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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 mission is to help you make better financial choices by offering interactive tools and financial calculators as well as publishing original and objective content, by enabling users to conduct studies and compare information at no cost - so that you can make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The deals that are advertised on this website are provided by companies that pay us. This compensation can affect the way and where products appear on the site, such as such things as the sequence in which they appear within the listing categories in the event that they are not permitted by law. Our mortgage or home equity products, as well as other home loan products. But this compensation does have no impact on the information we publish, or the reviews that appear on this website. We do not include the vast array of companies or financial offers that may be open to you. Srinrat Wuttichaikitcharoen/EyeEm/Getty Images
5 min read . Published November 28, 2022
Written by Sarah Sharkey Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes on a variety of subjects, including banking, savings tips homeownership, homebuying and personal finance. Written by Rhys Subitch and edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down otherwise complex subjects into digestible pieces. The Bankrate guarantee
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So, this compensation can influence the manner, place and in what order items are displayed within the categories of listing and categories, unless it is prohibited by law. We also offer mortgage home equity, mortgage and other products for home loans. Other elements, like our own proprietary website rules and whether the product is available in the area you reside in or is within your own personal credit score can also impact the way and place products are listed on this website. We strive to provide a wide range offers, Bankrate does not include details about every financial or credit products or services. Repossessions of cars have increased dramatically in the last few years, as per reports . If you fall behind on the payments you have made and your car is in danger of being taken away There's good news that you can take steps to prevent this dreadful outcome. In between reinstatement as well as loan modification There are a variety of options to avoid repossession. Do paying off a vehicle loan prevent repossession? The rules for repossession differ depending on the state you live in. In most states where repossession is allowed, the lender is able to take the vehicle as soon as you're in default. Depending on the terms of your loan agreement, that could mean missing only one payment. There are many steps between the time you miss a payment and the final repossession of your vehicle. Based on your current situation, you can take the appropriate actions . If you've not received any notification that you're unable to make your auto payment, you'll probably know about the financial situation well before your lender is aware. Instead of waiting for the lender to know that you miss a payment take the initiative and contact the lender to discuss your situation. The lender may be willing to take your concerns into consideration in order to avoid the costs of repossession. You should try to reach a reasonable solution together. For example, you could offer more information about your situation, including when you will be able to make your 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 when this is the first time 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 a variety of states. But your lender will likely mail you a notification of its plans to take possession of the vehicle prior to when it happens. If you get an official notice of repossession, the first phone call you need to be making is with your lender. Also, a line of communication between you and your lender can lead to a solution that avoids repossession. In the meantime, waiting until you get notice of repossession means that you'll be caught up when explaining the situation with your lender. If the lender is willing to hear you out, give as many details as possible regarding when you'll be able to pay. Also volunteer how much you are able to pay toward a loan in the present. It is advantageous for the lender to come up with a temporary arrangement. After all, the business is looking to be paid, and you will likely need your car to get to work. Based your lender and your past, a temporary agreement isn't out of the realm of possibility. In the event that your lender has begun the process If the lender has already begun the repossession process, you may not be able to access your vehicle. In this instance, the reinstatement of your loan or loan modification referred to as curing the default -- could be the best possible outcome. In some states, you'll have to make payments for the entire due amount. This includes any missed payments plus any late fees that have accrued. Typically, the lender will also ask 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 -- that process is known as redemption. Not every state allows for reinstatement. If your state doesn't have laws governing reinstatement and it isn't built into the contract, it's best to still reach out to your lender. They may be willing to modify your loan in order to incorporate it. How auto repossession works repossession is a stressful experience. However, understanding the process will assist you to work through it and eventually discover solutions. 1. When a borrower is late on payments, the lender can repossess the vehicle as soon as you are in default -- and also to send it send it to a debt collection company. The exact amount of missed payments required to be in default on your loan depends on your state as well as your loan contract. In certain situations, you will only need make one missed payment in order to become in default. In other situations it is possible to make three or more payments to cause an issue. At this point, open communication to your lender is critically important. If you are able to negotiate an extension, now's the perfect time to make an inquiry. 2. Lender will take your vehicle once you are in default the lender may or may not notify you of its intention to repossess the car. Contact your lender to request a temporary payment arrangement to avoid repossession in the event that you get an official notice. Depending on your state the lender might be able take possession of your vehicle anytime -- whether or not you've received notice. 3. Lender sells the car once the lender has possession of your car the lender may hold the car until you are caught up on the loan. But the more likely outcome would be the lender will decide to sell the vehicle. In certain states, the lender will notify you of the sale and offer you the chance to reinstate your loan. If you want to buy the car back before the sale, you'll have to pay the entire amount owed and any costs associated with repossession. But many repossessed cars are auctioned off. You are entitled to attend and make a bid on your vehicle. 4. Lender will send you a bill for any deficiency After selling the car, the lender must use those funds to pay what you are owed. However, the amount you paid for the vehicle may not be enough to cover your entire debt. If you owe more than what your lender receives for selling the car, that's a deficiency. And unfortunately, in most states the lender can claim any deficiency. For example, let's say that 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 and the lender might be required to pass it to you. This is rare however, if it does happen, you will probably get a little benefit of the transaction. Another method to avoid repossession is to use the following strategies. Avoiding repossession is a major concern for many borrowers. Since your car is likely to be a major component of the way you earn money. A few ways to prevent repossession include Reestablishing the loan: If you can be current with your past due payments then the lender will reinstate the loan. Essentially, that means you're bringing the matter back to the beginning. After reinstatement, you'll have to continue making the regular payments to your car. Make sure you pay off the loan: Of course, paying off an entire auto loan is easier to say than do. But if this option is in your reach, it is one way to exit this situation. Refinancing can be difficult as your credit score takes the hit when you miss payments. However, if you are able to find an alternative loan with an interest rate that is lower or a regular payments, it might be the right move to manage your finances. Declare bankruptcy. If you're behind on other bills If you are in debt, bankruptcy could be an alternative. Although there are options to do so however, it's not a sure thing. Repossession may still happen in the event that you fail to find a workable solution. The disadvantage of these possibilities is that you'll need to come up with the funds to resolve the situation. The main point is that if you're faced with the uncomfortable possibility of repossession, talk to your lender promptly. Through open communication and open lines of communication, the lender could offer a bargain that is beneficial to everyone.
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Written by Contributing Writer Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of topics, including savings tips, banking, homebuying, homeownership and personal finance. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are enthusiastic about helping readers gain confidence to control their finances by providing precise, well-studied information that breaks down otherwise complex topics into digestible chunks.
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