Can you pay off a car loan so that you don’t have to repossess it? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial choices by offering interactive tools and financial calculators, publishing original and objective content. We also allow you to conduct research and compare information for free – so that you can make informed financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that pay us. This compensation can affect the way and where products appear on this site, including, for example, the order in which they may be listed within the categories of listing, except where prohibited by law. Our mortgage home equity, mortgage and other products for home loans. But this compensation does affect the content we publish or the reviews you read on this site. We do not contain the vast array of companies or financial offers that may be accessible to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 min read Published November 28th, 2022.
Written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of topics, including banking, savings tips homeownership, homebuying and personal finance. Written by Rhys Subitch and edited By Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to take control of their finances through providing detailed, well-studied facts that break down complex subjects into digestible pieces. The Bankrate promises
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We are compensated for the placement of sponsored products or services, or when you click on certain links posted on our site. So, this compensation can impact how, where and in what order products are displayed within the categories of listing, except where prohibited by law. We also offer mortgage home equity, mortgage and other home loan products. Other elements, like our own website rules and whether the product is available in the area you reside in or is within your personal credit score may also influence the manner in which products appear on this website. While we strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial products or services. The number of repossessions on cars has grown dramatically since 2020, according to reports . If you are in arrears with your obligations and your car could be in danger of repossession, the good news is that you can take action to avoid this unfortunate outcome. Between reinstatement and loan modification, there are multiple opportunities to avoid repossession. Do paying off a vehicle loan stop the repossession process? The rules for repossession differ based on the state in which you reside. In most states where repossession is allowed, the lender may take possession of the vehicle when you are in default. Depending on the terms of your loan agreement, that could mean missing one or two payments. There are a variety of steps to take between missing a payment to the eventual repossession of your car. Based on your current situation, you can take the appropriate actions . If you’ve never received any notification that you can’t make your car payment, you’ll probably know about this financial fact before your lender does. Do not wait around for the lender to find out when you miss a payment take the initiative and contact the lender to explain the situation. The lender might be willing to listen to you in order to save the cost of repossession. Make an effort to find a reasonable solution together. For instance, you could give more details regarding your situation, when you can make the next payment , or the amount you’re able to pay now. Based on your past relationship with the lender it is possible that you will be able to work out an interim reprieve or . This is especially the case if this is the first time that you’ve had to make a missed payment. When the lender has sent only notice to you, the lender can legally repossess your car with or without notice in many states. But your lender is likely to send you a notice about its plans to repossess the vehicle before it actually happens. If you receive an official notice of repossession, the first call you should make is to your lender. Also, a line of communication between you and your lender can lead to a solution that avoids repossession. Waiting until you receive an email means you’ll be caught up in explaining the situation to your lender. If your lender is willing to hear your concerns, provide as much information as you can regarding when you’ll be able to pay. Additionally, let them know how much money you are able to pay to make a payment in the present. Ultimately, it can be in the lender’s best interest to come up with an interim arrangement. In the end, the company needs to be paid and you’ll probably need your car to get to work. Dependent on the lender and your personal history, a temporary agreement is within the realm of possibility. When the lender has already begun the process If you are the lender has already begun the repossession process and you do not have access to your vehicle. In this instance, the reinstatement or restitution of the loan — also known as resolving the defaultis a alternative. In certain states, you’ll have to pay the full past due amount. That includes every missed payment and any late fees which have accrued. In most cases you will find that the lender will also ask you to pay repossession charges prior to releasing the car to you. In some states, you could be required to repay the entire loan to get your car back — that process is known as redemption. Not every state allows for reinstatement. If your state does not have reinstatement laws and it isn’t built into your contract, you should still reach out to your lender. It might be willing to alter your loan to include it. How auto repossession works Auto repossession is an unpleasant experience. Understanding the process can assist you to work through it, and possibly discover an answer. 1. Borrower misses payments Your lender is entitled to repossess the car as soon as you are in default — and to send it to a debt collection company. The exact number of missed payments needed to default on your loan is determined by your state and the terms of your loan contract. In certain situations you only have to miss one payment to fall into default. In other instances, you might need to be late by two or three times to cause an issue. In this situation, clear contact with your lender is critically important. If it’s possible to work out an extension, now is the right time to inquire. 2. Lender will take your vehicle once you’re in default, your lender could or might not send you a notice of its intention to repossess the vehicle. Call your lender to ask for a temporary payment arrangement to avoid repossession in the event that you receive a notice. Depending on your state and the state of your car, the lender might be able take possession of your vehicle at any time — whether or not you’ve received a notice. 3. Lender sells the vehicle Once the lender has possession of your car the lender may hold the vehicle until you pay up on your loan. The most likely scenario is that the lender will eventually sell the car. In many states, the lender will notify you of the sale and offer you the chance to re-establish your loan. If you decide to purchase the car back before the sale, you’ll need to pay the entire amount due and any costs associated with repossession. However, many repossessions are sold through auction. It is your right to be there and place an offer on your car. 4. Lender pays you for any deficiency After selling the vehicle, the lender must use those funds to pay what you owe. However, the amount you paid for the vehicle may not be enough to cover the entire amount owed. If you have more debt than your lender gets in exchange for selling the vehicle, it’s a deficiency. And unfortunately, in most states the lender could claim any deficiency. For example, let’s say you owe $10,000 but your lender only sells it for $7,000. In that scenario the deficit is $3,000, and the lender could be able to claim the difference. If there’s surplus to the sale then the lender might be required to distribute the money to you. This is rare but should it occur, you’ll probably get a little profit from the sale. Other methods to avoid repossession Avoiding repossession is a top priority for most people who borrow. In the end, your car is likely to be a major component of the way you earn a living. There are a few options to avoid repossession include: Reinstate the loan If you are able to make your overdue payments and the lender will reinstate the loan. In essence, you are bringing the situation back to where it was. After reinstatement, you’ll have to make the regular payments to your car. Take care to pay off the loan: Of course, paying off an entire auto loan is much easier said than done. However, if this is possible, it is one way to exit this situation. Refinancing: This can be difficult as your credit score suffers an injury from missed payments. But if you can find the right loan with an interest rate that is lower or a monthly payment, could be the best option for your financial situation. Declare bankruptcy. If you are behind in other charges The bankruptcy process could be an option. However, while there are methods to avoid bankruptcy but it’s not an assurance. Possession could still occur in the event that you fail to find a workable solution. The drawback to these options is that you’ll likely need to come up with some amount of cash to settle the issue. The bottom line If you’re facing the uneasy prospect of repossession contact your lender as soon as possible. With open lines of communication with your lender, the lender may offer a deal that works for everyone.
Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of topics, including savings, banking homeownership, homebuying and personal finances. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing concise, well-studied and well-researched content that break down complex topics into manageable bites.
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