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What is car repossession?
You may not own your car, but you still have rights. Learn what to do when your car gets repossessed.
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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.
How does car repossession work?
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.
What happens after my car gets repossessed?
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.
What actions can repossession agents legally take?
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:
- Come on to your property
- May be able to remove your car from an open or unlocked carport or garage
- Hotwire your car or use a duplicate key
- Follow you and grab your car when you’re getting gas or going to the supermarket
When can my car be repossessed?
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:
- Fall behind on car payments. In some states, lenders can seize your car right away, but you’re typically not in default until you’re 90 days late.
- Fail to buy or renew car insurance per your loan or lease contract. Most lenders require you to maintain full coverage car insurance. Plus, you need minimum liability coverage before you hit the road in most states.
- Breach your loan agreement in some other way.
- Default on your car title loan. If you use your car as collateral in a car title loan, your lender can repossess your car if you miss too many loan payments.
What is force-placed car insurance?
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.
Ways to get your car back
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:
- Reclaim your car or reinstate the loan. If your state law and lender allow it, you can reclaim your car by catching up on back payments or paying off the loan. You’re responsible for any repossession fees like storage or towing. The notice of sale from the bank outlines the steps and tells you how much time you have to redeem your car.
- Buy back your car at auction. You might be allowed to bid on your car at auction, although not always an option if you’re struggling with car payments.
- Negotiate with your lender to get the car back. You could wrangle a repayment plan with your lender. Billing support agents may agree to a grace period or new payment schedule, but get any changes in writing. Offering assurance on payments can help your case like having someone co-sign your loan.
- File for bankruptcy. This is the most extreme method for getting a repossessed car back. The catch? You must file for bankruptcy before the bank sells your car. Your bankruptcy lawyer can work through your options for keeping your car’s equity during the process.
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.
Should I cancel my car insurance?
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.
- If your car gets repossessed but you’re hoping to get it back, you might keep your insurance active in case everything works out. That way you won’t deal with the fallout from a coverage lapse, including higher rates and a harder time getting another policy. However, if your lender purchased a policy for your car, you might look into canceling one of the policies to avoid overpaying.
- If your car gets repossessed and you’re letting it go, consider maintaining coverage until it’s out of your possession. If you plan to get another car soon, you can get a better rate by keeping your policy and avoiding a lapse.
Is my car insurance affected by a repossession?
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.
5 tips to prevent a repossession
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:
- Reinstate your loan contract. Your lender may reinstate your loan if you pay the amount past due plus any repossession fees. Some lenders only agree if you install an electronic device in your car that prevents it from starting if you’re late on payments. If you’re struggling financially, work with your lender to come up with a more manageable payment plan and get it in writing.
- Catch up on your delinquent payments. Find out how much you need to pay to get your account current. The sum may also include late payment fees.
- Refinance your loan. If your payments are too high, consider refinancing to a lesser monthly payment with a longer repayment period or lower interest rate — or both if you’re lucky. Refinancing comes with its own set of fees and charges, so factor these into your budget.
- Sell your car. Is your car worth more than you owe? You can try selling your car to pay back the loan, though it’s challenging with a lien.
- Surrender the car. If your loan is already in default and repossession is looming, you can inform your lender that you want to give back the car. You might be able to redeem your car or reinstate the loan later, but you won’t have to pay the tow truck and storage fees. However, the late payment fee, repossession charges and outstanding loan amount may apply.
Compare car insurance after a repossession
Bottom line
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.
Frequently asked questions about car repossession
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