Economic Considerations
When you fall behind on your car payments, the finance company that loaned you the money can take your car away through repossession. This is a crude way of ensuring that the finance company can recoup its losses and keep the loan as a viable asset on its books. Here, we will look at when you can expect a finance company to take away your car, as well as what happens when your car is repossessed.
First and foremost, it is important to know that auto insurers generally do not repossess cars. Instead, they work directly with customers to find a resolution to difficult financial situations. Generally, repossession is a tedious legal process in which a finance company is seeking to lay claim to the asset it is owed. As such, the first step in determining when a finance company will repo your car is to assess when economic conditions make it necessary.
For instance, typically, if someone has not made a payment for 90 days, this is when a finance company will get the ball rolling on a repo. Ultimately, repo occurs when a customer has become insolvent – meaning that the outstanding payments exceed the market value of the car. Depending on the specific situation and the geographical location, finance companies may even give 6 months or more of delinquency before deciding to start the process.
Additionally, some finance companies may repo once an agreed-upon payment plan is broken or ignored. It is not uncommon for finance companies to provide customers in arrears with a flexible payment agreement. If the payment agreement is breached, the finance company has the right to take away the car, as the customer has defaulted on their loan with the finance company.
Before Taking Action
The repossession process is a heavily negotiated one that can sometimes take up to several months, depending on the jurisdiction. As is the case with all legal processes, there is a certain protocol that must be followed before action can be taken. The process of repossession can be lengthy, as finance companies will often provide customers in financial hardship with alternatives before taking legal action.
For instance, the finance company may offer a restructured loan to make it easier for the customer to pay the money. It is not unheard of for companies to extend their repayment periods or decrease the customer’s monthly payment to help them through a difficult financial situation. Moreover, some companies may also offer a one-time payment solution.
Of course, customers in financial difficulty should immediately approach their lender and provide a truthful explanation for why they are behind on their payments. Seeking help as soon as possible could be the difference between the finance company taking your car or working something out. This also gives customers better negotiating power as the lender will be aware that the customer is willing to work something out.
Credit Impacts
When a customer falls behind on their payments, their credit score will take a hit. That said, a repo will increase the damage to the credit score, as the lender includes the repossession in their records as a missed payment. This will lower the customer’s credit score, making it difficult to get approved for another loan or even rent an apartment.
It is also important to mention that customers in arrears will have to pay the balance on the loan even after the repo. Quite simply, the cost of the loan is still what it was before the repo, the finance company only uses the car to recoup its losses. If the customer does not repay their debt, the finance company can even sell the debt to a collection agency. Beyond the long-term effects of a repo on credit, customers also have to deal with the hefty legal fees associated with it.
Property Problems
When a finance company decides to repo a car, it will usually take the necessary steps to remove the car from the customer’s property. In some cases, the repo agent may even have the authority to enter the customer’s property to take the car away. Unfortunately, the law only provides protection to the lender in these matters and not the customer.
That said, customers should always check local law before attempting to prevent a repo on their property. As is the case with all legal matters, there is a fine line between breaking and not breaking the law. Ultimately, it is best to contact the lender before attempting to take matters into your own hand and risk severe legal penalties.
After the Repo
When a car is successfully repossessed, the lender will generally auction off the car in order to recover all that it is owed. That said, some lenders may give customers their car back after they have settled the outstanding amount. After a successful repo, customers should then take the necessary steps to rebuild their credit score.
For instance, customers should avoid taking on more loans or credit cards for a period of time and instead focus on any existing debts. Additionally, customers should exercise caution when applying for new lines of credit, as lenders may be wary of giving out high sums of money to someone with a lowered credit score. Ultimately, customers should also manage their credit score and debt carefully.
Tax Implications
One of the lesser discussed consequences of a repo is the tax expenditure that comes along with it. After a repo, customers will still be subject to any outstanding taxes associated with their car loan. In the majority of cases, any payments the customer had already made on the loan prior to the repo are not refundable and, therefore, reflected as taxable income.
Furthermore, customers may also incur additional taxes from the sale of the car by the finance company. To avoid any issues, customers should be sure to set aside the amount corresponding to the taxes on the loan. Should the sale of the car by the finance company result in a net gain, the customer will then be subject to additional taxes, so it is best to consult with a financial expert before taking any drastic steps.
Buying Another Car
When a customer is ready to start saving up for another car, they should certainly be aware of the risks associated with buying a car on loan. More specifically, it is important to assess when a finance company is likely to repo a car and what the various consequences to one’s credit score and pocketbook would be.
For instance, potential customers should not be swayed by the attractive figures presented by dealerships and finance companies. Rather, customers should compare different loans and decide on the one that best suits their situation. Moreover, customers should only take out what they can realistically afford and pay the loan off as quickly as possible so as to avoid the potential consequences of repossession.
Financial Responsibilities
When taking out a loan, the customer should make sure that they can fulfill all their financial responsibilities. It is not unheard of for customers to miscalculate the cost of owning a car or their financial capabilities. By remaining active and informed of their loan’s progress, customers can significantly decrease the chances of a repo occurring.
Furthermore, customers should always read the conditions on the loan in order to avoid any miscommunication or misunderstandings. From assessing the total cost of the car to running credit checks and budgeting accordingly, customers should assess all their financial obligations before taking out a loan. At the same time, customers should also factor the risks associated with repossession into the equation.
Accurate Documentation
When preparing to take out a loan, customers should make sure that their documents are accurate and complete. This is especially important for those taking out a loan for the first time, as lenders rely on these documents to assess whether or not an individual can be trusted. Customers should also be aware that missing or incomplete documents may lead to a delayed loan or even a loan’s refusal.
In the event that a loan is approved, customers should always keep their documents in order and up to date. Should the customer miss payments, the lender can then use these documents to take the necessary steps to repo the car. By providing accurate and complete documents, customers can significantly decrease the chances of their car getting repossessed.
Consenting To Repo
Sometimes, customers may have no other option than to consent to a repo. This means that the customer will inform the lender that they are in agreement with the repo. Usually, the lender will then provide the customer with paperwork to sign, waiving any legal rights they have over the car. This can be the best option in some cases, as the customer will no longer be held responsible for the loan.
However, it is important to note that customers must be aware that the finance company can take their car away. They should also be aware of the immediate and long-term consequences of a repo and only consent to it as a last resort if all other options fail. Moreover, customers should also consider the ramifications of a repo before making any kind of decision.
