?
1. Download copies of your bank statement since obtaining the auto loan
Skipping car payments usually leads to car repossession. However, not all missed payments are intentional. Errors can occur when you recently switched banks and applied for new standing orders. That means the money didn’t reach the credit lender due to errors in processing payment from one bank account to another.
On the other hand, if you haven’t moved to a new bank but the credit lender claims skipped payments, then it’s their fault. In this situation, you need to prove that you made all payments on time and consistently. Make sure you download your bank statements since obtaining the auto loan to prove that your credit lender received payments throughout.
2. Go through the terms and conditions that define late payment
Bad credit auto loans and car dealership financing have strict rules against late monthly payments. That’s because their customers have a high risk of defaulting due to poor credit ratings. However, errors made in the accounts department of your credit lender can fix you as a buyer who doesn’t pay installments on time.
After downloading your bank statements, get the car financing note and pay attention to the guidelines on late payment. Check the dates when you made each car monthly payment to see whether you missed the defined deadline. If your payments were timely, raise this issue with your bank.
3. Produce letters of insurance
Earlier on, we talked about how getting the wrong type of insurance can lead to car repossession. However, there are a couple of insurance-related issues that could lead to wrongful repossession. If you switched jobs and your monthly checks haven’t been processed correctly, your insurance company won’t receive your payments. This leads to a cancellation of your coverage and annoys your credit lender.
Since no man is an island, you may meet a colleague or relative who tells you about their really affordable auto insurance plan. It’s so convincing that you switch to the more affordable insurance provider. If you didn’t inform your credit lender about the move, then they’ll repossess your car because your cover with the previous insurance company is no longer active.
4. Tell your credit lender to remove the repossession from your credit history
What’s next after confirming that you paid your car payments on time and the status of your auto insurance? Restoring your credit score. A repossession can remain visible in your credit history report for at least five years. Plus, your credit score declines to the subprime or poor range and this directly affects your likelihood of getting good auto loans in future.
Make sure you tell your credit lender to report their error to the main credit reference bureaus. You’ll need to visit the accounts department frequently to follow up on this matter.
5. Hire an attorney
Despite following all the steps explained above, your credit lender might refuse to return the car. Rather than spend all most of your time haranguing the bank’s credit department staff, just hire a qualified attorney to take over. Your attorney has the power to order the credit lender to produce the sale letter and financial records detailing your payments since obtaining the auto loan.
The attorney will also use their power to prevent the credit lender from bothering you with numerous phone calls and text messages. He or she will also find out whether the credit lender responded to your communication when you presented bank statements to prove that you’ve made payments on time.
Doing this will save your time and help you focus on your job.
5. How to avoid car repossession
1. Always make your car monthly payments on time
If you tend to delay making your car monthly payments frequently, change this habit by applying for standing orders. Doing this ensures that your credit lender receives their payments on time even when you’re sick or outside the country. If you’re self-employed, standing orders might not really help you because your income flows in several dates. So, consider downloading a personal financial expenses app on your smartphone or tablet to remind you of your car payment dates.
2. Follow up your payments with phone calls
Sometimes accountants make errors when processing payments. For instance, your standing orders say that the bank should pay your credit lender on the 5th of each month but a mistake in processing pushes the date to the 7th. It’s advisable to call your credit lender after the monthly payment gets deducted from your account to confirm whether it went through or failed.
3. Get the right insurance cover
Always have a valid comprehensive insurance cover to avoid violating your auto loan’s terms and conditions. If you switch to a more affordable insurance provider, notify your bank so that they can keep track of your new plan.
- Car Loans for Low Income Earners and Bad Credit
- Getting Bankruptcy Car Loans
- First Time Car Buyer Program
- Car Dealer in House Financing
- How to Get Car Loans for People with Bad Credit Fast & Secure
- Negative Equity Car Loan
If you anticipate serious financial challenges ahead, approach your credit lender and explain your situation. Some credit lenders can allow you to make partial payments until your financial situation improves. Alternatively, you can seek permission to sell your car because it will fetch a better price than at an auction.
Selling the car by yourself is a wise move because it neither affects your credit history or ratings. Plus, you avoid getting tied up to deficiencies after selling the car.