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Can you pay off your car loan in order to avoid repossession? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering interactive financial calculators and tools as well as publishing original and objective content. This allows you to conduct research and compare data for free and help you make financial decisions with confidence. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are advertised on this website are provided by companies that compensate us. This compensation can affect the way and when products appear on this website, for example such things as the order in which they may be listed within the categories of listing, except where prohibited by law. This applies to our mortgage, home equity and other products for home loans. But this compensation does have no impact on the information we provide, or the reviews that you see on this site. We do not contain the universe of companies or financial offers that may be accessible to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 minutes read. Published November 28, 2022
The article was written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a wide range of topics, including banking, savings tips homeownership, homebuying and personal finances. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to take control of their finances with clear, well-researched facts that break down complex subjects into digestible pieces. The Bankrate promises
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We are compensated in exchange for the placement of sponsored products or services, or by you clicking on specific links that are posted on our site. So, this compensation can influence the manner, place and in what order items are displayed within the categories of listing, except where prohibited by law. This is the case for our mortgage home equity, mortgage and other home lending products. Other factors, like our own proprietary website rules and whether or not a product is offered in your region or within your self-selected credit score range may also influence the manner in which products appear on this website. While we strive to provide an array of offers, Bankrate does not include specific information on each credit or financial products or services. Repossessions of cars have increased dramatically in the last few years, as per reports . If you're in debt on the payments you have made and your car could be in danger of repossession The good news is that you can take steps to stop this unfortunate conclusion. From reinstatement to loan modification, there are multiple opportunities to stay clear of repossession. Can paying off a car loan end the process of repossession? The rules of repossession vary depending on the state in which you reside. In most states where repossession is allowed, the lender may take possession of the vehicle as soon as you are in default. Based on the terms of your loan agreement, that could mean missing just one payment. There are many steps between missing a payment to the ultimate repossession of your vehicle. Based on the situation you're in you should take the appropriate steps . If you've never received any notification that you're unable to make your auto payment, you'll probably know about this financial fact before your lender is aware. Don't wait for your lender to discover that you don't pay make sure you call the lender to explain the situation. The lender might be willing take your concerns into consideration in order to avoid the costs of repossession. Try to come to an agreeable solution. For example, you could give more details regarding your situation, including when you'll be able to make the next installment or what you're able to pay now. Depending on your history with the lender, you might be able to negotiate an interim reprieve or . This is especially the case in the case of this being the first time that you've been in the habit of missing a payment. When the lender has sent only notice A lender can legally repossess your car with or without notice in many states. But your lender is likely to send you a notification of its intentions to repossess your vehicle before it actually happens. If you are given an official notice of repossession, the first call you should be making is with your lender. Again, an open line of communication between you and the lender can lead to the resolution that stops repossession. In the meantime, waiting until you get an email means you'll have to catch up when you explain the issue with your lender. If the lender will listen to you out, offer the most detailed information you can regarding the time you'll be able to make a payment. Also volunteer how much you are able to pay towards a payment now. Ultimately, it can be beneficial for the lender to work out an interim arrangement. After all, the business needs to be paid and you'll likely require your car to get to work. Dependent your lender and your personal history, a temporary agreement is within the realm of possibility. When the lender has already begun the process. If the lender has already begun the process of repossession it is possible that you will not be able to access your vehicle. At this point, reinstatement of your loan -- also known as curing the default -- could be the best option. In some states, you'll be required to make payments for the entire due amount. This includes any missed payments and any late fees that accrued. Typically you will find that the lender will also require you to cover repossession fees before releasing the vehicle to you. In some states, you may have to pay off the total loan in order to receive your vehicle back. This procedure is called redemption. Not every state allows for reinstatement. If your state doesn't have reinstatement laws and it's not a part of your contract, you must nevertheless contact your lender. It might be willing to amend the terms of your loan to include it. How auto repossession works repossession is an unpleasant experience. But understanding the process can aid you in navigating it and potentially come up with an answer. 1. Borrower misses payments Your lender is entitled to take possession of the vehicle as soon as you are in default and also to send it to a debt collection agency. The exact amount of missed payments required to be in 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 for you to become in default. In other situations you may need to miss two or three payments in order for an issue to occur. In this situation, clear communication between you and your lender is critically important. If it's possible to work out an extension, now is the time to ask. 2. Lender repossess your car once in default Your lender could or might not send you a notice of its intent to repossess the car. Call your lender to inquire about an arrangement for a short-term payment to avoid repossession should you are sent a notice. Depending on your state the lender might be able repossess your car at any time , whether or not you've received notice. 3. Lender sells the vehicle Once the lender has taken possession of your car, it could hold onto the car until you are caught up with the loan. The most likely scenario would be the lender will eventually sell the car. In certain states the lender must inform you of the sale and give you the chance to reinstate your loan. If you decide to purchase the vehicle before the sale, you'll have to pay for the entire amount owed and any costs associated with repossession. But many repossessed cars are sold through auction. You have a right to be there and place an offer for your car. 4. Lender pays you for any deficiency After selling the car the lender must use those funds to pay what you owe. However, the price you pay for the car might not be enough to cover your entire debt. If you owe more than what your lender receives for selling the vehicle, it's a deficiency. In most states, your lender can claim any deficiency. For instance, suppose you owe $10,000 however, your lender is able to sell it at $7,000. In this scenario the amount owed is $3,000, and the lender may have the right to sue you for the difference. If there's an excess from the sale then the lender might be required to pass it on to you. It's not common but should it happen, you will probably get a little gain from the sale. Other ways to avoid repossession The prevention of repossession is the top priority for most borrowers. In the end, your car is probably a crucial part of your ability to earn a living. Some ways to avoid repossession include Reestablishing the loan If you are able to make your overdue payments, the lender will allow you to reinstate your loan. This means that you're bringing your situation back to where it was. When you are reinstated, you'll need to make your regular car payment. Make sure you pay off the loan Then the process of paying off your entire auto loan is much easier said than done. If this is within reach this is a option to get out of this. Refinancing can be difficult as your credit score is taking a hit from missing payments. But if you can find a new loan with the lowest interest rate, or regular payments, it might be the right choice to manage your finances. Declare bankruptcy. If you are behind on other debts The bankruptcy process could be an alternative. Although there are ways to however, it's not a sure thing. Possession could still occur when you don't come up with a viable solution. The downside to these options is that you'll probably require an amount of money to settle the issue. In the end, if you're faced with the possibility of repossession, which is uncomfortable, talk to your lender immediately. With open lines of communication and open lines of communication, the lender could offer a bargain that works for everyone.
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Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including savings, banking homeownership, homebuying and personal financial matters. 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 control their finances with clear, well-researched information that breaks down complicated topics into manageable bites.
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