Here at AutoNetFinancial we receive a lot of inquiries from customers asking if an automobile repossession will hurt their chances of getting their credit reestablished with a bad credit auto loan. To understand the answer you first have to know exactly what repossession is.
Who really owns your car?
Here at AutoNet Financial, we realize that you may think that shiny new car parked out in front of your house is really yours, but unless you paid cash for it, it’s your lender that actually owns the car. In order to prove this, all you have to do is look at the title to your vehicle. In the “lien holder” section of the title, you will see that the bank is listed as the “first secured party.” When you make your last payment and your car is paid off, you will receive a letter from the bank officially releasing their lien on your car. In some states, you may not even have the title and you will not receive it until the loan is paid in full.
Timely payments
It is important to make all your car payments on time. If you do run into financial difficulties, you should inform the lender of your situation immediately. In many cases, you may be able to set up special payment arrangements with the lender or possibly even refinance the loan. Remember: depending on how your finance contract is set up, the lender may have the right to repossess the car if the payment is received even one day past the due date. Banks and financial institutions also have the right to seize the car without a court order. So if you fall behind and ignore all those past due notices, don’t expect a letter from bank informing you that they are about to repossess your car. In fact, a lender doesn’t even have to send you a past due notice.
Repossession
So what happens if you can’t make arrangements and your only choice is repossession? First of all, you need to know that there are two types of repossessions: voluntary and involuntary. Both look the same on your credit report (really bad) and both can be embarrassing, but one can save you some money over the other.
In an involuntary repossession, the lender sends someone to seize your car. The bank is charged for this service and adds the cost to your deficiency balance (the difference between the balance you owe and the amount received at auction) and the fees it incurs for storage before the car goes to auction.
In a voluntary repossession, you take the vehicle to the storage facility (or other designated drop-off location) yourself, thereby avoiding repossession and towing charges.
Your rights during repossession
Your rights really depend on which state you live in. In most states, the bank must notify you within a certain number of days when your vehicle is scheduled to be sold. During this time, it may be possible for you to buy back your car for the balance of the loan plus any fees the lender has been charged to date for repossession and storage. Depending on your state and lender, it also might be possible for you to reinstate the loan by paying the amount you are behind, plus expenses.
After the auction
If the lender is able to sell the vehicle for more than the balance owed on the contract, plus its expenses, you are entitled to the difference. However, this rarely happens because if the vehicle is worth more than you owe, you could sell it yourself and avoid repossession.
In most cases, vehicles that are repossessed sell at auction for less than the amount owed. In this case, you are responsible for the difference – called the “deficiency balance” – plus storage and repossession fees. If you are unable or refuse to pay this amount, the lender can take you to court and seek a judgment against you.
Not only will the repossession appear on your credit report, the judgment will be on it as well. Once the bank has the judgment, it can garnish your wages and attach any income tax refunds you receive to collect this amount.
The Bottom Line
If you are currently having problems paying your car loan, contact your lender and explain the situation. Remember: repossession is a black mark on your credit history and can prevent you from getting a car loan – any type of car loan – for at least a year.
If your credit history does include a car repossession, go to our web site at www.autonetfinancial.com. We have helped thousands of people in your situation reestablish their credit and we would like to be able to help you.
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