If you think your car could be repossessed, you might feel that you’ve reached the end of the road. But there may still be ways to avoid repossession or, barring that, lessen its damage.
Here’s how repossession works: If you have missed several payments on your vehicle, the lender can repossess your car and sell it at an auction. You will then have to pay the difference between what the car sells for and what you still owe, plus various fees.
While state laws vary, you may have time to make the missing payments and retrieve your car before it is sold at auction. Or, you can attend the auction and buy it back yourself.
How repo agents work
The actual repossession is done by an independent agent hired by the lender.
Many so-called repo agents are commission-based, earning an average of $350 for each case, according to Jeff Huang, remarketing sales supervisor at Westlake Financial Services, a national auto financing company based in Los Angeles.
Some states require lenders to let you know if your car will be repossessed. If your lender does, don’t try to hide your car.
Your case would then be turned over for “skip tracing.” Experts in locating vehicles will try contacting your family and friends or even follow you until the car is left unattended. Repossession agents can often pick up a car in a few minutes with specially modified tow trucks.
Having a repossession on your credit is devastating and can remain there for up to seven years.
Each situation is different, so it’s hard to put a firm number on the hit your credit score will take, according to credit bureau Experian. Factors that damage your credit score can include:
Defaulting on the car loan itself.
Missed and late payments.
The amount of the balance of the loan you are unable to pay.
Working with your lender
If you want to avoid repossession, “reach out to your lender as soon as you begin to experience financial stress,” says Janelle Kennedy, executive director for customer solutions at the lender Ally Financial. If you feel uncomfortable speaking with a loan representative, there is probably information on the lender’s site offering payment solutions.
Loan officers are trained to find ways to “keep the customer in the car” if at all possible, Kennedy says. When you speak with a representative, Kennedy says to cover these points:
Is this a short- or long-term problem?
Would an extension of a month or two solve the problem?
If it’s a long-term situation, would restructuring the loan for lower payments help?
What are you doing to get back on track with loan payments, such as limiting nonessential expenses?
Other ways to avoid repossession
To head off a repossession, explore a few other options:
Refinance your loan. If your credit is still good, you can possibly find a lender offering a lower interest rate and reduce monthly payments by extending the loan.
Sell the car yourself. You’ll still have to pay the difference between the car’s value and the sale price, but at least you may prevent damage to your credit. And, selling your car to a private party will bring more than the lender would get for it at auction.
Check for equity. In some cases, you might have equity in your car, Huang says. This means you could sell it and use the equity to buy a cheaper car. “It depends on how much you put down and how long you’ve been paying,” he says. If, for example, you’re in the fourth year of a five-year loan, you probably have built equity you can use.
If repossession is inevitable
Repossession can be a sudden and wrenching experience that can leave you stranded without transportation. If you find yourself nearing repossession, consider these options to avoid this situation:
Voluntarily surrender your car. This will still hurt your credit score, but it will save you the cost of the repossession fees. The lender will give you instructions about how the car will be picked up.
Remove all your personal items from your vehicle. This is easier than retrieving them later from an impound lot.
Restore the car to its original state. You will be charged for any equipment that is not original. Plus, you’ll want to hang onto anything that has value, like a sound system you added.
Look for a “letter of intent” from the lender. This will tell you where and when the car will be sold. If your finances improve shortly after the repossession, you could go to the auction and buy your old car back. “It happens all the time,” Huang says.