When you finance a vehicle, the lender holds certain rights on the vehicle until you make your final loan payment. This means that if you default on the contract by missing payments, the lender may have the right to repossess the vehicle. If you are having financial trouble, contact your lender immediately. Do not wait until you have missed more than 1 payment. The lender may not need a court order or give advance warning to repossess the vehicle. In some cases the lender may have the right to repossess after one missed payment
Before the vehicle is repossessed
You may be able to afford the payments by decreasing your expenses or increasing your income. Review your budget and carefully look it over.
If you are unable to make budget changes that will enable you to afford your monthly payments you do have a few options
- You can contact the lender and ask for assistance
- If you can get more than you owe on the loan, you may choose to sell the vehicle
- You may give the vehicle back to the lender. This is called a voluntary repossession.
Do not be afraid to contact your lender. In most cases, they want you to repay the loan. The earlier that you make contact with them the better.
When you took out the loan, you promised to make the payments as agreed. However you may ask the lender what can be done to assist your situation
If your vehicle gets repossessed
If you are unable to make an arrangement with you lender and do not make your payments, eventually they can take the next step and hire someone to repossess the vehicle. Once that happens, you have the right to reinstate the contract by paying all past due installments, late fees, and cost the lender has incurred in repossessing and storing of the vehicle
If you are unable to reinstate the contract, the lender will then sell the vehicle at auction. They will notify you of the auction date, and you may attend and bid on the vehicle. Whether you or someone else buys the vehicle you are responsible for the deficiency balance that the vehicle sells for. A deficiency balance is the difference between the amount that you owe on the loan and the price the vehicle sells for plus repossession, storage and auction costs.
The deficiency balance is an unsecured debt. Some lenders may sue for the sum, while others may forgive it. If the lender does forgive it, the IRS will consider that amount income and assess taxes due.