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Repossession is your lender’s power to seize your car if you’re late on your car payments. Repossession is legal when your car is leased or financed since the lender technically owns the car until it’s paid off. Defaulting on your car loan can affect your finances, but you can explore options to recover from this situation.
In most states, once the car loan is in default, the lender is free to repossess the car at any time. But your lender has to give you a reasonable time to get out of default before they sell your car. This is called the right to cure.
Generally, you have 30 days to act, but the specifics blur between states. California law considers 15 days’ notice reasonable, while other states only offer 10 days.
If you don’t pay or surrender your car, the lender enlists a third-party company to retrieve it, like a towing service that specializes in repossessions. The third party doesn’t need a court order to repossess your car.
Once your car is seized, your lender sells or auctions it for a fair market price. Depending on where you live, you may get a post-repossession notice showing the date and time of sale. After that, you must pay the balance due on the loan even in a voluntary repossession.
If your car sells for less than you owe, your lender may sue you for the difference plus any fees related to repossessing the car. This is called the deficiency. If it sells for more than you owe, you may get to pocket the difference.
Legally, repo agents can take back the car as long as they don’t breach the peace. This means they can’t threaten you, use physical force, disturb your neighbors or break into a closed garage. But remember, the car isn’t your property — it’s your lender’s.
The repossession agent can:
If you lease or finance your car, it isn’t technically yours until you pay it off — it’s your lender’s property. The laws vary by state, but your lender holds the right to repossess your car when you:
If your car insurance lapses and you have a car loan, you may be forced to get force-placed car insurance. Your lender purchases car insurance for you if you’re uninsured, typically at a more expensive cost for less protection. This insurance is also called force-placed, lender-placed or collateral protection insurance.
The best way to avoid force-placed insurance is by staying insured or getting reinsured quickly if you do have an accidental lapse in coverage.
If your car was repossessed or you received a warning, communicate with your lender. Be polite and ask for assistance, rather than demanding your car back. You can take a few different paths after a repossession:
Should you reclaim your car?
Before you consider these options, think about if you can actually afford to keep your car. Will you be able to keep up with the loan payments, as well as insurance, maintenance services and gas expenses? If you can’t, consider letting the car go until you find one that you can afford.
It depends on your situation. In most cases, keeping your car insurance may work in your favor to avoid penalties from leaving a gap in coverage.
Yes, insurers typically view you as a high-risk driver after your car is repossessed, and they hike your premium to compensate.
Another reason that your car insurance rates increase is that repossession hurts your credit score, knocking 50 to 150 points off your credit score. It stays on your credit history for seven years, even if it’s a voluntary repossession. To repair your credit score faster, pay off the remaining loan balance and make timely payments on your other credit cards and loans.
Your insurer will pull your credit score and see a spotty payment history unless you live in a state that bans this practice. Those states include California, Hawaii or Massachusetts.
Repossession is a huge hassle for lenders, so they may allow you to work out new terms to reinstate your contract. These are the main ways to prevent repossession:
If you’re hoping to hold onto your car after a repossession, you might negotiate a new plan with your lender or make moves to reclaim your car. However, some situations may make better financial sense if you let your car go.
Whether you keep your car or get a new one after car repossession, you need car insurance to cover your ride before hitting the road. You can compare car insurance providers to find the best deal.
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