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Can you repay a car loan to avoid repossession? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. This allows users to conduct studies and compare data for free and help you make sound financial decisions. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that are featured on this site are from companies that pay us. This compensation may impact how and when products are featured on the site, such as, for example, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other home loan products. However, this compensation will affect the information we publish, or the reviews that appear on this website. We do not include the universe of companies or financial offerings that might be available to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 min 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 on a variety of subjects, such as savings, banking homeownership, homebuying, and personal financial matters. 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 passionate about helping readers gain confidence to control their finances with concise, well-researched and precise facts that break down complicated topics into bite-sized pieces. The Bankrate promise
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This compensation could influence the manner, place and in what order products are listed in the event that they are not permitted by law for our mortgage, home equity and other home loan products. Other factors, such as our own rules for our website and whether or not a product is available in your area or at your own personal credit score can also impact how and where products appear on this site. We strive to provide an array of offers, Bankrate does not include specific information on every credit or financial product or service. The number of repossessions on cars has grown dramatically from 2020, according to reports . If you fall behind on your payments and your vehicle is at risk of repossession The good news is that you can take steps to stop this unfortunate conclusion. In between reinstatement as well as loan modification you have a number of opportunities to avoid repossession. Does paying off a car loan stop the repossession process? The rules for repossession differ based on the state that you reside in. In most states where repossession is allowed, the lender can repossess the vehicle as soon as you're in default. Based on the terms of the terms of your loan agreement, that could mean you have missed one or two payments. There are several steps between the time you miss a payment and the ultimate repossession of your car. Based on the current circumstances, you can take the proper steps . If you've not received any notice If you are unable to make your car payment, you'll likely know about the financial situation well before your lender is aware. Instead of waiting for the lender to find out when you fail to pay make sure you call the lender to explain your situation. The lender may be willing to listen to you in order to save the cost of repossession. Try to come to a reasonable solution together. For example, you could give more details regarding your circumstances, such as when you can make the next installment or what you are able to pay today. Based on your past relationship with the lender and your credit score, you may be able to work out a temporary reprieve or . This is particularly true if this is the first time that you've had to make a missed payment. If the lender has not sent notice, a lender may legally take possession of your car without or with notice in many states. But your lender will likely mail you a notice about its plans to take possession of the vehicle prior to when it actually occurs. If you are given notice of repossession the first phone call you need to be making is with your lender. A clear dialogue between you and your lender can lead to an option that prevents repossession. If you wait until you receive an email means you'll be caught up when you explain the situation to your lender. If your lender will listen to you out, offer the most detailed information you can about when you can make a payment. You should also indicate how much you have available to put towards a payment in the present. In the end, it's beneficial for the lender to work out an interim arrangement. In the end, the company wants to get paid, and you'll likely require your vehicle to go to work. Depending upon the lender and your past, a temporary agreement isn't out of the possibility. When the lender has started the process. If the lender has already begun the process of repossession, you may not have access to your vehicle. At this point, reinstatement of your loan (also referred to as resolving the defaultis a alternative. In certain states, you'll be required to pay the entire past-due amount. That includes every missed payment and any late fees that accrued. In most cases you will find that the lender may also require that you pay for repossession costs prior to releasing the vehicle to you. In other states, you may have to pay off the entire loan to get your car back. This procedure is called redemption. Not every state allows for reinstatement. If your state doesn't have laws governing reinstatement and it's not a part of your contract, you should nevertheless contact your lender. It may be willing to amend the terms of your loan to include it. What happens when you auto-repossession repossession can be a painful experience. Understanding the process can aid you in navigating it, and possibly come up with a solution. 1. If a borrower fails to pay, your lender has the right to take possession of the vehicle as soon as you are in default -- and then be able to transfer the vehicle to a debt collection agency. The exact number of missed payments needed to default on your loan will depend on the state you live in and the terms of your loan contract. In some cases you only have make one missed payment to fall into default. In other situations, you might need to be late by two or three times for an issue to arise. At this stage, open communication with your lender is critically important. If it's possible to negotiate a reprieve, now is the time to ask. 2. Lender takes your car Once in default, your lender may or may not give you notice of its intention to take possession of the car. Contact your lender to ask for a temporary payment arrangement to avoid repossession if you get an email. Depending on your state and the state of your car, the lender may be able to repossess your car anytime -- regardless of whether or not you've received a notice. 3. Lender sells the vehicle once the lender is in possession of the vehicle, it could hold onto the vehicle until you pay up on the loan. However, the most likely outcome will be that the lender will decide to sell the vehicle. In many states the lender will notify you about the sale and provide you the opportunity to reinstate your loan. If you wish to purchase the car back before the sale, you'll have to pay the entire amount due and any costs associated with repossession. But many repossessed cars are sold at auction. You have a right to be there and place an offer for your car. 4. Lender pays you for any outstanding balance. After you sell the car The lender must use those funds to pay what you owe. However, the amount you paid for the vehicle might not be enough to pay the entire amount owed. If you owe more than your lender gets in exchange for selling the car, that's a deficiency. Unfortunately, in many states you can be sued by your lender could claim any deficiency. Let's say for instance you owe $10,000 however, your lender only sells it for $7,000. In that scenario the amount owed is $3,000 and the lender may have the right to sue you for the difference. However, if there is an excess from the sale then the lender could be required to distribute it to you. It is not a common scenario, but if it does occur, you'll at least have a small profit from the sale. Another method to avoid repossession is to use the following strategies. Refusing repossession is a top priority for most people who borrow. In the end, your car is likely a key piece of your ability to earn money. 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 the loan. This means that you're bringing the matter back to square one. Once reinstated, you'll need to keep making your usual car payments. Pay off the loan: Of course the process of paying off your whole auto loan is easier to say than do. If this is in your reach there is a solution to avoid this. Refinancing is challenging as your credit score is taking the hit when you miss payments. If you can locate the right loan with a lower interest rate or monthly payment, could be the right move for your finances. Declare bankruptcy. If you are behind on other debts If you are in debt, bankruptcy 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 come up with a viable solution. The downside to this option is that you'll probably require the funds to settle the issue. The bottom line If you find yourself staring down the uneasy prospect of repossession contact your lender promptly. Through open communication with your lender, the lender might be able to offer a solution that is beneficial to everyone.
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Writing by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips homeownership, homebuying, and personal financial matters. Written 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 confidence to take control of their finances with clear, well-researched information that break down complex subjects into bite-sized pieces.
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