How to Avoid Car Repo

Most American households (about 92%) own at least one car, and that’s not surprising. We rely on our cars to get to work, run errands, and basically keep our lives functioning smoothly. 

When life happens you might find yourself falling too far behind on your auto loan payments, which puts you at risk for having your car repossessed. Life without a car could be extremely difficult and potentially put your job at risk. It could also damage your credit score, making it harder to borrow money when you need to.

Missing a car payment or two doesn't automatically mean you're at risk of car repo. Let's take a look at what typically leads to having a car repossessed and how you could avoid car repo.

Why Car Repossession Happens

When your auto lender writes you a loan, they expect to get repaid. If you don't make your payments, they have the right to repossess your vehicle.

Auto loans are secured loans, which means your lender can take possession of the asset that guarantees the loan: your car. If your lender is forced to repossess your car, they can sell it to try to get repaid. 

How Soon After Missing a Payment Are You at Risk of Car Repo?

In many states, you could technically have your car repossessed after missing a single payment. However, the car repo process can be lengthy and annoying for auto lenders. So in many cases, they may not begin the car repo process until you're 90 days behind on your loan payments. 

What Happens if Your Car is Repossessed?

If your car is repossessed, your lender can try to sell the vehicle to get repaid. That doesn't necessarily erase your debt. 

You may still owe money on the balance of your loan, including interest and other fees associated with repossessing your vehicle. If you don't pay that debt, your lender could turn it over to a collection agency. 

Car repo could also have a negative impact on your credit score. Repossession will generally show up on your credit report and take up to seven years to fall off.

How to Avoid Car Repo

Having your car repossessed could put you in a world of stress and damage your credit score. Here are the steps you can take to avoid having your car repossessed. 

Contact your lender before missing a payment

If you're going through a financial hardship, like an illness or loss of a job, and you realize you won't be able to make your upcoming car payment, contact your lender at once. They may offer a hardship program you qualify for, or they may agree to let you pause your loan payments temporarily.

If you can't get to your lender before missing a payment, contact them as soon as possible after missing a payment to discuss the situation. 

When you talk to your lender, document everything. If your lender agrees to let you pause payments, ask them to send you something in writing.

Find out if you can refinance your loan

If you're struggling to keep up with your car payments, refinancing your auto loan could lower your payments. Refinancing could make sense if borrowing rates have dropped since you signed your loan or if your credit score has improved since your loan was signed.

Sell or trade in your car 

If your car is worth more than what you owe on your auto loan, and you're struggling to make your loan payments, selling your car or trading it in for a cheaper vehicle could help you avoid repo. You could use the sale or trade-in proceeds to pay off your lender or stay current on your loan.

Surrender your car voluntarily

If you can't sell your car for enough to pay off your auto loan balance, you can surrender it to your lender voluntarily. This will generally still cause some damage to your credit score. 

After you surrender your car, the lender will sell it. If they don’t get enough money to satisfy your loan, the remaining amount is called a deficiency balance and you still owe it. This debt is unsecured, since the collateral (the car) for the original car loan is now gone. A deficiency balance is eligible for debt settlement.

How to Park Your Car to Avoid Repo

If you want to avoid car repo, your best bet is to park your car in a secure spot that's locked. While car repo agents can seize cars from street parking and driveways, they generally can’t break into locked structures to seize a vehicle. If you have a private garage, whether attached to your home or not, a repo agent isn’t allowed to enter without authorization. 

Know Your Rights

If your car is at risk of being repossessed, know what rights you have in this situation. Repo agents generally can’t use force, threats, or intimidation to get access to your vehicle. They also can't use or carry weapons in the course of repossessing a vehicle. If you feel your rights have been violated, you may want to contact an attorney.

Get Help Managing Your Debt

If you've having a hard time managing your debt and your monthly payments are overwhelming, help is available. Reach out to a professional debt relief company to explore your options. Depending on your situation, debt consolidation or debt settlement may be good strategies for you.