One of the most significant risks in auto lending is the chance of the vehicle being repossessed. This is the risk that both the lender as well as the borrower takes, of course to the extent of their limits.
- As a borrower, you may rely heavily on your vehicle to go to your work, or to the grocery store or to the soccer field. However, when you fail to make the monthly payments for your loan and as it is in a few states if you do not have enough auto insurance to cover, your vehicle will be taken away by the creditor or a third party assigned by the creditor from you.
- As for the lender on the other hand, the risk is that they may or may not be able to recover the full amount outstanding especially if the car is in damaged condition. Moreover, there is a significant amount of expenses in making a repossession of a vehicle that may cut down the actual purpose of repossession.
Ideally, when you take out an auto loan, you enter into a legal agreement with the lender and have some legal responsibilities that only ends if and only if you pay off your loan within time without any defaults.
These rights for your lease obligation are typically established by the creditor through the contract that you sign when you take out the loan. All the duties and responsibilities of you as well as that of your creditor are formulated in accordance to the law of your state and is applicable to all, whether you take the loan from a bank or any alternative lending sources online .
Rules for seizing the vehicle
Whether your car is repossessed according to the law due to non-payments by your original creditor or the third party, the primary objective of such repossession is to resell the vehicle in order to reduce or eliminate your loan.
However, according to FTC, they must pay attention to all the rules set for seizing a vehicle from a borrower. In case they violate any of these rules, they may lose their other rights against you. In some cases, they may even have to pay damages to you.
- According to the law, the creditors have the right to repossess your car by self or an assignee without telling you about it in advance or going to the court to get an order.
- In a few states, the creditor can seize the vehicle as soon as you default on your auto loan. However, the lease or loan contract should very clearly state what constitutes such a default.
However, on the other hand, if your creditor agrees to make some modifications in your auto loan such as changing the payment date, then the terms and conditions of the original contract may not be applicable any longer.
The FTC however warns the borrowers to have everything about such changes made in writing because oral agreements of any kind are extremely difficult to prove.
Breach of peace
While seizing your vehicle, it is essential to make sure that the creditor does not commit a “breach of the peace.” According to the law of the state, such breach of peace involves:
- Using physical force
- Taking away the car from your garage without your permission of
- Threats of force.
In case there is a breach of the peace while seizing your car, you can make a formal complaint to the FTC or to the Attorney General of your state. If the breach of peace is proved against the creditor, then it may be required to pay a penalty to you or even compensate you for any harm done to you or damages caused to your property.
This is the difference of the amounts between what the creditor gets by reselling your car and what you owe according to the contract plus the repossession and sale expenses.
Selling a repossessed vehicle
When your vehicle is repossessed, the creditor usually has two options such as:
- The car can be kept as compensation for your debt or
- It can be resold in a public or a private sale.
In some states, the creditor will have to inform you about what will happen to your car. For example, if the car is sold at public or a private auction, then the state law requires the creditor to tell you about the place and time of such sale so that you can attend the sale and participate in the bidding in a public sale, if you wish to that is.
The rules for redeeming
Whether your repossessed car is sold privately or publicly in an auction, you have all the right under these circumstances to “redeem” the vehicle. In simple words it means buying back your car from the creditor. However, for this you will have to pay the full amount that you owe to the creditor. This ‘full’ amount will include:
- All your past due payments and
- The entire debt remaining along with interests and all fees.
In addition to that you will also have to pay all the expenses that are related with the repossession. These expenses include:
- Attorney fees
- Preparation for the sale and others.
You can also buy back the car by bidding on it at the auction for repossession sale.
On the other hand, if the consumer protection laws of the state allows, you can also “reinstate” your loan. This means you are allowed to reclaim your car by paying the amount that you are behind on your loan along with the repossession expenses of the creditor.
However, you must in this case make your future payments on time and meet all of the terms of the reinstated agreement to avoid another repossession.
Well, to avoid all such risks and hassles, it is prudent that you make your monthly payments on time and diligently to enjoy all the benefits of automobile lending.