You may not own your car, but you still have rights. Find out what you can do when your car is repossessed.
If your car is leased and financed, your lender owns it until it’s paid off in full. They also have the power to seize it if you’re late on your payments. Repossession isn’t easy, and it can affect your financial future, but you do have options to recover from having your car repossessed.
When can my car be repossessed?
If you lease or finance your car, it isn’t technically yours until you pay it off — until then it’s your lender’s property. The laws vary by state, but generally, your lender has the right to repossess your car in these situations:
- You’ve fallen behind on your 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.
- You failed to buy or renew car insurance per your loan or lease contract.
- You breached your loan agreement in some other way.
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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 the lender must notify you first and give you a chance to get out of default. This is called a right to cure.
If you fail to pay or voluntarily surrender the car, the lender enlists a third-party company to retrieve your car, like a towing service that specializes in repossessions. They don’t need a court order for this.
Once the 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 detailing the date and time of sale. You’ll still have to 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 associated with repossessing the car. This is called the “deficiency.” If it sells for more than you owe, you’ll usually get to pocket the difference.
What are repossession agents legally allowed to do to get the car?
Repo agents are legally allowed to take back the car as long as they don’t “breach the peace.” This means they can’t threaten you, use physical force, disturb the neighbors or break into a closed garage. Remember, the car isn’t your property; it’s your lender’s.
- The repossession agent can come onto your property.
- They can typically remove your car from an open or unlocked carport or garage.
- They can hotwire your car or use a duplicate key.
- They’re allowed to follow you and grab your car when you’re getting gas or going to the supermarket.
My car was repossessed. How do I get it back?
You have options. But if you want to get your car back, you’ll need to act quickly.
Your lender has to give you reasonable time to act before they sell the car. The specifics blur between states. Generally, you’ll have 30 days. In California, 15 days notice is considered reasonable, and some states only offer 10 days.
There are a few paths you can take:
- Reclaim your car or reinstate the loan. If your state law and lender allow it, you can reclaim your car by catching up on your back payments or, more commonly, paying off the loan in full. You’ll also have to pay for any fees associated with the repossession, such as storage and towing fees. The notice of sale from the bank outlines the steps and tells you how much time you have to exercise the right to redeem your car.
- Buy back your car when it goes to auction. This may not be an option if you’re struggling to make car payments, but you’re allowed to attend the auction and bid on your car. If the car sells for less than you owe, you’ll need to find a way to come up with the difference.
- Negotiate with your lender to get the car back. You may be able to wrangle a repayment plan with your lender.
- File for bankruptcy. This is the most extreme method for getting a repossessed car back. The catch? You must have filed for bankruptcy before the bank sells 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.
How do I negotiate with my lender?
If your car was repossessed or you’ve received a repossession warning, communicate with your lender. Be polite and ask, don’t demand. Billing support agents may agree to a grace period or new payment schedule, but get any changes in writing.
Your lender may also let you reinstate your loan by paying your past due amount, plus any repossession fees. Some lenders will only agree to that if you install an electronic device in your car that prevents it from starting if you’re late with a payment.
If your lender refuses to revise the terms of your contract, you can voluntarily surrender your car. To do this, inform your lender that you’re unable to make the payments and you want to return the car. You’ll then arrange a time and place to meet and hand over the keys.
How can I keep my car from being repossessed?
It pays to be proactive. Repossession is a huge hassle for lenders, so in many cases they’re willing to work something out.
These are the main ways to prevent repossession:
- Revise the payment plan. Work with your lender to come up with a more manageable payment plan and get it in writing. If you’re struggling financially, try to contact your lender and explain the situation before you miss a payment.
- 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 voluntarily give up your car. You’ll still have the option to redeem your car or reinstate the loan later, but you won’t have to pay the tow truck and repossession fees.
Can my car be repossessed for driving uninsured?
Yes. Almost all lenders require you to maintain full coverage car insurance while you’re paying off the loan. It’s their asset, so they want to protect it. If you let your coverage lapse or fail to buy it in the first place, they can repossess your car.
Plus, in most states, you’ll need a minimum of liability coverage before you hit the road. It’s easy for the police to monitor uninsured drivers. At the moment, 47 states have adopted e-insurance cards. Police use automatic license plate recognition (ALPR) cameras to scan these and crosscheck them with the state database. If you’re caught driving without insurance, the officer can tow your car.
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What happens to my car insurance after my car is repossessed?
It depends on your situation.
If your car has been repossessed but you’re hoping to get it back, it’s best to keep your car insurance coverage active if you’re able to. That way, if everything works out, you won’t need to deal with the fallout from letting your car insurance lapse: higher rates and a harder time getting a new policy.
Before doing this, double-check that your lender hasn’t purchased a policy for the car now that it’s in their possession. In that case, your coverage is redundant, so you might want to cancel it.
If your car has been repossessed and you’re letting it go, consider maintaining your coverage until it’s out of your possession. And if you plan to get another car soon, you can get a better rate, or even a discount, by maintaining your policy and avoiding a lapse in coverage.
Can I get car insurance after my car is repossessed?
If you’re looking for coverage for a new car, it’s possible to find insurance, but expect to be charged a higher rate. Unless you live in California, Hawaii or Massachusetts, your insurer will pull your credit score and see that you have a history of making late payments. They’ll typically view you as a high-risk driver and hike up your premium to compensate for that.
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Bottom line
Car repossession can be incredibly stressful, especially when it’s coupled with other financial struggles. But if you’re hoping to hold onto your car, you may be able to negotiate a new plan with your lender or make moves to reclaim your car. In some situations, though, it may make better financial sense to let it go.
If you have a ride, you need car insurance. You can get insured even after car repossession, so it’s a good idea to compare providers to find the best deal.