Repossessing Your Car

How Repossession Works: When the Bank Takes Your Car

When you borrow money to buy a car—or if you lease a car—you don't own the vehicle "free and clear." You get to drive the car, but your lender can take it away through repossession if you stop making payments. Before you get to that point, learn how the process works, what the issues are, and what you can do about it.

What Is Repossession?

In repossession, a bank or leasing company takes a vehicle away from a borrower who is behind on payments, often without warning.1 Lenders might send a driver to collect the car, or they may take it away with a tow truck. In some cases, lenders can disable your car by remote control so you can’t drive it until you clear things up.

Borrowers typically receive notification that they're behind on payments, and lenders must inform borrowers about the consequences. But lenders might not tell you exactly when they're coming for the vehicle.

When Is Repossession Allowed?

To borrow money or lease a car, you have to agree to specific terms. For example, you agree to make monthly payments on time and keep adequate insurance on the vehicle. If you don’t meet those requirements, the bank (or leasing company) has the right to take the car.

Resulting Problems

In addition to losing the car, your credit will suffer, and you’ll probably owe significant fees. Repossession, whether you eventually get the car back or not, shows up on your credit reports for seven years and can lead to lower credit scores. We’ll discuss those problems in more detail below.

Your Rights

Your lender might have the right to take your car, but you also have rights.

Note: The details vary from state to state and lender to lender, so be sure to read your agreements carefully and check with local consumer advocates. If you or your family are in the military, additional rules might apply.

Private Property

Lenders can repossess a vehicle that is parked on private property, but state laws generally restrict them from "breaching the peace" while doing so. For example, repossession agents cannot damage your property to get access to a vehicle. They typically cannot destroy locks to get into your garage, nor can they use (or threaten to use) physical force when taking your car.

Sales Price

If your car is taken and sold, the lender needs to sell it for a "commercially reasonable" price. It doesn't need to be the highest price possible, but the lender must make an effort to get fair market value out of the car. Why? The sales proceeds will go toward paying off your debt, so it would be unfair to repossess the vehicle and "give it away" to somebody else.

Note: Speak with a local attorney if your rights are violated as a result of repossession. You might have the right to take legal action against your lender (making them pay for damaged property, for example), and your lender might lose the ability to collect deficiency funds from you.

Deficiencies

Things don't necessarily end after repossession. If your lender sells your car, the sales proceeds go toward your loan balance. In many cases, the car sells for less than you owe, so your loan is still not paid off. The amount you owe after the vehicle sells is called a deficiency.

In addition to your loan balance, you also have to pay for costs related to repossession. Charges can include expenses for sending a repossession agent, storing the vehicle, preparing the vehicle for sale, and more. Those costs are all added to your deficiency balance.

If you can’t pay the balance, expect your lender to send your account to a collection agency. At that point, you can negotiate a settlement, pay nothing, or set up a repayment plan. In some cases, your debt will be forgiven or charged off (possibly resulting in tax liability for forgiven debt).

How To Keep Your Vehicle

If you want to stop the repossession process and keep your car, there are several potential solutions (depending on your state and the terms of your agreement). Your lender or leasing company should explain what your options are, as well as the requirements and deadlines for each option.

Reinstate

Want to hit the "Reset" button? One option is to get current on your past-due payments and pay repossession costs, which will get your loan reinstated. You’ll get the car back, and you’ll be back in roughly the same position you were in before repossession (although your credit will still show the default).

As long as you continue to meet the terms of your contract going forward, the car is yours.

Redeem

To put everything behind you, redemption might be an appealing option. That requires paying off the loan entirely (all of the past-due payments, plus the remaining loan balance) and covering all of the repossession-related costs. In other words, you buy the car and pay the legal fees. That's not easy for most people—if you had the money you would have made payments—but it might make sense if you’ve customized your vehicle or made significant upgrades.

Bankruptcy

If you file for bankruptcy, you might stop the repossession process — at least temporarily. Your filing triggers an "automatic stay" that stops collection efforts by your creditors. However, the process is complicated, and repossession is still possible with approval from a judge.

Note: Check with a local attorney before you stop making payments or try for protection from bankruptcy.

Bid at Auction

Lenders might sell your car through a private sale or public auction. The lender should inform you about what happens to your vehicle after repossession. If the car will go to auction, you can try to attend and bid on the car. If you win, you’ll take possession and you won’t need to keep making payments, but you still might owe a deficiency balance.

Personal Property

You probably won’t know exactly when a repossession agent is coming for your car. You might simply walk outside and find that the vehicle is missing. If the timing is a surprise, there’s a good chance that some of your belongings will be in the car (a set of tools in the trunk or clothing in the back seat, for example).

Since those items were not part of the original contract, your lender is typically not entitled to keep them. After repossession, your lender should notify you of how to claim your belongings. But act fast—you might only have 30 days or so.

What about aftermarket parts and upgrades? The devil is always in the details (so read the fine print and check with a local attorney), but it’s probably safe to assume that anything attached to the vehicle will not be returned to you. If you have valuable wheels, suspension, and audio equipment, replace those items with stock parts before your car is repossessed.

Frequently Asked Questions (FAQs)

How many car payments can you miss before repossession?

In many states, your lender has the right to repossess your car after you've missed only one payment. Many lenders will give you more time, though, and many states require detailed notice before your lender repossesses your car. If you think you'll miss a payment, contact your lender before it happens.

How long does car repossession stay on your credit?

A repossession can stay on your credit report for seven years, beginning from the date of the first missed payment.

Can you get a car loan after repossession?

It's possible to get a loan after your car has been repossessed, but it will be more difficult and you'll likely pay higher interest rates. If you need a new loan before your credit has improved, consider asking someone with better credit to co-sign with you.

Vehicle Repossession

If you don’t make your car payments on time, your lender could have the right to take your car without going to court or telling you first. Learn what can happen, and what you can do, if your vehicle is repossessed.

When a Lender Can Take Your Car

In many states, your lender can take your car as soon as you default on your loan or lease. Your contract should say what could put you in default, but not making a payment on time is a typical example.

Once you’re in default, the lender may be able to repossess your car at any time, without notice, and come onto your property to take it. But the lender can’t “breach the peace” when they take it. In some states, breaching the peace includes using physical force, threatening to use force, or even removing your car from a closed garage without your permission.

Electronic Disabling Devices

When you got your car loan, you might have agreed to have a device on your car that prevents it from starting — sometimes called a “starter interrupt” or “kill switch” — if you don’t make your payments on time.

Depending on your contract with the lender and your state’s laws, using a kill switch might be considered the same as a repossession or a breach of the peace. How your state treats the use of these devices could affect your rights. Contact your state attorney general if you have questions.

Selling the Vehicle

After your vehicle is repossessed, your lender can either keep it to cover your debt or sell it. In some states, your lender has to let you know what will happen. For example, if the car will be sold at a public auction, your state’s laws might require the lender to tell you when and where the auction will happen so you can be there and bid. If the lender sells the car privately, you may have a right to know the date of the sale.

Either way, you may be entitled to buy back the vehicle by

paying the full amount you owe, which typically includes your past due payments, the entire remaining debt, and costs related to the repossession, like storage, sale preparation, and attorney fees; or
bidding on it at the repossession sale

Some states have laws that let you “reinstate” your loan by paying the past-due amount plus your lender’s repossession expenses.

Personal Property in the Vehicle

Your lender can’t keep or sell personal property found inside your repossessed vehicle. In some states, your lender has to tell you what personal items were found in your car and how you can get them back.

Paying the Deficiency

The difference between what you owe on your contract (plus certain expenses) and what your lender gets for selling the car is called a “deficiency.”

For example, if you owe $15,000 on the car and your lender sells it for $8,000, the deficiency is $7,000 plus any other fees you owe under the contract — like fees related to the repossession, early termination of your lease, or early payoff of your financing. 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.

In rare cases, if your lender sells your car for more than what you owe (including the lender’s expenses), the difference is called a “surplus” and the lender may be required to provide the surplus funds to you.

Talking With Your Lender

If you’re having trouble making car payments, contact your lender as soon as possible. Many lenders will work with customers they believe will be able to pay soon, even if the payments are slightly late. You might be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract, get it in writing to avoid questions later.

If you can’t reach an agreement, your lender may demand that you return the car. If you agree to a “voluntary repossession,” you might pay less in fees. But even if you return the car voluntarily, you’re still responsible for paying any deficiency on your contract, and your creditor still may put the late payments or repossession on your credit report.

For more on how to deal with debt, go to ftc.gov/debt.

Report a Problem

Contact your state attorney general or local consumer protection agency to learn more about your rights and specific repossession requirements in your state, and to report lenders who aren’t following the rules.