Get the Facts About Automobile Repossession

Buying a car is a big decision, and it’s one of the largest purchases you will make in your life next to buying a home. When you buy a car, you may have put a lot of time into making sure that you get the right vehicle for your needs, and you believed that you could afford the vehicle when you purchased it.

However, if you find that you are late with your car payments, you might be facing repossession from the lender. No one wants to go through this experience. It’s embarrassing, it will damage your credit score, and it will mean that you no longer have transportation. This could affect your ability to get to and from work, pick up groceries, the kids, and more.

If you’re in a situation where your car may be repossessed, it’s important to educate yourself on what could potentially happen. Here’s information on how automobile repossession works, how to recover from repossession, and how to avoid it in the future.

What Does Repossession Mean?

When you finance your vehicle, you get a secured loan. This means that the vehicle is the security in the loan, and the lender has certain rights to that vehicle until you have made all of the payments. If you miss payments and don’t contact the dealer to see if you can make up those payments, there is a good chance that they will repossess the car.

This means that they can come to your home and take the vehicle. In some cases, even having just one late payment will provide the lenders with the right to take the vehicle!

This is because you have technically defaulted on the loan. You need to make sure you are fully aware of your contract and the state law where you live regarding auto repossession.

According to the Federal Trade Commission (FTC), when you are in default, the lender can repossess your car at any time—day or night—without notice to you. They can come onto your property to take the vehicle. However, they are not allowed to breach the peace when they take the vehicle.

Typically, breaching the peace would be using physical force, threatening to use physical force, or removing the car from the garage without permission. The state laws on breaching the peace can differ, so again, you must understand the laws in your state if you worry that your car is in danger of repossession.

Most of the time, if your state has any specific laws for repossessions, those laws will be referenced in your contract. Be sure to take the time to read it and understand it.

How Does the Repossession Process Usually Work?

Since the laws can vary state-by-state, this is just a basic overview of the steps that are typically taken during repossession.

Step 1: Late Payment Notification

It will usually begin by getting notified by the lender that your payment for the vehicle is late. They might later provide a second notice or may call you to let you know about the overdue payment. Since you are late on payments, you are technically in default, which means that the vehicle will be taken by a repossession company.

Step 2: Notice of Repossession

You will then get a notice about the repossession and will be told what rights you have. In some cases, you may be able to get the vehicle back if you make up your back payments and pay the repossession fees.

Step 3: Vehicle is Repossessed and Sold

If you do not choose to make up your back payments, the creditor will repossess and sell the vehicle at auction.

In some states, the laws require that the creditor inform you about what will happen to the vehicle including where and when it will be sold. If they don’t provide you with this information, and how you can potentially buy back your vehicle, certain states may allow you to recover damages.

Step 4: Money From the Sale Will Pay Off What is Owed

The money that’s received from the sale of the vehicle will then be used to pay off the amount owed on the vehicle. If the sale at auction covers the cost, you will not have to pay any of the balance because it will be wiped out. However, if there is a balance, you will have to pay that deficiency.

Regardless, this will still show up as late payments and a repossession on your credit report, which can cause serious harm to your score.

What If You Can’t Pay? Are There Options?

Many people are facing challenges that can make it difficult to afford a car payment each month. It might be medical expenses, unemployment, or today, it could be issues relating to the pandemic.

If you find yourself in a situation where you are not going to make your auto loan payment on time, you want to do whatever you can to avoid repossession from occurring.

Get in Touch With Your Creditor

One of the first steps you should take is getting in touch with your creditor. You will want to ask them if it will be possible to have a grace period or if you could change the payment schedule. While this is not easy, it may be possible in some cases, particularly if you contact them early. If they do agree, make sure you get those agreements in writing.

However, in cases where the lender doesn’t provide any leniency and you worry that repossession will be the next step, you could get ahead of the problem.

Voluntarily Give the Vehicle Back

Voluntary repossession could be a good option. When you give the vehicle back, it can reduce the lender’s expenses for repossessing the vehicle. However, this doesn’t necessarily mean that late payments and repossession will not show up on your credit report. You will also still be responsible for any deficiency after they sell the vehicle at auction, as mentioned above.

Sell the Car Yourself

Another option is to sell the car yourself. If you believe that you can get more money than the lender could get for the vehicle, before they initiate repossession, you could use the money that you get to pay off the vehicle in full. This will prevent you from having a repossession on your record, and you can then get a different vehicle that is more affordable.

Disputing a Deficiency

A deficiency is an outstanding balance on a vehicle that has been repossessed and sold at auction. If the sale did not cover the entire balance, you are expected to pay and can be sued if you don’t.

Depending on the laws in your state, you will generally be notified of the deficiency and the court hearing. You can dispute the deficiency if you believe that you have grounds to do so. For example, if the lender did not provide you with notification that your payments were late, if required in your state, you could dispute the case.

Because each state is different, and it can often be difficult to understand the laws, it may be in your best interest to talk with a lawyer. Get a consultation to see if you have any grounds to proceed. Just make sure that the cost of hiring the attorney is not greater than the amount that you would have to pay for the deficiency. Otherwise, it would not make financial sense.

How to Remove Repossession from Credit Report

It may be possible to have a repossession removed from your credit report. There are essentially three ways that you can do this. Here’s a breakdown of your options:

1. Negotiate with Your Lenders

In some cases, you may be able to talk with the lenders about giving you another chance with the vehicle. If you opt to get the vehicle back and pay the back payments and other fees, the lenders might be willing to work with you and may even reduce your monthly payments, which would increase the length of the loan. This is rare, but it can happen.

The lender can then contact the three credit bureaus and remove the repossession from your report. However, if you go this route and the lenders seem agreeable, make sure that you get everything in writing.

2. File a Dispute

Perhaps you feel that the repossession on the credit report is not correct. It’s possible to file a dispute with the credit bureaus and request that they remove the item from your report. Keep in mind that you will have to do this with each of the credit bureaus, and you need to write a letter that’s sent by certified mail.

The lenders will then have 30 days to respond to the dispute and prove that it was correct. If they do not respond within that timeframe or if they do not provide valid information, it’s possible to get the item removed from the credit report.

If it is a legitimate repossession, though, it’s highly unlikely that you will be successful in having it removed.

3. Hire a Credit Repair Company

Perhaps you don’t want to be the one that has to negotiate with a lender or file paperwork with the credit bureaus on your own. You can always work with a credit repair company to handle these things for you.

They essentially do the work that you don’t want to do to attempt to get the repossession off your credit report. Of course, this doesn’t mean that they will be successful in doing so. Even after hiring them, you might still have it on your report.

For more on the subject, here’s a more in-depth article: Should I Hire A Credit Repair Company or Do It Myself?

How Does Repossession Affect My Credit Score?

A repossession will have a major impact on your credit score. You have to keep in mind that you will not only have the repossession on your report, but you will also have all of the missed payments, which may hit your credit score even harder.

Once you have a repossession on your credit report, and if you can’t get it off using one of the options mentioned earlier, it will stay there for seven years. This means that it will affect your credit score for a long time, making it more difficult to get credit cards, personal loans, auto loans, or a mortgage for the foreseeable future.

If you can find a lender that is willing to provide you with an auto loan after having a repossession, you can expect the interest rates to be high. It’s best to attempt to deal with the repossession and have it removed before you try to get another loan for a vehicle. Otherwise, the high payments and interest could make it even more difficult on your finances.

Tips for Avoiding Repossession in the Future

Although you might be in a position right now where you can’t avoid repossession, you can strive to make sure that it doesn’t happen again. The simple answer is simply to make sure you are paying your car payments on time each month. Of course, it’s more complicated than this, otherwise, you wouldn’t have been in default in the first place.

Focus on Maintaining a Budget

Typically, the problem stems from the way you budget or your current income level. If you are spending more money than you are bringing in, then you will end up missing payments on your car, credit cards, utilities, etc. Sometimes, things are out of your hands, though. You might have become unexpectedly unemployed or suffered an illness, for example.

Regardless, there are some simple tips that you can follow to help make sure that this doesn’t happen again.

Make Sure You Can Afford the Vehicle

First, make sure that you are only taking out a loan for a vehicle that you can afford. Even though you might want a bigger and more expensive car, it might not be in the cards for you right now.

Make sure that your vehicle payments are going to fit into your budget. This might mean reducing certain other expenses that you have, such as going out or buying items you don’t need.

Communicate With Your Lenders

If you worry that you might be falling behind on payments, talk with the lender about restructuring the loan. If you only have $5,000 or $10,000 left on the loan, you might want to consider trying to get a personal loan.

This way, you can pay off the loan on the vehicle, so your car’s no longer at risk. You might be able to get a lower interest rate with a personal loan, as well, which can help you to save some money.


No one wants to go through a repossession, but each year more than two million vehicles are repossessed. Do your best to make sure it doesn’t happen to you and try to remove it from your report if it does happen.

If your car ends up getting repossessed, try not to let it discourage you from rebuilding. With a little bit of patience and self-discipline, you’ll be on your way to picking up the pieces in no time.