6 Crucial Steps to Take If Your Car Is Repossessed

Updated on February 19, 2024

At a Glance

  • Car repossession occurs when a lender takes back a vehicle due to failure in making car loan payments.
  • Upon repossession, the lender sells the car at an auction to recover their money. The sale proceeds go towards paying the outstanding loan balance.
  • Repossession significantly impacts one’s credit score and stays on the credit report for seven years.
  • Steps to take after repossession include contacting the lender, reviewing finances, creating a plan, understanding borrower’s rights, finding out the outstanding balance, and working on credit improvement.

Your car getting repossessed is something that can significantly impact your daily routine, not to mention the discouraging feeling it may bring. That being said, there are some steps you can take to get your car back and we’ll discover them in this article.

What Happens When Your Car Gets Repossessed?

First, let’s understand what exactly happens when your car gets repossessed. When you fail to make your car payments, the lender has the right to take possession of your vehicle as a way to recover their money. This can be a stressful and overwhelming experience, but remember, there are steps you can take to regain control.

Once your car has been repossessed, the lender will typically sell it at an auction to recoup the outstanding balance on your loan. This process can happen relatively quickly, often within a few weeks of the repossession. The lender is legally required to notify you of the auction and provide you with an opportunity to bid on your own vehicle. However, it’s important to note that the lender is not obligated to accept your bid, and they may sell the car to the highest bidder.

When your car is sold at auction, the proceeds from the sale will go towards paying off the remaining balance on your loan. If the sale price exceeds the amount you owe, you may be entitled to a refund of the surplus funds. On the other hand, if the sale price is lower than your outstanding balance, you may still be responsible for paying the remaining debt.

Will My Credit Score Suffer If My Car Is Repossessed?

It’s worth mentioning that having your car repossessed can have a significant impact on your credit score. The repossession will be reported to credit bureaus, and it will stay on your credit report for several years. This can make it more difficult for you to obtain future loans or credit, as lenders can view you as a high-risk borrower.

If you find yourself in a situation where your car has been repossessed, it’s important to take action as soon as possible. One option is to try and negotiate with the lender to get your car back. This may involve paying off the entire loan balance, including any fees or charges associated with the repossession. Another option is to explore alternative financing options, such as refinancing the remaining debt or seeking a new loan to purchase a different vehicle.

Additionally, it’s crucial to review your financial situation and make any necessary adjustments to prevent future repossessions. This may involve creating a budget, cutting back on expenses, or seeking financial counseling to help you manage your debts more effectively. By taking proactive steps, you can regain control of your finances and avoid the stress and consequences of having your car repossessed.

Actions to Take When Your Car Is Repossessed

Now that you know what happens when your car is repossessed, let’s discuss the actions you can take and your rights in this situation. It’s important to be proactive and informed, so here are the crucial steps you need to follow:

1. Contact Your Lender

The first thing you should do when your car is repossessed is to reach out to your lender. It’s essential to open the line of communication and discuss the situation. They may be willing to work with you to find a solution.

When you contact your lender, be prepared to provide them with all the necessary information, such as your loan account number, the date of repossession, and any relevant documentation. This will help expedite the process and ensure that you are both on the same page.

During the conversation, ask about any available options for resolving the issue. Your lender may be willing to negotiate a repayment plan, modify the terms of the loan, or offer other alternatives that can help you regain possession of your vehicle.

2. Review Your Finances

Take a deep breath and assess your financial situation. Look closely at your income, expenses, and other financial obligations. This evaluation will help you understand the options available to you.

Consider creating a detailed budget that outlines your monthly income and expenses. This will give you a clear picture of your financial capabilities and help you determine how much you can allocate towards resolving the repossession.

Additionally, review your credit report to understand the impact the repossession has had on your credit score. This will help you gauge the extent of the damage and plan accordingly.

3. Create a Plan

Once you have a clear picture of your finances, it’s time to create a plan of action. Consider your options – whether it’s negotiating a repayment plan, refinancing the loan, or selling the vehicle to repay the debt. Choose the option that works best for you and your financial situation.

If you decide to negotiate a repayment plan with your lender, be prepared to provide them with a proposal that outlines how much you can afford to pay each month and for how long. This demonstrates your commitment to resolving the issue and can increase the likelihood of reaching a favorable agreement.

If refinancing the loan is a viable option, research different lenders and compare their terms and interest rates. This will help you find the best possible deal and potentially lower your monthly payments.

Alternatively, if selling the vehicle is the most feasible option, consider reaching out to potential buyers or exploring online platforms where you can list your car for sale. Ensure that you accurately disclose the repossession history to potential buyers to maintain transparency.

4. Understand Your Rights

Knowledge is power, so take the time to understand your rights as a borrower. Familiarize yourself with the laws and regulations surrounding car repossession in your area. This knowledge will empower you when dealing with the lender and help you navigate the process more effectively.

Some important rights to be aware of include the right to receive a notice before the repossession, the right to redeem your vehicle by paying off the outstanding balance, and the right to dispute any inaccuracies in the repossession process or the amount owed.

By understanding your rights, you can ensure that your lender follows the proper procedures and that you are treated fairly throughout the resolution process.

5. Find Out If You Owe Money

It’s crucial to find out if you owe any money after your car has been repossessed. Contact your lender and confirm the outstanding balance. This will help you plan your next steps and set realistic goals for resolving the debt.

When contacting your lender, request a detailed breakdown of the amount owed. This should include the remaining loan balance, any fees or charges associated with the repossession, and any interest that has accrued since the repossession.

Having a clear understanding of the outstanding debt will enable you to make informed decisions and negotiate effectively with your lender.

6. Work on Your Credit

Car repossession can have a significant impact on your credit score. Take steps to improve your credit by making on-time payments, reducing debt, and maintaining a positive financial track record. With time and dedication, you can rebuild your credit and get back on your feet.

Start by making all your future payments on time, whether it’s for your rent, utilities, or other debts. Consistently meeting your financial obligations will demonstrate your improved financial responsibility and gradually improve your credit score.

Consider reducing your overall debt by creating a debt repayment plan. Prioritize paying off high-interest debts first, as this will save you money in the long run and improve your credit utilization ratio.

Additionally, monitor your credit report regularly to ensure that all information is accurate and up to date. Dispute any discrepancies you come across to maintain the integrity of your credit history.

The Bottom Line

Dealing with a car repossession can be overwhelming, but by following these six crucial steps, you can take control of the situation. Remember to communicate with your lender, review your finances, create a plan, understand your rights, find out if you owe money, and work on your credit. With determination and a positive attitude, you’ll be back on the road in no time!

Frequently Asked Questions (FAQ)

What Does Car Repossession Mean?

Car repossession occurs when a lender takes back possession of a vehicle after the borrower fails to make their car loan payments.

How Long Does a Repossession Stay on My Credit Report?

A repossession typically stays on your credit report for seven years.

Can I Get My Car Back After a Repossession?

Yes, you may be able to get your car back after a repossession by redeeming the vehicle, reinstating the loan, or buying it back at an auction.

What Happens to My Car Loan After a Repossession?

The outstanding balance of your car loan is typically paid off by the proceeds from the sale of your car. If there’s a deficiency, you may still owe the remaining balance.

Can a Repossession Be Removed from My Credit Report?

If the repossession is accurately reported, it cannot be removed until the reporting period expires. However, if there are inaccuracies in the report, you can dispute them.

How Can I Prevent Future Repossessions?

To prevent future repossessions, ensure that you stay current with your loan payments. If you anticipate difficulties making payments, contact your lender to discuss alternative payment arrangements.

Can I Refinance My Car Loan After a Repossession?

Yes, you may be able to refinance your car loan after a repossession, but it may be more challenging and potentially come with higher interest rates due to your affected credit score.

What Are My Rights When My Car Is Repossessed?

You have several rights when your car is repossessed, including the right to be notified of the repossession and the right to be provided with a post-repossession notice.

How Do I Improve My Credit After a Repossession?

Improving your credit after a repossession involves maintaining consistent on-time payments, reducing your overall debt, and regularly monitoring your credit report.

Can I Dispute a Car Repossession?

Yes, if there are inaccuracies in the repossession process or the amount owed, you can dispute a car repossession.

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Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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