If you’re having trouble making car payments, contact your lender as soon as possible. Don’t wait for the company to repossess your car. Many lenders will work with customers if they think you’ll 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’ve experienced a natural disaster, like an earthquake, hurricane, or tornado, your lender might be willing to defer your payments, offer extended repayment plans, give grace periods, waive late fees, or postpone repossession. But if you reach an agreement to change your original contract, get it in writing to avoid questions later.
If you don’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 the difference between what you owe on your contract and what your lender gets for selling the car. The lender might call that the “deficiency”. And, even with a voluntary repossession, your creditor still may put the late payments or repossession on your credit report.
Learn more about how to deal with debt at ftc.gov/debt.
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 might 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 means using physical force, threatening to use force, or even removing your car from a closed garage without your permission.
When you got your car loan, the lender might’ve had a device installed on your car that keeps 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 might be seen as 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.
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 might have a right to know the date of the sale.
Either way, you might 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.
Your lender can’t keep or sell personal property found inside your repossessed vehicle at least until a certain amount of time has passed, which will depend on your state’s laws. In some states, your lender has to tell you what personal items were found in your car and how to get them back.
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 might be required to give you the surplus funds.
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.