How Can I Stop My Car From Being Repossessed?

How Does Car Repossession Work?

When you finance a vehicle, your lender owns the car and holds the title until you've paid off the loan in full. The lender can seize the vehicle if you fall behind on payments and the loan goes into default. They can then sell the car at auction to help recoup their losses. If the lender sells the car for less than what you owe, you may be required to pay the difference.

The timeline between when you miss your first payment and when you're considered to be in default can vary from lender to lender. It may take months, or the account may default once you're 30 days past due. Lenders and leasing companies typically hold off on repossessing a vehicle until the borrower is at least 90 days past due. Your loan contract should provide information about how your lender defines default, so be sure you understand it if you're worried you may default on the loan.

Car repossession laws vary by state, so if you believe there's a possibility your car will be repossessed, familiarize yourself with your state's laws surrounding the process.

Learn more: How Late Can You Be on a Car Payment?

How to Avoid Repossession

A car repossession can have a devastating impact on your finances. Not having a car makes it difficult to get to work, and the damage to your credit scores could make it harder to qualify for another car loan in the future.

That's why it's crucial to understand the different ways you can avoid repossession.

1. Communicate With Your Lender

Contact your lender as soon as you think you'll miss a car payment. They can go over your options, which may include creating an affordable payment plan, changing your due date or pausing your payments through forbearance. Lenders are often willing to work with you to keep your loan in good standing and to avoid repossession, which is a costly process for them.

If you reach an agreement to change the terms of your original loan contract, get the details in writing.

2. Refinance Your Loan

Refinancing your auto loan with a different lender may be worth considering if you're behind on payments and repossession is a real possibility. When you refinance, your new loan will be used to pay off the existing one, and you'll start with a clean slate. A lower interest rate or a longer loan term can help lower your monthly payments and get you back on track.

But if you think you'll continue missing loan payments, the refinance won't help you with long-term payment problems. Consider it only if you're confident you'll be able to make your payments on time going forward.

Learn more: Will Refinancing My Auto Loan Hurt My Credit?

3. Reinstate the Loan

Some states require lenders to give you the option of "reinstating" your loan either before or after it's been repossessed. Reinstating means you pay any past-due loan amounts and any expenses your lender incurred for the default or repossession.

Because repossession is expensive and time-consuming for the lender, yours may still allow a reinstatement even if you live somewhere the law doesn't provide this right.

4. Sell the Car Yourself

A private vehicle sale can also help you prevent a repossession. But you'll first need to check your loan balance, estimate the car's resale value and check whether the loan comes with a prepayment penalty.

If you owe less than the car is worth, then you'll likely get enough to pay off the loan in full. You may even get enough cash to cover the down payment on a more affordable vehicle.

Even if your loan balance exceeds the car's value, you could potentially pay the difference yourself—especially if it's a small amount. You would avoid having the repossession on your credit history.

5. Surrender the Vehicle Voluntarily

You can also surrender the car voluntarily by taking the car to the lender and handing over the keys. The voluntary surrender will still hurt your credit, but not as much as a repossession. Some lenders may view a voluntary surrender more favorably because it shows you were willing to work with the lender.

A voluntary surrender is cheaper and less time-intensive for the lender, so they may be willing to waive or reduce the amount you owe after they sell the car.

How Does a Repossession Affect Your Credit?

A repossession in your credit report tells lenders you didn't pay your auto loan as agreed, and thus can have a significant negative impact on your credit scores.

In addition to the repossession, other negative items that may be added to your credit report include the late payments that led to the repossession, default and more.

There may also be a deficiency balance, which is the difference between what you owed on the car loan and what the lender can get for it at auction. If you can't pay off the deficiency balance, the lender can send it to a collection agency. This will appear as a collection account on your credit report and can further damage your credit.

Overall, a lower credit score could result in credit denial, higher interest payments on loans and credit cards, higher auto and homeowners insurance rates, and more.

How Long Does a Repossession Stay on Your Credit Report?

A vehicle repossession or voluntary surrender can remain on your credit report for up to seven years from the original delinquency date, which is the date you first missed a loan payment. Each late payment, as well as any collection accounts tied to the default, can remain on your credit report for seven years.

The effect on your credit should fade over time. After seven years, the account should automatically be removed from your credit report and no longer affect your credit scores.

Frequently Asked Questions

The Bottom Line

Whether or not you've already missed a car payment, it's a good idea to monitor your credit regularly to understand where it stands and how you can improve it. With Experian's free credit monitoring service, you can view your FICO^® Score^Θ and Experian credit report for free.

You'll also get real-time updates about your current accounts and any new credit inquiries and accounts. If you do miss a payment or you're in default, monitoring your credit can also help as you work to rebuild your credit score. This process can take time, but tracking your progress can help you stay motivated and show you the areas of your credit file that you need to address.