, your vehicle may be repossessed by your lender. To help you avoid a repossession, Jerry’s experts have compiled everything you need to understand the threshold for missed loan payments before a repo.

What is a car repossession?

A car repossession, or repo, is the term for when a leasing company or lender takes your vehicle due to a borrower’s nonpayment on the corresponding car loan.

Vehicle repossession is legally possible because lenders use your car as collateral for your car loan. Lenders do this so the loan is secured and, therefore, poses a lower risk of non-payment.

When is a lender allowed to take your car?

A lender is allowed to take your car after

a single missed payment

. This is called defaulting on your loan.

When trying to repossess your vehicle, your lender may choose to sue you or issue a court order. However, state law prevents lenders from a “breach of the peace” in most states. This means a repossession agent cannot use physical force, make threats, or trespass on your private property in an attempt to repossess your vehicle.

If you feel that your lender has committed a breach of the peace and violated repossession laws, you can contact your state’s attorney general to file a complaint.

Learn more:

Everything you need to know about defaulting on a car loan

What happens after a car is repossessed?

After your car is repossessed, your creditor will sell it at a fair market price in a public auction. The lender is legally required to conduct the auction in a commercially reasonable manner, meaning the sale must be well advertised and the auction must be fair.

You will receive a repossession notice that includes details about the auction, so you can go and observe your car being sold if you wish. This will help you learn more about how much you might owe your lender based on the final sale price for your repossessed vehicle.

After the repossession, you will still be responsible for paying any deficiency balance plus fees for pickup or towing.

Can you still owe money after a car repossession?

If you owe more on your vehicle than its actual cash value (ACV) you might still owe more money on your loan even after your vehicle is repossessed. This is called a deficiency balance, and it usually happens for one of two reasons:

Interest: Car loans can come with high interest rates, so if you haven’t paid enough on your loan to cover the interest you’ve accrued over time, you might owe the remaining balance.

Depreciation: The value of a vehicle decreases over time, so from the moment you drive out of the lot your car’s value is slowly going down. If your lender repossesses the vehicle but it’s not worth what you bought it for anymore, you’ll owe more money on your loan.

It’s also possible that there will be costs associated with the repossession itself, particularly if a lender has to chase you down to locate your vehicle. These charges will also be your responsibility.

To avoid some of these costs, it’s better to opt for a voluntary repossession by surrendering your vehicle to your lender.

Can you get your car back after a repossession?

It is possible to get your car back after a repossession if you’re able to pay off your loan in full along with all repossession costs. However, this option is not economically feasible for most drivers, especially after defaulting on the very loan you’re expected to pay in full.

In some instances, you may be able to negotiate directly with your lender to avoid a repossession. However, this will occur on a case-by-case basis, and may not be a feasible option for everyone.

How badly does a car repossession affect your credit?

Most lenders will wait for about 90 days before reporting your nonpayment to major credit bureaus. At that point, a repossession can have a significant negative impact on your credit and will show up on your credit report for years.1 Even a single missed payment can affect a borrower’s credit score, making it difficult to qualify for a credit card or improve their financial situation in the future.

The following parts of the repossession process will have the biggest impact on your credit score:

Late payments: There will be a negative item on your credit report for every month that you miss a payment.

Collections: If you’re upside down on your loan or simply can’t make the payments, your account could be sent to collections.

Car loan defaults

: Your credit will take a hit if you stop making payments and your loan goes into default.

Court judgments: Any unsuccessful collections on your record may lead to a decision in court.

Learn more:

A guide to auto loans after repossession

How to avoid a car repossession

If you’re attempting to avoid a vehicle repossession, you may be able to do one or more of the following:2

Make up the late payments: Even if you’re late on your loan payments, you may not be in default yet. Contact your lender and ask if you can make up all late payments to avoid defaulting.

Reinstate the loan: If you make up all past-due payments with any late fees or other applicable fees added, you may be able to reinstate your loan even after your vehicle has been repossessed.

Talk to your lender: Before giving up on your loan, contact your lender and explain that you’re having trouble making payments. Your lender may be willing to work with you until you get back on your feet so you can keep making regular loan payments.

Use the right of redemption: You typically have the right of redemption after a repossession, meaning you can get your car back by paying off your loan and any repossession fees, storage costs, and/or attorney fees associated with the repo.

Refinance the loan: If you’re not in default on your loan yet, you may be able to refinance with another lender for a lower monthly rate. This will give you the time to get your affairs in order without missing a payment.

File for bankruptcy: If all else fails and you’re in a very tight financial position, you can file for Chapter 13 or Chapter 7 bankruptcy to place an automatic stay on your loan. This won’t necessarily prevent your lender from repossessing your vehicle, but it will void any deficiency balance for the time being.

What to do if you’re having trouble making your car payments

If your loan balance feels overwhelming and you’re worrying about the possibility of a repossessed car, the first thing you should do is contact your lender before you receive a written notice of repossession. You may be able to temporarily

adjust your monthly payments

, set up a payment plan, or

refinance your loan

completely to avoid repossession and keep your car loan.

A refi could help you avoid a repo

Jerry could help you avoid vehicle repossession by refinancing your car loan

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FAQ

Can your car be repossessed if you declare bankruptcy?

If you declare Chapter 13 bankruptcy or Chapter 7 bankruptcy, your lender will legally be allowed to repossess your vehicle. However, they won’t be able to collect additional money via your deficiency balance or repossession expenses. Hire a bankruptcy attorney for legal advice when navigating this process.

What are Florida’s car repossession laws?

Unlike in some other states, repossession laws in Florida allow the repo man to come onto your personal property to repossess your vehicle. However, repossession companies still can’t commit a breach of the peace by threatening you or using physical force.

What is the fair market value of a car?

A car’s fair market value is based on information like the make and model, the vehicle’s age, the mileage, and the average resale price for similar vehicles.3 The value of your car is subject to change, however; for example, vehicles may be worth more in a private sale than in a large auction.

Meet our experts

Liz Jenson

Liz Jenson is an insurance writer who specializes in general automotive and insurance topics. Liz’s mission is to produce informative and useful content to help car owners make smart choices when buying cars and car insurance. Since joining Jerry in 2021, Liz has written nearly 4,000 long- and short-form articles on topics including state-specific insurance recommendations, common car insurance questions, and deep dives into vehicle model details.

Before they came to Jerry, Liz was a full-time student at Indiana University, Bloomington working on a double major in English and French.

Sarah Gray

Licensed Insurance Agent — Expert Insurance Writer and Editor

Sarah Gray is an insurance writer with nearly a decade of experience in publishing and writing. Sarah specializes in writing articles that educate car owners and buyers on the full scope of car ownership—from shopping for and buying a new car to scrapping one that’s breathed its last and everything in between. Sarah has authored over 1,500 articles for Jerry on topics ranging from first-time buyer programs to how to get a salvage title for a totaled car.

Prior to joining Jerry, Sarah was a full-time professor of English literature and composition with multiple academic writing publications.

SOURCES

https://www.equifax.com/personal/education/personal-finance/articles/-/learn/what-is-reposession/#:~:text=If%20a%20lender%20repossesses%20your,for%20up%20to%20seven%20years

https://www.nolo.com/legal-encyclopedia/options-avoid-car-repossession.html

https://www.kbb.com/car-values/