Imagine walking out to your car or truck some morning and finding it gone. That traumatic experience happens everyday to people who have defaulted on their auto loans. Armed with a court order and a tow truck, the bank has the right to repossess the vehicle and resell it to recover the loan value.
The main reason someone loses his vehicle is due to failure to make the monthly payments. The lender can demand full payment the day a loan goes into default. However, most lenders allow a grace period of 10 days or so before a payment is considered late. Loan default is not the only reason a vehicle is repossessed. According to the Federal Trade Commission, not having insurance can also cause a motorist to lose his vehicle in some states.
The repossession process is much like a home foreclosure. The lender must prove it has a lien on the vehicle. The court then awards a levy to the lender. Once the levy is ordered, the vehicle owner is given several days to settle with the lender. Barring a settlement, the vehicle is seized and sold at auction. The owner must be notified of the auction date to give him one last chance of saving his vehicle.
Some owners elect to voluntarily turn in their vehicle instead of having a repossession agent snatch it. A volunteer repo may save the owner some of the repossession costs, but he still loses his car or truck. Other owners are not so cooperative, and the repossession agent must find the vehicle and take it. State and federal laws mandate a peaceful repossession. That's why a lot of repos occur in the middle of the night as to avoid the angry owner.
The most obvious effect of a repo is the loss of the vehicle and a negative mark on the owner's credit report. But the problems don't always end there. The lender can ask the court for a deficiency judgment against the owner if the loan and repossession costs are not covered by selling the vehicle. However, the owner may have a defense of the judgment if the repossessing agent violates the peaceful repossession law.
The best way to avoid a repossession is to stay current on the monthly payments. If that is not possible, notify the bank in advance of a late payment. The bank will sometimes change the due date so the payment will not be late. But lenders will usually only do so once during the life of the loan. Another way to avoid a repossession is to sell the vehicle for enough to cover the loan amount.