Repossession is basically categorized in two types; voluntary and involuntary repossession. A voluntary repossession is a situation when the borrower decides to contact the lender/ bank that he is unable to make any further payments for the car loan.

The car is voluntarily handed over to the lender which saves the cost of repossession which if incurred will be borne by the borrower. On the other hand, involuntary repossession is a decision taken by the lender when borrower misses out on payments. The lender has the authority to repossess the vehicle after a single non-payment. Usually the lender will call up a repossessing company to tow the car from the borrower’s place and all expenses have to be paid by borrower. There is not much difference on the credit score for both types of repossession. It will ultimately lower the credit score of the borrower and will remain there for at least seven long years.

Following is the standard process for auto repossession:

  • In the first step, a lender sends a mail warning the borrower regarding the delayed payments. It does not always happen as there is no such law to send a warning mail before repossessing the vehicle. However, if the contract contains such terms then a mail will be sent.
  • A follow up call will be made to the warning.
  • The borrower then generally requests for grace period to make those delayed payments.
  • If still the payment has not been made, the borrower will once again receive a warning mail from the bank/ lender.
  • After this second warning, the car will be repossessed. It will be taken away from your office, home or where ever it is.
  • After repossession, the lender will send a document stating that the vehicle has been taken and what will be the procedure to get back the vehicle.
  • The borrower has to find ways to make payments. If he does find then he has to pay the delayed fees, repossession fees, towing charges, impound charges, storage fees and various other fees incurred by the company that repossessed the car.
  • If there is no way where borrower can pay the fees, then he loses the car completely. The lender then will have complete right over the vehicle and will search for a new buyer.
  • The borrower’s credit card report will be updated on account of the repossession of vehicle.

Some contract agreements allow the car owners to reclaim their vehicle even after repossession. For this, the borrower has to pay all the delayed installments/ payments with additional repossession fees and any other miscellaneous charges which may have occurred during the process of repossession of vehicle.

The repossessed vehicle will be under the lender and the borrower will have to pay monthly payments till the date it is sold. For example – if a car is repossessed in the month of March and gets sold by December, then the borrower or the previous owner of the vehicle has to make the payments for 9 months. Suppose, the lender is not able to pay this amount after repossession, it will be debited to his account after the vehicle has been sold. Also if the car is sold to another buyer at a price lower than the actual price, then the balance amount will have to be paid by the borrower. Hence, there is no way to escape from these payments and it must compulsorily be paid to avoid any further harm to your credit standing in the market.

To avoid repossession, people opt for loan modification. Apart from automobiles; boat, trucks, SUVs and RV loan modification can also be done to increase savings and reduce monthly payments.

Auto loan payments if avoided can be a pain in the neck for many years. Thus, be careful when you pay your bills on priority basis. Keep your auto loan bills at the top of the list.

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