Car Repossession Explained: What Happens and What to Do Next

A car repossession is when your auto loan lender takes possession of your car after you stop making payments on your car. Your lender doesn’t have to tell you when they will repossess your car. It could happen whether you’re sleeping, at work, or even at the store getting groceries. 

You default on your car loan when you haven’t made an auto loan payment in the last 30 days, although some lenders may not put your loan into default until your loan is 90 days past due.

When you signed your loan agreement, you told your lender that you understand what happens if you fail to pay your loan. Most lenders send letters, warnings, and other communication about past-due loans that go into default and what could happen if you don’t make a payment soon.

One thing your lender can’t do regarding repossession is “breach the peace.” Different states have their own definitions of breaching the peace, which could mean using physical force, threatening physical force, or removing your car from a closed garage without permission. This means your lender can’t use these tactics to take your vehicle.

If you’re struggling to make your car payments or you’re worried about affording your car payments soon, you may want to consider refinancing your car loan. Caribou could help you get into a new auto loan agreement that works best for you.

Once your car gets repossessed, you could feel anxious, overwhelmed, and sad about losing your vehicle. It’s normal to have these feelings, even if you knew that repossession was possible.

Call your auto loan lender right away to see if you can learn any details about where your car is. Ask how you can get to your car and recover your belongings. Detail what’s inside your car that belongs to you. If your lender or the company that repossessed your car refuses to give you back your belongings unless you pay your outstanding balance, it might be time to talk to a lawyer. Even if your car gets repossessed, they can’t withhold your belongings. Reach out to your state’s attorney general or consumer protection agency to file a complaint.

Talk to your lender about the next steps regarding your car. Some states require lenders to tell you what will happen to your vehicle. Find out what your lender plans to do with your car, whether that's reinstate your loan, force a sale, or restructure your loan. There’s a chance you could still get your car back, but each situation is different, and in some cases, you may not get yours.

Your lender can take a few different actions after your car gets repossessed. 

Reinstatement

Some states allow you to get your car back after a repossession, as long as it’s within a specific time frame. Ask your lender if you can reinstate your loan and the associated costs. For instance, you might have to pay your outstanding balance, plus any fees related to your repossession.

Not all states and lenders offer auto loan reinstatement. If you have the option to get your car back and you can afford the missed payments and fees, this could be the best way for you to get your car back.

Redemption

You could still get your car back through redemption. This is when you pay your lender the full outstanding balance on your vehicle in a lump-sum payment. Redemption is available in most states, but it’s a more expensive option than reinstatement since you have to pay for the full loan balance, not just the missed payments.

Paying the Deficiency

If your lender decides to sell your vehicle for less than your original loan agreement, you’re responsible for paying the difference between the sale amount and what you owe. So if you owe $10,000 on your loan and your lender sells your car for $8,000, you’ll need to pay your lender $2,000 and any other fees associated with the repossession. This could be an early termination, early loan payoff, or repossession fees.

That also means if your lender sells your car for more than you owe, you’ll get the leftover amount. For instance, if you owe $10,000 on your loan and your lender sells the car for $15,000, you should get the $5,000 difference.

Refinancing 

If you’re struggling to pay your loan within your current agreement, you can talk to your lender about refinancing your loan into a new loan. This changes your original loan agreement to a new auto loan, with new repayment terms and interest rate. 

Longer repayment terms can turn into lower, more affordable monthly payments. You could also get a lower interest rate. This could lower your monthly payments, but your loan terms remain the same and you pay off your loan when you originally planned to. In some cases, you could get both new repayment terms and a lower interest rate.

Not all lenders offer this option. If you haven’t defaulted on your loan or faced a car repossession yet, you’re more likely to qualify for refinancing or restructuring your auto loan.

Debt Relief

Falling behind on payments has long-lasting effects on your credit, whether right now or down the road. Once you miss a payment, your credit score dips. If you default, your credit score drops even more, and a car repossession makes it much harder to take out a new loan with these on your credit report. Repossession stays on your credit report for up to seven years.

You can try debt management to work out payment plans with your lender. You might not be able to get your car back, but the sooner you pay off your outstanding debt, the faster the debt gets off your credit report.

Your last option is to consider bankruptcy. Depending on your assets, you can declare chapter 7 bankruptcy, where the court liquidates your assets to repay your outstanding debt. If you don’t want to risk losing your assets — like your home or a new car, for example — you can declare chapter 13 bankruptcy. This option restructures your debt, removing some old outstanding debt entirely. Chapter 13 could stop a repossession or, if it’s been some time since the repossession, this bankruptcy option could remove your obligation to pay the old debt.