You must pay for a repossessed car because your loan contract makes you responsible for the total debt, regardless of possession. If the car's sale price doesn't cover the remaining loan balance plus repossession fees, you owe the difference, known as a "deficiency balance".
California law provides borrowers the right to reinstate their loan after default. This means that if your vehicle is repossessed due to missed payments, you have the right to bring the loan current by paying all past-due amounts, plus any fees and charges, to regain possession of the vehicle.
If the repossessed car is sold, it will probably be sold for less than you think it is still worth. That money will go towards settling the debt, after paying the repossession company. So, yes they can still pursue you for the final balance . Whether they can force you to do anything depends upon your circumstances.
Purchasing a car from a bank is often much cheaper than buying from a car dealer. This gap in price exists because repossessed cars usually have a history and could be in need of repairs or a new paint job. Some leased cars only require a few fixes, while others have bigger problems and end up costing more.
Unfortunately, once the car has been repossessed, there isn't much you can do to get it back—short of applying for bankruptcy—without paying the outstanding balance.
In most states, your lender can sue you for a deficiency judgment to collect the balance owed, as long as it followed the rules for repossession and sale.
According to the Consumer Financial Protection Bureau (CFPB), a repossession remains on your credit report for around seven years after the first late or missed payment has been reported to a credit reporting agency.
While repossession auctions are great, we often hear people asking if it's safe to buy repossessed cars. The short answer – yes! Repossession auctions can be very safe, but as with the purchase of any vehicle, it is always best for you to be careful and do your research before diving right into the bidding process.
The 20/3/8 rule is a guideline that suggests you put 20% down on a car and repay the loan over three years. Applying the rule correctly will also require your monthly payment and car expenses be 8% or less of your income.
If you buy the car for less than the amount of the loan, you will owe a deficiency balance to the lender for the remaining amount. It is possible to continue negotiations with a lender even after the car has been repossessed.
Once your car is repossessed, you may still have a chance to get it back through a process called redemption. To redeem your car, you typically need to pay the full amount necessary to bring the loan current. This includes not only the missed payments but also any interest, penalties, and fees that have accrued.
Repossession Affects Your Credit
It is best for you to proactively address the situation and work with your lender to avoid repossession. But, if you have no other options, remember this is not the end of the world, and there are ways to rebuild your credit.
A voluntary surrender is slightly better than a repossession because it indicates to lenders that you're cooperative and accepting responsibility. However, it's still considered defaulting on your debt, and can make lenders reluctant to work with you in the future.
If you don't pay what you owe, the lender has the right to sell your car at a public auction. They must give you a notice of intent that they are selling the car at least 15 days before the date of the sale. This notice must also be served within 60 days of repossession.
Each repossession can significantly lower your credit score, often by 100 points or more. These dings can remain on your credit report for up to seven years from the occurrence, making it hard to qualify for auto financing.
How to Get Repo Fees Waived
You won't just be paying more in interest for a seven-year loan. You'll also be at greater risk of going upside-down on the loan, which means you owe more than your car is worth. This is because cars quickly depreciate in value. By extending the length of your loan, you could end up owing more than your car is worth.
If your gross salary is $60,000, your take-home monthly pay is probably around $3750, assuming about 25 percent of your pay goes toward taxes and other expenses. Based on a calculation of spending 10–15 percent of your monthly pay on a car loan, you should spend no more than $562.50 on your monthly car payment.
Use your best judgment; if a car looks or feels wrong, don't buy it. Look out for excessive rust, a worn tailpipe, or illuminated dash lights. During your test drive, pay special attention to how the car handles and sounds. If something's off, ask the seller and double-check the title and history report.
Once the car is repossessed, the lender aims to recover as much of the unpaid loan balance as possible. Since financial institutions are not in the business of selling cars, they typically send repossessed vehicles to auto auctions, where they can be purchased at a lower price than their usual market value.
A vehicle repossession will stay on your credit report for seven years. The clock starts running from the date of your first missed payment, not the date of the repossession itself.
For example, if you owe $10,000 on the vehicle and your lender sells it for $7,500, you owe the deficiency of $2,500, plus any other fees for repossession. If you don't pay the balance, the lender is allowed to hire a debt collector to collect it.
A credit reporting company generally can report most negative information for seven years. Information about a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Bankruptcies can stay on your report for up to ten years.
You may be able to pay to delete a repo. Contact your lender to see if they're willing to negotiate payments on what you owe. If they agree to a pay-to-delete and you pay the agreed amount in full, they'll request that the credit bureau(s) remove the repo from your credit report.
House repossession process